New Suits Filed Against Capital Consultants
The hairball of litigation surrounding Jeffrey L. Grayson keeps growing, with former allies now suing the embattled Portland investment manager.
On Tuesday, three companies and a Tacoma businessman accused of participating in a Ponzi-like scheme allegedly devised by Grayson filed two complaints in U.S. District Court in Portland against Grayson and his former company, Capital Consultants.
Daniel D. Dyer and his investment fund, Oxbow Capital Partners, both of Tacoma, as well as two Miami auto finance companies, Brooks Financial and Beacon Financial, claim they were lied to by Grayson and "fraudulently induced" into participating in the scheme.
Brooks and Beacon are seeking $25 million in damages. Dyer and Oxbow did not specify an amount in their complaint.
Former clients, who have lost about $355 million in failed and allegedly fraudulent Capital Consultants investments, have filed dozens of lawsuits against the firm and Grayson. Federal prosecutors last week accused Grayson of 22 counts of mail fraud, conspiracy, witness tampering and making illegal payments to a former union trustee.
Federal regulators from the U.S. Department of Labor and Securities and Exchange Commission shut down Capital Consultants on Sept. 21, 2000, and alleged that it was secretly using new money from its clients to pay off old debts.
Capital Consultants was loaning millions of dollars to Brooks and Beacon, regulators alleged in two lawsuits, with a portion of those loan proceeds secretly being routed back to Capital Consultants via Dyer's Sterling Capital. Brooks, Beacon and Dyer also face civil suits filed by former Capital Consultants clients. Those suits are involved in an ongoing mediation to determine whether defendants should pay money to the former clients.
Joe Arellano, Brooks and Beacon's Portland attorney, claims that management of the two companies had no idea that their money was being used for improper purposes. Brooks and Beacon "were defrauded and duped more so than many others," Arellano said. "They lost millions of dollars."
Likewise, Dyer said he relied on assurances from Grayson and Robert Maloney Jr., Grayson's longtime lawyer, that their deal was perfectly legal.
Brooks and Beacon named only Capital Consultants as a
defendant. Dyer, on the other hand, sued Capital Consultants as well as Grayson, Maloney and Barclay Grayson, former Capital Consultants president and Jeff Grayson's son; Maloney's law firm, Lane Powell Spears Lubersky; Andrew Wiederhorn, a long-time Grayson business ally; and Moss Adams, Capital Consultants' accounting firm.
Dyer has steadfastly refused to comment to the press on his role in the Capital Consultants affair. His attorneys declined to comment for this article. His lawsuit, however, offers an inside account of events.
Dyer alleges that Jeffrey Grayson and Maloney in a November 1998 meeting first proposed that he buy a significant stake in the former Wilshire Credit. Wilshire had already borrowed $160 million from Capital Consultants and was in financial trouble.
According to the lawsuit, however, Grayson, and later Wiederhorn, Wilshire's chairman, told Dyer that an investment of 40 cents to 50 cents a share in Wilshire Credit would triple or quadruple in value -- netting Dyer a gain of as much as $200 million -- after the company underwent a financial restructuring.
To get in on this action, Grayson said, Dyer had only to buy the Wilshire loan and pay $2.5 million a month in interest payments, according to the lawsuit account. Dyer formed Sterling Capital in late November, and on Feb. 1, 1999, the new company executed a formal agreement to purchase the Wilshire loan.
In financial reports sent by Grayson to his clients, he said that Sterling was aligned with a large New Jersey broker dealer and had the financial strength to repay the $160 million owed by Wilshire plus interest.
Actually, Sterling had virtually no assets, according to the lawsuit. Dyer repeatedly warned Grayson that he didn't have the money to make the $2.5 million payments. By March 31, 1999, less than two months after it agreed to the Wilshire deal, Sterling was $5.61 million in arrears.
By May 1999, Dyer claims he wanted out. He allegedly told Grayson "that Sterling could not make the Wilshire loan payments and that he wanted to terminate the agreement to buy the loan."
Instead, "the Graysons and Maloney proposed that Sterling decrease its payments by selling a portion of the Wilshire loan to a third party," alleges the lawsuit.
That third party was Brooks Financial, which allegedly began paying two-thirds of the monthly Wilshire obligation.
Arellano claims that neither Brooks nor Beacon knowingly participated in the scheme. The two companies borrowed more than $80 million from Capital Consultants, using it to buy portfolios of used-car loans from dealers, he said. The companies have repaid about $42 million, Arellano said, and continues to repay about $1 million a month.
You can reach Jeff Manning by e-mail at firstname.lastname@example.org or by telephone at 503-294-7606