The Oregonian

 

 

Advisers Added To Union's Suit

 

 

 

JEFF MANNING

08/24/01

 

The Capital Consultants legal imbroglio entered a new phase Thursday when Colorado sheet metal workers accused the former adviser to their pension trustees of negligently contributing to the fund's estimated $20 million in losses.

 

Members of Sheet Metal Workers Union Local 9 in Aurora, Colo., amended an earlier lawsuit against their pension fund trustees to include as defendants Segal Advisors, a national pension benefits advisory firm, and Tim Rutledge, the former Segal consultant who advised the sheet metal trustees.

 

The sheet metal workers also named as defendants Capital Consultants; the investment firm's former chairman, Jeffrey Grayson; and its former lead salesman, Dean Kirkland. Capital Consultants lost an estimated $355 million, most of it from union pension funds, in failed and allegedly fraudulent investments.

 

The union members claim in the complaint filed in U.S. District Court in Colorado that Rutledge failed to warn trustees about potential trouble at Capital Consultants, despite widespread signs of problems.

 

"We've got the worst-case scenario here," said Dan Feinberg, the Oakland, Calif., attorney representing the sheet metal workers. "You had a dishonest investment manager in Capital Consultants being able to dupe the trustees, who didn't really pay attention to what's going on. If the trustees or their advisers had asked the right questions, none of this would have ever happened."

 

None of the parties added to the lawsuit could immediately be reached for comment.

 

At least two groups of Portland union members also will go after the lawyers, consultants, accountants and other experts who advised their trustees. Feinberg said his clients with the Oregon Laborers and Local 11 of the Office and Professional Employees International Union will file amended or new complaints by mid-September.

 

The U.S. Securities and Exchange Commission and the Department of Labor accused Capital Consultants in September of concealing enormous investment losses by illegally paying existing interest obligations on failed loans with new client money. Grayson for nearly two years allegedly conducted what the SEC called a "Ponzi-like scheme" before he gave up control of the firm in the face of the two federal lawsuits.

 

The Sheet Metal Workers' trustees first retained Capital Consultants in March 1995. By August 2000, according to the lawsuit, Capital Consultants had poured $24 million from the pension fund -- 24 percent of the fund's total assets -- into high-risk private loans.

 

Concerns about Capital Consultants investments began in late 1998, when its single largest investment, Wilshire Credit Corp., fell into disarray. In 1999 and 2000, as investors' concerns grew, Capital Consultants' explanation of its troubles changed and became more far-fetched. Still, the lawsuit alleges, Rutledge and Segal Advisors never advised the Local 9 trustees to fire Grayson's firm until August 2000, a month before federal regulators descended -- too late to prevent massive losses.

 

Kirkland, the salesman who brought the sheet metal workers into the Capital Consultants fold, finds himself back in the legal cross hairs just two weeks after he was dismissed as a defendant in a batch of related Capital Consultants lawsuits. Kirkland was dropped after he agreed to cooperate with the trustees' lawyers.

 

Those suits had been filed by union trustees against Kirkland and his former employer. But the sheet metal workers' amended complaint accuses Kirkland of repeatedly providing trustees with misleading and false information.

 

For his part, Kirkland said he also was misled by Grayson and Capital Consultants' longtime attorney, Robert Maloney Jr. In a recent interview, Kirkland called Grayson a "pathological liar."


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