The staggering losses suffered by clients of Capital Consultants got a little smaller Thursday.
MTGLQ Investors, an affiliate of Wall Street investment bank Goldman Sachs, outbid two other financial firms agreeing to pay $60 million for a portfolio of loans and private equity investments originally made by Capital Consultants. The proceeds will go to the union trust funds and individuals who lost an estimated $355 million in failed and allegedly fraudulent investments.
"It could not have gone better," said Thomas Lennon, the court-appointed receiver in charge of liquidating Capital Consultants. The winning bid was just less than one-third of the $183 million face value of the investments. But given the troubled status of many of the loans -- some of which are in default -- 33 cents on the dollar is a good price, he said.
"We're pleased; it's more money going toward the clients," said Steve English, lead plaintiff counsel in the landmark case.
The Goldman Sachs affiliate takes control of a diverse portfolio with borrowers ranging from The Governor Hotel in Portland to a Bellingham, Wash., timber company that had established logging operations in the southern tip of Argentina and Chile.
The sale marks the first major financial recovery by Capital Consultants investors since federal regulators seized the investment firm in September 2000. That was the month the U.S. Department of Labor and the Securities and Exchange Commission forced out the firm's two top executives -- Jeffrey and Barclay Grayson -- and accused them of concealing massive losses by means of a Ponzi scheme.
Barclay Grayson has since pleaded guilty to one count of mail fraud and in May will begin a 24-month sentence in federal prison. He is expected to testify against his father, who goes on trial in March on 22 counts of fraud, conspiracy, witness tampering, money laundering and making illegal payments to a union trustee.
Lennon, appointed to liquidate what remained of the firm, has been working on Thursday's auction for months. Last fall, he sent out 60 packets of information to interested parties who responded to advertisements placed in The Oregonian and Wall Street Journal. Eight companies visited Capital Consultants' Portland offices to conduct due diligence on the portfolio.
In November, Lennon obtained a $45.6 million bid from Republic Financial of Denver. Republic and three other bidders sent representatives to the auction. Bidding started at $46.6 million and increased in $500,000 increments.
Ninety minutes later, after repeated breaks while bidders plotted strategy and conferred with their home offices, MTGLQ entered the winning $60 million bid.
U.S. District Court Judge Garr King originally was to have ruled Thursday on the fairness of an even larger pot of money, the approximately $100 million in lawsuit settlement offers from several defendants embroiled in the Capital Consultants civil case. O'Melveny & Myers, the Los Angeles based law firm that did some work for Capital Consultants, is the latest defendant to offer a cash settlement, though the amount of the firm's offer is unknown.
But the fairness hearing was postponed to give the various parties more time to work out the details of the settlement.
The major settlement offers have come from former business allies and law firms that played a role in some of Capital Consultants' controversial business deals.
Lane Powell Spears Lubersky, the city's seventh-largest law firm and once Capital Consultants' lead firm, has agreed to pay $25 million. Stoel Rives, which formerly did work for Andrew Wiederhorn and his Wilshire financial empire, has agreed to pay about $12.5 million. Trustees of several union pension and benefit trusts, accused by union members of negligence, agreed to pay out about $16 million.
Four parties covered by the same insurance company -- Wiederhorn; his company, Fog Cutter Capital Group; Wilshire Financial Services Group; and several related entities -- have agreed to pay about $40 million.
Capital Consultants collapsed after Wiederhorn's Wilshire Credit Corp. borrowed $160 million and failed to repay the money.
A criminal investigation continues in the case.
Jeff Manning can be reached at 503-294-7606
or by e-mail at email@example.com