The Oregonian

 

 

Unions Recoup Some Capital Consultants Losses

 

 

 

JEFF MANNING and JAMES LONG

08/14/01

 

Union members came a step closer Monday to learning how much money they'll recoup for their pension and benefit funds in the aftermath of the collapse of Capital Consultants.

 

A lawyer representing some of the 29 union trust funds that lost more than $100 million told a federal judge that the trust funds have tentatively struck settlement deals with three-fourths of the defendants in lawsuits against the Portland money management firm.

 

Details of the partial settlement were not announced in court, but The Oregonian has learned that defendants so far have agreed to pay about $71 million.

 

The union funds sued Capital Consultants and several other parties after the U.S. Securities and Exchange Commission charged that the firm used a "Ponzi-like scheme" to cover up the loss of hundreds of millions of dollars in failed and allegedly fraudulent investments. U.S. District Court Judge Garr M. King ordered the company into receivership and forced the dozens of litigants into confidential mediation in hopes of reaching a quick settlement and minimizing legal fees.

 

Sixty-two lawyers attended Monday's hearing.

 

About $40 million of the settlement will come from American International Group, an insurance company covering Capital Consultants and two companies that did business with it: Wilshire Financial Services Group and Wilshire Credit Corp. The payment also will cover some individuals, including two former top Wilshire executives, Andrew Wiederhorn and Lawrence Mendelsohn, three sources familiar with the case said.

 

Roughly $25 million more will come from insurers for Lane Powell Spears Lubersky, Capital Consultants' longtime law firm, the sources confirmed.

 

Dan Dyer, a Tacoma investor who allegedly played a role in Capital Consultants' alleged cover-up of massive losses, has agreed to pay about $6 million, The Oregonian learned.

 

Despite long negotiations, union trust lawyers failed to reach settlement agreements with three defendants: Stoel Rives, Portland's largest law firm, which formerly represented the Wilshire companies; Moss Adams, a Seattle accounting firm that formerly did work for Capital Consultants through its Portland office; and O'Melveny & Myers, a Los Angeles-based law firm that also did work for Capital Consultants.

 

King gave the holdout parties until Aug. 27 to mediate their differences with the trust funds but conceded that some of the cases "probably will have to go to trial." King tentatively set the union trusts' trial against the three holdout defendants for April 2002.

 

The settlement, so far, falls well short of Capital Consultants' clients' estimated losses of $355 million.

 

Some of the difference will be made up by the liquidation of Capital Consultants. Court-appointed receiver Thomas F. Lennon estimates that he can salvage as much as $156 million by selling off Capital Consultants' remaining assets. Those assets include the company's private loan portfolio, private investments in individual companies and real estate.

 

More money could come from a separate lawsuit in which members of four unions have sued their own fund trustees. The trustees' insurers have offered to settle for about $16 million.

 

At Monday's hearing, King gave the insurance companies for Wilshire, Capital Consultants, Lane Powell and Dyer two months to finalize their agreements with the trust funds. He scheduled an Oct. 16 hearing at which the settlement details would be made public.

 

Despite the tentative settlements, the Capital Consultants legal cases promise to live on for months. In addition to continuing to go after Stoel Rives, Moss Adams and O'Melveny & Myers, Stephen English, a lead plaintiff attorney, said his clients may also be filing new lawsuits against parties whose identities they had discovered in the course of the mediation.

 

Likewise, Dan Feinberg, an attorney in two of the union members' class action suits against their trustees, said his clients intend to amend their complaints and pursue some of the lawyers and investment advisors to the trustees.

 

Meanwhile, a federal organized crime strike force continues to investigate the Capital Consultants losses and the key individuals involved. The civil settlements will have no effect on potential criminal cases.

 

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

 

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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