Investment Firm Chief Makes Deal
Barclay Grayson, former Capital Consultants president, admits his guilt and agrees to testify against his father
By Jeff Manning and James Long of The Oregonian staff
Tuesday, March 20, 2001
Barclay Grayson pleaded guilty Monday to committing mail fraud as part of a scheme that cheated Capital Consultants clients of millions of dollars.
Grayson agreed to testify against his father, Jeffrey Grayson, and union officials in exchange for a deal with federal prosecutors that would tentatively give him 18 months in prison. He also agreed to pay restitution that could total $4.9 million.
The 31-year-old Grayson, former president of the failed Portland investment advisory firm, broke down in tears as he told U.S. District Court Judge Anna Brown that he would provide evidence against his father. He asked the judge for several minutes to collect himself before proceeding.
Jeffrey Grayson, who founded Capital Consultants in 1968, hired his son in 1996 and named him president of the firm in 1999.
Barclay Grayson's criminal defense attorney, Steven Ungar, said his client hadn't told his father either that he had made a deal with federal prosecutors or that he intended to testify against him. According to two sources, the two men haven't spoken since late September.
"I can't tell you what Jeff Grayson knew," Ungar said, "but we just reached a deal a few days ago and have not communicated with Jeff."
Jeffrey Grayson, 58, would comment only on the fact that his son had pleaded guilty to a felony. "I'm saddened and devastated that this is happening to my son Barclay, who I love," said Jeffrey Grayson in a statement issued through his criminal defense lawyer, Norm Sepenuk. "I do not have any further comment at this time."
Jeffrey Grayson is under federal investigation.
The felony charges against Barclay Grayson stemmed from a 1999 fourth-quarter report from Capital Consultants to the Laborers District Council of Minnesota and North Dakota. The report said Capital Consultants' loans of union funds were paying off as expected -- a statement that Barclay Grayson told the judge he knew was inaccurate.
"Those statements were false, and I knew them to be false," Grayson said in court Monday.
A criminal information document unsealed at the hearing accused Barclay Grayson "and others" of misrepresenting and concealing facts relating to Capital Consultants failed investment of $160 million in client funds in Wilshire Credit Corp.
Barclay Grayson's assistance with the coverup of those losses cost the clients an additional $4.9 million, the information said. The $4.9 million consisted of management fees that Capital Consultants collected from the union pension funds and others on the Wilshire loans.
Lance Caldwell, assistant U.S. attorney in charge of the investigation, told Judge Brown that the coverup began in November 1998 with Jeffrey Grayson.
The coverup involved lending new union money -- through front companies -- to simulate interest payments on the failed loans, Caldwell said.
Those payments resulted in what federal securities regulators later called a "Ponzi-like scheme" that paid the clients with their own money from about January 1999 to September 2000. The U.S. Department of Labor and the Securities and Exchange Commission broke it up when they sued the Graysons and forced them out of Capital Consultants, which is being liquidated by a court-appointed receiver.
Barclay Grayson played a key role in making the Ponzi-like scheme work, Caldwell told Brown.
Grayson admitted to the judge that the quarterly reports he mailed to the Laborers' council were intended to deceive them into thinking their investments were safe.
Barclay Grayson is married and has two children, ages 1 and 3. Since being ousted from Capital Consultants, he has relied on money from his mother to make payments on his West Hills home. During a recent bankruptcy court hearing, one of his lawyers revealed that his client had landed a $100,000-a-year job. The name of his employer was not disclosed.
"I really feel sorry for the guy," said Dick Church, a former Capital Consultants employee who left the firm five years ago. "Jeff is a very high-powered personality. I think Barclay did what he was told. That was his downfall."
After pleading guilty, Barclay Grayson issued a statement saying that he was "deeply troubled by the financial predicament facing many of Capital Consultants' former clients as a result of the Wilshire investment and related transactions."
Barclay Grayson is the second suspect to make a plea deal in the case.
John D. Abbott, former head of the Oregon-Idaho Laborers Union District Council, pleaded guilty earlier this month to accepting more than $194,000 in payoffs from Jeffrey Grayson in return for steering millions of the union's pension money to Capital Consultants.
Abbott also pleaded guilty to tax evasion.
Like Barclay Grayson, Abbott agreed to a relatively light sentence -- 15 months -- in exchange for a promise to testify against Jeffrey Grayson and other union officials.
Ungar, Barclay Grayson's lawyer, said his client was in the dilemma "of being in the middle of both a business and a family relationship, which obviously affected his judgment."
"The fact that his father was his boss and his boss was his father was very significant."
Jeff Manning can be reached at 503-294-7606 or by e-mail at firstname.lastname@example.org.
James Long can be reached at 503-221-4351 or by e-mail at email@example.com