The Oregonian

 

Law Firm To Pay Millions In Settlement

 

Lane Powell Spears Lubersky of Portland tentatively agrees to $25.5 million to settle potential Capital Consultants claims

 

 

 

By Jeff Manning and James Long of The Oregonian staff

Thursday, June 28, 2001

 

 

Portland law firm Lane Powell Spears Lubersky has tentatively agreed to pay $25.5 million to settle potential claims against the firm in connection with the Capital Consultants scandal.

 

Managing partners of three other Portland law firms said they could not recall a larger settlement by a law firm in Oregon's history.

 

Five officials close to the case told The Oregonian that Lane Powell has agreed to the payout, which must be approved by several parties, including U.S. District Court Judge Garr M. King, before becoming final.

 

Lane Powell had not been named a defendant by the many investors that have sued Capital Consultants. But the firm, which has a long association with Capital Consultants, agreed to participate in the court-ordered mediation, which began in late May.

 

In interviews with The Oregonian, lawyers for several former clients of Capital Consultants assert that Lane Powell knew or should have known that the Portland investment advisory firm engaged in reckless or illegal activities that cost the clients hundreds of millions of dollars.

 

Robert E. Maloney Jr., a long-time partner at Lane Powell, served as attorney and confidant of former Capital Consultants Chairman Jeffrey Grayson for nearly two decades and began representing the firm in 1986. Maloney isn't named as a defendant in the investors' lawsuits.

 

Over the years, Maloney fiercely defended Grayson's controversial business practices when they drew fire from government regulators and clients.

 

Maloney was Grayson's partner in several real estate developments and also invested his own money with Capital Consultants, according to court documents in which Grayson said he and Maloney were "inextricably intertwined."

 

Maloney didn't return a telephone call seeking comment.

 

Milo Petranovich, a Lane Powell partner, voiced the firm's support for Maloney. "Bob Maloney is a valued and trusted colleague and member of this firm," Petranovich said. "He has been a model citizen in this community for more than 30 years, and we continue to have complete confidence in his integrity and professionalism."

 

In a written statement, Lane Powell confirmed it "is participating in the mediation though not a party to any lawsuit. It cannot comment until the mediation is concluded and the result submitted to the court."

 

Lane Powell is Portland's seventh-largest law firm with about 60 attorneys. Maloney was one of its chief rainmakers as Capital Consultants was often among the firm's three largest clients.

 

Grayson stands accused of losing more than $300 million of his clients money and then masterminding a complex Ponzi-like scheme to conceal the loss. The U.S. Securities and Exchange Commission and the Department of Labor sued Capital Consultants and Grayson last September, accusing them of violating federal securities and pension law.

 

At the same time, King appointed a receiver to liquidate Capital Consultants.

 

Later, King also ordered several civil lawsuits filed against Grayson and Capital Consultants into mediation in hopes of reaching a quick settlement.

 

Lane Powell is the first major player in the Capital Consultants case to tentatively agree to a settlement. The mediation – an informal proceeding in which lawyers for the various parties attempt to reach common ground with the help of court-appointed mediator Edward Leavy, a senior judge with the 9th U.S. Circuit Court of Appeals -- got under way in May.

 

Lane Powell is not the only high-profile Portland professional firm enmeshed in the Capital Consultants affair. Stoel Rives, Portland's largest law firm, and Moss Adams, the city's fourth-largest accounting firm, continue to negotiate with the plaintiff's lawyers.

 

Stoel Rives represented the former Wilshire Credit Corp., the firm headed by Andrew Wiederhorn that plunged Capital Consultants into disarray when it defaulted on $160 million in loans. Moss Adams audited the books and appraised collateral for Capital Consultants.

 

O'Melveny & Myers, a national law firm that provided federal pension law advice to Capital Consultants, has been brought into mediation as well.

 

Wiederhorn is also taking part in the mediation. Sources said the young financier has taken a defiant stance, showing no inclination to settle.

 

Thanks to the terms of his employment contract, Wiederhorn's defense costs are being paid for in part by his former employer, Wilshire Financial Services Group, according to Wilshire Financial officials. Security and Exchange Commission documents show that Wiederhorn's current company, Fog Cutter Capital Group, has also agreed to pay for his defense costs.

 

Maloney began representing Grayson in 1982 when Grayson was

divorcing his first wife, according to court papers. Four years later, Capital Consultants became Maloney's client. Maloney continued to serve both Grayson and his investment firm until last September, when the SEC and Department of Labor forced Grayson out as Capital Consultants' CEO.

 

In papers filed in court in December, Grayson's new attorneys described his relationship with Maloney as extremely close. Grayson's counsel was trying to thwart the receiver's effort to force Lane Powell to turn over its Capital Consultants files.

 

The new attorneys argued that this would violate Grayson's

personal rights.

 

"Robert Maloney, a partner in Lane Powell, was Jeffrey Grayson's closest personal confidant," the attorneys said in a memorandum filed in federal court Dec. 11.

 

Maloney, the memorandum said, not only handled many of Grayson's personal affairs but "advised Mr. Grayson about the creation, maintenance, and operation of several personal investment companies." Maloney partnered with Grayson on personal investments and had Grayson's power of attorney.

 

"Mr. Maloney and I," Grayson swore, "have been inextricably intertwined in both personal ventures and his representation of Capital Consultants." Maloney, he asserted, "can sign on my behalf for my checking and savings accounts."

 

Lane Powell, Grayson pointed out, represented both him and Capital Consultants during a Labor Department investigation of Capital Consultants the early and mid-1990s. That investigation ended in a settlement requiring Grayson to repay a union pension fund $2 million in overcharges.

 

According to Grayson's declaration, Maloney was a director of Capital Credit Inc., a Capital Consultants affiliate, and set up Capital Wilshire Holdings Inc. and CWH Mergeco Corp., two new companies set up as part of complex bankruptcy reorganization of Wilshire Financial Services Group.

 

It was that bankruptcy and subsequent restructuring that led to Capital Consultants' downfall. Wilshire Credit was legally discharged from having to repay the $160 million -- mostly from union pension funds -- that it had borrowed from Capital Consultants.

 

Grayson told his clients that two new firms – Sterling Capital LLC of New Jersey and later Brooks Financial LLC of Miami, Fla. – had agreed to buy the Wilshire loans and assume the monthly interest obligation.

 

It was Lane Powell that filed incorporation papers for Brooks with the Oregon Corporation Division in June 2000. Federal investigators claimed in their September 2000 lawsuits that Brooks simply circulated a portion of the investor money it received from Capital Consultants back to Grayson's firm, which then represented to its clients that it was the interest money on the Wilshire loans.

 

Jeff Manning can be reached at 503-294-7606 or by e-mail at

jmanning@news.oregonian.com.

 

James Long can be reached at 503-221-4351 or by email at

jimlong@news.oregonian.com.

 


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