A federal suit claims Andrew Wiederhorn helped Jeffrey Grayson in order to get access to Capital Consultant funds
By Jeff Manning and James Long of The Oregonian staff
Tuesday, November 14, 2000
Companies controlled by Portland financier Andrew Wiederhorn did millions of dollars worth of favors for Portland investment advisor Jeffrey Grayson in a scheme to maintain access to union trust fund dollars that Grayson and Capital Consultants controlled, nine union trust funds charged in federal court Monday.
Read the latest about Andy Wiederhorn and the ongoing financial problems at Wilshire. Also read about Jeffrey Grayson and Capital Consultants, Wilshire's troubled lender.
The funds, which lost millions in the September collapse of Grayson's company, Capital Consultants, filed a complaint in U.S. District Court that amends and enlarges on an earlier suit filed Sept. 29.
The new filing charges that Wiederhorn; his top lieutenant, Larry Mendelsohn; and their companies, among others, actively conspired with Jeffrey Grayson and his son, Barclay, to defraud union workers of pension and welfare funds.
The Graysons, Wiederhorn and Mendelsohn, the complaint charges, "secretly schemed to give away collateral, release various defendants from personal guarantees, make false statements, prepare and submit false financial and appraisals, and take other actions in furtherance of their personal financial gain and to the detriment" of the union trusts.
The complaint also accused Wiederhorn, Wilshire Credit Corp., Mendelsohn, Capital Consultants and the Graysons of violating federal anti-racketeering laws by "engaging in a series of reciprocal favors, including the solicitation and acceptance of loans, commis sions, kickbacks, fees and other things of value."
Wiederhorn companies also lent more than $3 million to Grayson personally, which he hasn't repaid, the complaint alleges.
Rob Shlachter, an attorney representing Wiederhorn and Mendelsohn, didn't return phone calls seeking comment. Wiederhorn declined comment. Wilson Muhlheim, who represents Jeffrey Grayson, and Steven Ungar, who represents Barclay Grayson, didn't return calls.
The series of favors, the complaint charges, helped grease the skids for a torrent of money that Jeffrey Grayson let loose on Wiederhorn's Wilshire Credit. From mid-1994 to October 1998, court documents show, Capital Consultants loaned Wilshire Credit $160 million, largely from union retirement trust funds.
Shortly after Wilshire Credit collapsed in October 1998, Jeffrey Grayson launched what federal investigators have termed a "Ponzi-like scheme" to hide the loss of the $160 million. Jeffrey Grayson gave up his company to a court appointed receiver Sept. 21 as the U.S. Department of Labor and the Securities and Exchange Commission filed lawsuits accusing Capital Consultants and Jeffrey and Barclay Grayson of attempting to hide the loss.
The complaint was filed by trusts representing two Portland-based unions -- the Plumbers, Steamfitters and Shipfitters, Local 290 and the Office and Professional Employees International Union, Local 11 -- and a number of Laborers' unions in Oregon and Idaho. Together they have invested more than $340 million of union pension and medical funds through Capital Consultants.
The trusts filing the complaints are themselves the target of three suits by union members, who charge the trustees were negligent in continuing to invest union pension and medical funds through Capital Consultants, despite signs of trouble. The trustees have previously declined comment.
According to the complaint, Wilshire Credit's series of favors to Jeffrey Grayson began in 1994 when he got Wilshire Credit to cooperate in a complicated plan to steer $3.65 million to West State Inc., a struggling Portland ship repair firm.
Faced with having to tell some of the union trust funds that a loan to West State was going bad, the complaint said, Grayson enlisted Wiederhorn's assistance to cover it up. Grayson lent $3.65 million from Capital Consultants to Wiederhorn's Wilshire Credit, with the understanding that Wilshire Credit would re-lend it to West State's sister company, Astoria Metals Corp., which would lend it to West State.
This, the complaint alleges, allowed Grayson to cover up the looming failure of Capital Consultants' original loan and earn hefty management fees in the process.
Wilshire Credit received a "loan origination fee" of more than $500,000 for its trouble, according to documents from West State's bankruptcy filing. A year later, the complaint pointed out, Capital Consultants' loans to Wilshire Credit began to skyrocket, rising from a $10 million commitment in July 1995 to $100 million in October 1995.
The complaint alleged there was a connection between Grayson's awarding Wiederhorn a $100 million line of credit in October 1995 and a personal loan that Jeffrey Grayson received from a Wilshire Credit borrower.
In December 1995, Jeffrey Grayson needed a quick $1.7 million to settle a U.S. Department of Labor lawsuit that required him and his company to repay a labor union client for allegedly excessive management fees. The trustees accuse Wiederhorn of slipping the money to Jeffrey Grayson through C.F. Credit, a defunct Bay Area lending company formerly operated by a Wiederhorn family friend. C.F. Credit loaned Grayson $1.76 million on Dec. 27, 1995.
In accepting the loans, Grayson and Capital Consultants "compromised their objectivity or ability to exercise fiduciary judgment on behalf" of their clients, the trustees allege in the lawsuit.
In 1996, Wilshire Credit allegedly agreed to take two failed business loans totaling $4.5 million from Capital Consultants. The trustees charge that Grayson wanted to get the loans that he had made to a failed snack food company, called The Hand That Feeds You, off his books "to showing a loss" on the investment to his clients.
Grayson personally guaranteed repayment of the loans to Wilshire, the lawsuit states.
According to the trustees' suit, after the 1996 initial public offering of Wilshire Financial Services Group, Wiederhorn and Mendelsohn reorganized their complicated corporate structure in such a way that reduced the value
of the collateral that Wilshire Credit put up for the loans received from Capital Consultants.
The trustees claim that Capital Consultants prepared a Feb. 13, 1997, draft letter accusing Wilshire Credit of "numerous and significant breaches" of
its loan agreement.
But at Grayson's direction, the trustees claim, the letter was never sent.
The trustees lay Grayson's reticence on a series of personal loans that he received from Wilshire Credit.
According to the amended complaint, Grayson received more than $2.2 million in five different loans from Wilshire Credit or other Wiederhorn-controlled companies between Jan. 30, 1997, and April 1, 1999.
Jeff Manning can be reached at 503-294-7606 or at firstname.lastname@example.org. James Long can be reached at 503-221-4531 or at email@example.com.
Copyright 2000 Oregon Live