Ex-union fund manager Barclay Grayson is negotiating a deal with federal prosecutors investigating his firm's loss of more than $200 million, said U.S. Bankruptcy Judge Randall Dunn  Mar. 7. Dunn revealed the plea bargaining at a hearing on a personal bankruptcy petition that Grayson filed in Feb. He and his father, Jeffrey L. Grayson, the founder and chairman of Capital Consultants, surrendered the firm to a federal receiver in Sept. 2000 after the Sec. & Exch. Comm'n and the Dep't of Labor filed suits accusing them of defrauding clients. The hardest-hit clients were union pension funds, including the Laborer's Int'l Union of N. Am. SEC called the scam the biggest fraud involving a money manager in U.S. history.

The Graysons and others are targets of a federal criminal investigation. Lance Caldwell, Asst. U.S. Atty. in charge of the probe, declined to comment on Barclay Grayson's dealings with his office. But, Steven Ungar, Barclay Grayson's criminal defense attorney confirmed the bargaining.

In Feb., John D. Abbott, ex-LIUNA boss in Oregon pled guilty to taking $195,000 in payoffs from Jeffrey Grayson. Abbott's deal may allow him to serve only 15 months in prison in return for testifying against other union bosses and Jeffrey Grayson.

Because of the bargaining, Dunn noted, Barclay Grayson could assert Fifth Amendment rights in his bankruptcy proceedings, and the lack of his testimony would hamstring the process. Dunn postponed the bankruptcy process for 90 days in hopes the negotiations would be completed. [Oregonian 3/8/01]

Minnesota Consultant Guilty of Fraud
Union consultant, Elliot M. Cohn of Coral Springs, Fla., admitted Feb. 8 to bilking two Minn. unions out of almost $25,000 in fraudulent expenses.  The president of a labor negotiating firm pled guilty to mail fraud during a hearing in Minneapolis before U.S. Dis. Judge Michael Davis. Cohn said that from 1996-98, he billed $22,000 in phony airfare expenses to the Minn. Licensed Practical Nurses Ass'n and also manipulated the compensation he drew from the Tech. Employees Ass'n of Minn. He paid $106,476 in restitution to the two unions during the hearing. [Star Trib. (Minneapolis) 3/9/01]

QUOTABLE QUOTE
"Good unions don't need forced dues and bad unions don't deserve them."

- Kirk Shelley, Okla. City Freedom to Work Committee, Letter to the Editor, Tulsa World, Mar. 9, 2001. Addressing the need for Okla. to enact a right-to-work law.

Int'l Bhd. of Teamsters officials continue to press the federal government to end its 12-year supervision of the union, but IBT president James P. Hoffa said May 15 that he did not expect any change in the consent decree until after IBT's election this fall at the earliest.  Hoffa said that "we've had negotiation meetings with the Justice Department" about lifting the 1989 consent agreement, which settled the government's civil racketeering suit against the union. But DOJ has not said what it intends to do, he said. "We don't know what the government is thinking; we don't know where they are going with this," he told BNA. [BNA 5/16/01]

SEC Wins Injunction Against Oregon Union Fund Mangers
The Securities & Exch. Comm'n has obtained a permanent injunction against former Capital Consultants executives Jeffrey and Barclay Grayson, the first step toward barring Jeffrey Grayson for life from the money management business. Jeffrey Grayson is ex-CEO of Capital Consultants, the Portland, Or., money management firm that has reportedly lost more than $200 million of client money. Most of the losses came from union pension plans, including the Laborers' Int'l Union of N. Am. The Dep't of Labor continues an effort to recover money from Capital Consultants and the Graysons to defray the union trust funds' losses. SEC is not seeking money damages against the Graysons, although SEC has reserved the right to enforce a financial penalty against them.

In suits filed Sept. 2000, SEC and DOL claimed that the Graysons engineered a complex Ponzi-like scheme to disguise the fact that $160 million in loans to the former Wilshire Credit Corp. had actually failed. Dozens of union trust fund clients have sued the Graysons and others in connection with Capital Consultants' meltdown. Those suits are scheduled to go into confidential mediation where the various camps will attempt to reach a settlement May 29. [Oregonian 5/10/01]

More Fallout from UBC's Departure; IUOE Bolts Division
The Int'l Union of Operating Engineers withdrew from the Heavy & Highway Div. of the AFL-CIO's Building & Construction Trades Dep't, citing concern that the division's ability to respond to industry issues is impaired by the United Bhd. of Carpenters' departure from the federation. IUOE president Frank Hanley, in a May 7 letter to BCTD president Edward Sullivan, said his union will continue to honor existing agreements but will not approve any new agreements negotiated by the division.

"[T]here is tremendous potential for decent, stable employment for the members of all building trade unions," Hanley wrote. "But, quite frankly, I don't think the building trades have capitalized on these opportunities."

Hanley's main concern is that UBC's withdrawal from the AFL-CIO in Mar. 2001 "will restrict or stymie any efforts to maximize the potential of the heavy and highway operation." Efforts by Hanley to mediate a settlement of UBC's problems with the federation have not been successful, he said. Hanley predicted that, "barring some unforeseen developments," these efforts will remain unsuccessful. "Without the UBC participating, the heavy and highway operation has no chance of succeeding," Hanley said.[BNA 5/9/01]

Members Seek Contempt Ruling Against New York Local
U.S. Dist. Judge Robert L. Carter of the S. Dist. of N.Y. ruled the individual union members may proceed in their efforts to hold Int'l Ass'n of Bridge, Structural & Ornamental Iron Workers Local 580 in contempt of a 1988 consent judgment that enjoined the local from engaging in discriminatory practices in its apprenticeship programs and job referral procedures. Carter rejected the local's contention that only the EEOC, the original plaintiff in the case, had standing to enforce the judgment. The union members filed timely charges with the EEOC, Carter noted, and 18 months later the EEOC had neither filed an order to show cause, nor issued a right to sue letter. Because of EEOC's inaction, Carter ruled the union members could proceed without a right to sue letter.

Carter also rejected the union's contention that individual union members should bring allegations of ongoing discrimination directly to the court-appointed special master and not to the court. Language in the consent judgment empowering the special master to monitor the union's compliance does not limit the right of aggrieved third-party beneficiaries to bring claims directly to the court. [BNA 5/7/01 (citing EEOC, Bennet v. Int'l Ass'n of Iron Workers Local 580)]

U.S. Dist. Judge Anna J. Brown (D. Or., Clinton) sentenced racketeer and tax-evader John D. Abbott, ex-secretary-treasurer and business manager of the Laborers' Int'l Union of N. Am.'s Dist. Council of Or., S. Idaho, and Wyo., Nov. 21 to two concurrent terms of 15 months in prison and one year probation. He must pay $195,400 in restitution plus back taxes. He was an official for 5 LIUNA funds.

He pled guilty on Feb. 26 to accepting gratuities from union fund manager Jeffrey L. Grayson (indicted Oct. 2) to use his influence as a pension trustee and filing a false tax return. Abbott pled guilty to racketeering charges, under 18 U.S.C. § 1954, and to understating his income on his 1997 tax return by $76,560. He earned the shortened sentence in exchange for cooperating against other trustees and Grayson in the massive $355 million Capital Consultants scam.  Laborers lost about $25 million.

Asst. U.S. Atty. Lance Caldwell, told Brown that Abbott's testimony has been crucial in building the case against Grayson who was indicted on 22-counts. of conspiracy, witness tampering, money laundering, mail fraud, and making illegal payoffs to Abbott. Because of Abbott's cooperation, and the "very valuable" evidence it produced, the government recommended reducing his sentence from a maximum of 33 months.

Grayson assisted Abbott in 1998 when he was in trouble with LIUNA for allegedly pocketing office funds and failing to make restitution. Abbott, according to an audit released in Mar. 1998, took at least $172,000 from office funds including $150,184 in personal charges on his union credit card. As Abbott was being pushed to explain what the audit uncovered, Grayson arranged the sale of Abbott's late wife's catering business, netting the union boss $60,000.

Abbott repaid the unauthorized credit card charges and promised LIUNA that he would pay back the rest of the money, nearly $32,000. But he failed to make payments, and in Sept. 1998, LIUNA gave him the choice of resigning or being expelled. Abbott chose to quit and promised once more to reimburse the money he owed. Meanwhile, he organized a consulting company, Kaylano Consulting, and signed a contract with Grayson that promised to pay Kaylano at least $805,000 over 5 years.

Not everyone thought Abbott's 15-month sentence was sufficient. Gayland German, a retired Oregon LIUNA member who attended the hearing, later called Abbott "a Judas" and predicted his fellow union members "will be extremely disappointed" with the length of his sentence.

Forrest Rieke, Abbott's attorney, portrayed his client as just one of 10 trustees with no more and no less clout than the rest. He called Lee Clinton, Abbott's successor at the Dist. Council, to the stand, to testify that he saw no evidence of Abbott favoring Grayson in the placement of union money. But Clair Anderson, another ex-LIUNA boss who served on several trusts with Abbott, disagreed, telling the Oregonian after the sentencing that Abbott effectively controlled the trusts as well as the union. "He ruled with a strong hand," Anderson said. "He had influence with every damn local in the state."

Rieke told Brown that his client "simply has no money," and the judge agreed that he could work out a payment plan. Clinton estimated that Abbott receives between $8,000 and $10,000 a month in union pension payments. Abbott will report to prison on May 1, which will give him time to testify at Grayson's trial scheduled to begin Mar. 26.

Abbott's sentencing came 24 hours after Brown sentenced Grayson's son, Barclay, Capital Consultants' president, to 24 months imprisonment and 3 years probation for mail fraud. He pled guilty on Mar. 19 and is also cooperating. [DOL 11/20, 11/21/01; Oregonian 11/22/01; BNA 11/23/01]

Jeffrey L. Grayson, the indicted former union fund manager, has tentatively agreed to cooperate with federal prosecutors in Oregon in the fraud and money-laundering case stemming from his investment firm's collapse. His cooperation could mean that a plea agreement is imminent, which would allow Grayson to avoid a trial on 22 counts of fraud, conspiracy, money-laundering, witness-tampering and making illegal payoffs to a union trust fund trustee. Harvey Silets, a Chicago criminal defense lawyer representing Grayson, said that "we've been in discussion with the government. No plea agreement has been signed."  Asst. U.S. Atty. Lance Caldwell said essentially the same thing. "The only thing I can confirm is that there have been discussions."

The Securities & Exchange Comm'n and the Dep't of Labor seized the firm, Capital Consultants in Sept. 2000, accusing Grayson of running a Ponzi-like scheme to conceal investment losses. A court-appointed receiver estimated the losses, mostly to union pension and benefits funds, at $355 million. Unless Grayson and the government finalize their plea deal, he is due to go on trial Mar. 26. If convicted on all counts, Grayson could face eighty years in prison.

The fate of Grayson's prison-bound son, Barclay L. Grayson, ex-president of Capital Consultants, played a role in the senior Grayson's decision to seek a deal. Sources close to the case said Barclay helped persuade his father to negotiate with prosecutors. "If an agreement is reached between Jeff Grayson and the government, this could benefit Barclay Grayson," said Steven Ungar, Barclay Grayson's Portland attorney. Prosecutors could file a motion requesting the judge reconsider Barclay Grayson's sentence.

Barclay Grayson is due to report in May to the Fed. Correctional Institution at Sheridan where he will begin serving a two-year term after pleading guilty to mail fraud. The unexpectedly stiff penalty, imposed in Oct., drew cries of dismay from Barclay Grayson and his family, who had hoped for a suspended sentence.

John Abbott, former co-chairman of three Laborers' Int'l Union of N. America pension and benefit funds, also is headed for prison in May. He was sentenced to 15 months in Nov. 2001 after admitting in federal court he accepted nearly $200,000 in secret payoffs from Jeffrey Grayson while steering the trust funds' money to Capital Consultants.

Jeffrey Grayson's cooperation could prove valuable to the ongoing criminal investigation of the case. "There is a substantial amount of information concerning other people that has yet to be told to anyone," Jeffrey Grayson said an e-mail to friends uncovered by the Oregonian. "I already know that [there is interest] in information concerning existing defendants as well as those that have not been named."  Andrew Wiederhorn and Lawrence Mendelsohn were both notified last spring that they were targets of a federal grand jury investigation. The duo headed the former Wilshire Credit Corp., which borrowed and failed to repay $160 million from Capital Consultants. The default threw Capital Consultants into financial disarray. After the firm's collapse, several unions and others filed civil lawsuits against Wiederhorn, Mendelsohn and their company, accusing them of having an "undisclosed corrupt relationship" with Grayson and Capital Consultants. Caldwell declined to comment on where the investigation may now lead. [Oregonian 2/22/02]

Dozens of union pension and other benefit funds reached a settlement May 13 with eleven parties to recover $110 million of losses involving allegations of pension fraud by the Portland, Or., based Capital Consultants LLC.  Capital Consultants had $927 million under its management when federal agents seized its assets in Sept. 2000. Funds from Taft-Hartley plans and other employee benefit plans accounted for a large share of nearly $500 million in estimated investment losses  The demise of Capital Consultants sparked lawsuits by a number of union trusts, alleging fraud and seeking to recover some of their losses. The proposed settlement, yet to be approved by the district court, calls for payments to the trusts by 11 companies and professional advisers, including legal and accounting firms.

In addition to the $110 million settlement, the court-appointed receiver has collected $140 million from the operation and sale of Capital Consultants assets. Also, litigation by some union members against their fund trustees resulted in a $16 million settlement in Mar. 2002. In total, plan participants have recovered merely 50% of their losses as the result of these various recovery actions. There are an estimated 500,000 participants in 67 trusts involved in the Capital Consultant litigation.

"This is an unprecedented settlement," Steve English of the Portland law firm of Bullivant Houser Bailey, the lead counsel for the trusts, said in a statement. The resolution of the suits was due in part to the months of mediation led by U.S. Cir. Judge Edward Leavy (9th Cir., Reagan), he said. Legal fees and expenses are expected to be less than 7% of the total recovery, English added.

Most of the settlement money is to be paid by various insurers of the defendants. The settlement amounts are to be paid by the following eleven parties: 1) $40 million from the Wilshire Group and principals, a financial services company that defaulted on $155 million in loans from Capital Consultants. 2) $25 million from Lane Powel Spears Lubersky, Capital Consultants' principal law firm. 3) $17 million from Moss Adams, an accounting firm that served as Capital Consultant's accountant and performed asset valuations of the company's private investments. 4) $12.5 million from Stoel Rives, Wilshire's principal law firm. 5) $8 million from O'Melveny & Myers, an additional law firm used by Capital Consultants.  6) $2.5 million from McCarter & English, a law firm representing a Capital Consultants borrower. 7) $2 million from Weiss Jensen Ellis & Howard, an additional law firm used by Capital Consultants. 8) $1.35 million from C.F. Credit, a California private lender. 9) $1 million from Charles and Joseph Musumeci, owners of CJM Planning of N.J.  10) $500,000 from Barclay Grayson, ex-Capital Consultants president and CEO who recently plead guilty to crimes related to the scandal. 11) $100,000 Bear Stearns, a former lender to Wilshire.

Nevertheless, several of the trusts' claims remain unsettled including claims against Capital Consultants, its owner Jeffrey Grayson, Deloitte Touche, an accounting firm that provided services to Wilshire and Pricewaterhouse Coopers, an accounting firm that provided services to Capital Consultants.

The major union trusts involved in the recovery action include the Or. Laborers-Employers Pension Plan, the Eighth Dist. of the Int'l Bhd. of Elec. Workers which covers Colo., Idaho, and Utah, the United Ass'n Union Local 290 Plumber, Steamfitter &Shipfitter Indus. Pension Plan in Portland, Or., and the Office & Prof'l Employees Int'l Union Local 11 also in Portland.

The settlement is subject to an approval hearing June 19 before U.S. Dist. Judge Garr M. King (D. Or., Clinton). The settlement represents a consolidation of 26 lawsuits listed in a May 13 hearing notice by King that summarizes the terms of the settlement.  In his hearing notice, King said the settlement is in the best interests of the trusts because it avoids the delay and expense of protracted litigation. Also the settlement allows limited insurance funds to be distributed to investors rather than spent on litigation, he said.  King also noted that the settlement prevents the trusts or plan participants from filing future claims against the settling parties.  Court documents show that the plaintiffs and the receiver believed that Capital Consultants' professional advisers bore part of the responsibility for the investment losses. However, the settlements contain no admission of wrongdoing by any of the defendants.

Lance Caldwell, an Asst. U.S. Attorney in charge of the Capital Consultants criminal investigation, said he is pleased that "so much money is being recovered for innocent victims" but that it will have little effect on potential new indictments. "The criminal and civil investigations have been largely separate and will continue that way." In addition to Grayson, his son Jeffrey L. Grayson and ex-Laborers boss John D. Abbott have also plead guilty in the case. All have agreed to testify against others who are still under investigation by a federal grand jury in Portland.[BNA 5/16/02; Oregonian 5/14/02]

Convicted union pension fund manager Barclay Grayson's attorney and prosecutors argued for three hours May 30 that Grayson, who has emerged as the government's lead witness in the Capital Consultants scandal, deserved to have his prison sentence eliminated. Thankfully, U.S. Dist. Judge Anna J. Brown (D. Or., Clinton) didn't buy it. She sentenced the one-time president of Capital Consultants to eighteen months in federal prison for his role in the investment scam that cost the firm's clients, including many union pension funds, about $355 million.

Grayson was initially sentenced to two years in Nov. 2001, but prosecutors asked that his sentence be reduced to probation and nine months home confinement based on the "substantial assistance" he's been in the ongoing criminal investigation. His importance to the government increased earlier this month when his father, Jeffrey Grayson, suffered a stroke that has left him unable to communicate.

Brown agreed to cut Grayson's sentence by six months. She credited him for the pivotal role he played in convincing his father, Capital Consultants' ex-CEO, to plead guilty and cooperate with the government. She also acknowledged that Barclay Grayson has put himself at some risk by pledging to cooperate with investigators.

Midway through the hearing, Brown cleared the courtroom so that Grayson and his attorney, Steve Ungar, could elaborate in private on recent threats he's received. "Barclay Grayson has been placed at risk in his opinion," Ungar said. "Obviously, there are other targets and suspects in this case. Some are displeased that they might be implicated."

Grayson, 32 and father of three, sat downcast, his head bowed, through most of the hearing. He did say in a statement to the judge that he's "been on a different path in life since September 2000," the month federal regulators seized control of Capital Consultants and ousted the Graysons. He added that he testified against his father and later persuaded his father to cooperate with investigators. "For me this was traumatic beyond words," he said. "What carried me through was the knowledge that I was doing the right thing."

Capital Consultants collapsed amidst charges that it was concealing huge losses by employing a Ponzi-like scheme involving various business entities. Barclay Grayson also played a key role in the civil litigation surrounding Capital Consultants' collapse. A handful of defendants in those lawsuits have tentatively agreed to pay more than $109 million to settle the cases.

"I don't doubt your remorse," Brown said in response. However, she said, the seriousness of the Capital Consultants crimes demanded a prison sentence.

"Barclay is extremely disappointed and devastated by the court's sentence," Ungar said. Grayson is tentatively scheduled to report to the Sheridan federal prison on June 14. He could appeal the sentence. John D. Abbott, the ex-Laborers union boss who took nearly $200,000 in illegal payoffs from Jeffrey Grayson, already is serving a 15-month sentence at Sheridan.

Prosecutors will continue to rely on Barclay Grayson as their key witness. Investigators continue to look into the actions of twelve people involved with the Capital Consultants case. They include borrowers, union bosses, former employees, and attorneys and accountants involved in the transactions. [Oregonian 5/31/02]

It was the largest case of pension fraud in U.S. history.  And it played a major part in how one firm in short order managed to lose $350 million, mostly in the form of union investments.  A convicted mastermind of the scheme, Barclay Grayson, now out of prison, is seeking to make amends.  He recently provided a Congressional panel with some practical advice on how to prevent repeat performances.   

Grayson was president of a now-defunct Portland, Ore.-based investment group, Capital Consultants LLC.  In testimony June 9 before the Senate Health, Education, Labor and Pensions Committee, he explained how he and several associates had built their company on an edifice of mail fraud, money laundering, bribery and racketeering.  That Capital Consultants (CCL) managed to operate in this manner for as long as it did, explained Grayson, was due in part to the Department of Labor (DOL) lacking a grasp of complex accounting transactions.  Federal officials “effectively witnessed over eight years of abuses without taking significant action to close the firm,” he said.

Alan Lebowitz, a DOL deputy assistant secretary, took issue with this assertion.  He told the committee that his department had conducted two investigations, forcing CCL to liquidate.  He added that his department thus far has recovered about 70 percent of the lost money.  Either way, it’s beyond dispute that union officials were in on the action.      

Until its collapse in 2000, Capital Consultants for years appeared it could do little wrong.  The company, founded by Barclay Grayson’s father, Jeffrey Grayson, attracted large sums of pensions and other trust funds from such unions as the Plumbers and the Electrical Workers.  But it’s not likely their rank-and-file members were aware of just how much at risk their investments were.  When stock prices tanked in 2000, included in the wreckage were unsound CCL investments.  Panic and lawbreaking became especially pronounced, especially when Wilshire Credit Corp., another Portland firm, defaulted on $160 million in loans it had received from Capital Consultants.  The Graysons’ house of cards was about to collapse.  Suspicious federal investigators raided the firm’s offices that September, freezing $927 million in assets.  

More than a few organized labor officials were unhappy at this turn of events.  Dozens of union trust funds sued the Graysons to get their money back.  John Endicott, business manager of Plumbers and Pipe Fitters Local 290, whose members had entrusted Capital Consultants with much of their life savings, noted at the June 9 Senate hearing, “In just a blink of an eye, much of that money evaporated into thin air...along with the hopes and dreams of most of our members.”  But union leaders were not quite the innocent victims such a statement would suggest.  John Abbott, a trustee for several Laborers funds, steered union funds to CCL, after taking roughly $200,000 in bribes from Jeffrey Grayson.  Dennis Paul Talbott, former secretary-treasurer for Sheet Metal Workers Local 33, took a bribe in connection with his duties as a trustee of his union’s employee benefit plan.  And they were hardly alone.

The principals in the Capital Consultants affair eventually were called to account. Barclay Grayson served 14 months in federal prison for mail fraud.  His father also pleaded guilty to fraud charges, but had a debilitating stroke not long afterward, and since has lived in a nursing home.  Wilshire CEO Andrew Wiederhorn pleaded guilty to filing a false tax return and bribing the elder Grayson; he began an 18-month sentence in federal prison last August.  John Abbott got a 15-month sentence for racketeering.  In all, about a dozen people were either indicted or convicted.

Some ranking members of Congress want to amend federal law to make sure something like this doesn’t happen again.  Senate Pensions Committee Chairman Mike Enzi, R-Wyo., plans to introduce anti-fraud provisions into a pension reform bill.  The House, led by Reps. John Boehner, R-Ohio, and Sam Johnson, R-Tex., has its own proposal.  Final legislation, say insiders, is likely to end up part of a larger Social Security reform measure.  (Associated Press, 6/9).