The Oregonian

 

 

Mediation In Grayson Case Closed To Public

 

U.S. District Court Judge Garr M. King orders confidential mediation fraud suits against Capital Consultants

 

 

By Jeff Manning and James Long of The Oregonian staff
Thursday, January 18, 2001

 

 

 

One of the biggest investment fraud cases in Portland history is being put under wraps by a federal judge.

 

U.S. District Court Judge Garr M. King has ordered confidential mediation for a cluster of fraud suits against Portland investment advisor Jeffrey Grayson and his company,Capital Consultants, and other defendants, involving potential losses of more than $200 million.

 

The order means that the claims against Grayson and others, including Portland financier Andrew A. Wiederhorn, will be handled behind closed doors instead of in open court.

 

King issued a strict order that all "communications, statements, memoranda, work products, documents and other materials" used in the settlement be kept secret. He appointed retired federal appeals judge Edward Leavy to begin mediation in May.

 

If the parties reach a quick settlement, mediation could prove a positive development for thousands of union members and their families who, according to the court-appointed receiver for Capital Consultants, lost an estimated $243 million in dealings with the company.

 

But for victims who also want a public accounting of where their money went, the confidentiality order is bad news.

 

The nine lawsuits not only seek damages from Grayson and others for alleged fraud but seek to hold accountable the union trust fund trustees and professional advisers who placed funds with Grayson.

 

However, the union members and other investors still could get some answers if a federal grand jury delivers indictments in a parallel criminal investigation by the U.S.attorney.

 

The Graysons handed Capital Consultants over to a permanent receiver last September as the Labor Department and Security and Exchange Commission filed lawsuits charging the Graysons with running what the commission said was the biggest scam by an investment adviser in U.S. history.

 

But for now, King's order shuts off a potential public airing of the relationship between Jeffrey Grayson and Wiederhorn, in whose Wilshire Credit Corp. Grayson invested and lost $160 million of mostly trust fund money.

 

King issued his mediation order after a Jan. 5 courtroom conference in which some 45 lawyers representing the various parties discussed how to proceed.

 

Confidentiality is normal in mediation proceedings, but the practice has drawn increasing criticism in recent years from lawyers representing plaintiffs in consumer cases.

 

Kathryn H. Clarke, a Portland lawyer who is active with Trial Lawyers for Public Justice, a national public interest law firm, says U.S. courts give short-shrift to consumers with secrecy.

 

"How can you take a case involving fraud and seal the whole record?" she said. "If the parties invoke the court system to protect their interests, then it becomes the public's business."

 

Thomas Tongue, a Portland lawyer representing the Lane Powell law firm, an adviser to Capital Consultants, said "if I was a laborer with money at risk I'd want my money more than information."

 

But at least one union member wants both. "I think we're cheated one more time," said Priscilla Klein, a credit union manager who belongs to the Office and Professional Employees International Union Local 11, speaking of the confidentiality order.

 

"We were all interested in finding out what really happened. I can't say that I'm surprised," Klein said. "That's the way this whole thing has gone. They look out for themselves and we little guys are the ones hurt."

 

You can reach Jeff Manning at (503) 294-7606 or by e-mail at

jmanning@news.oregonian.com

 


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