Millions in pensions are feared lost in fraud

PORTLAND - Federal authorities seized control of the investment advisory firm Capital Consultants LLC Thursday and accused its two top executives of running a "Ponzi-like scheme" to cover up the loss of as much as $160 million in client money.

In running the alleged fraud, regulators said, the money manager may have further deepened clients' losses to more than $200 million.

Much of the money came from at least 20,000 union members and retirees and their families, whose pension and benefits funds were managed by Capital Consultants.

A federally appointed receiver took permanent control of Capital Consultants' downtown Portland office Thursday afternoon. The receiver will eventually shut the company down.

Jeffrey L. Grayson, 58, and Barclay L. Grayson, 30, father and son and the senior executives of Capital Consultants, were banned from the office.

The U.S. District Court order appointing the receiver also froze the Graysons' personal assets.

The federal Labor Department and the Securities and Exchange Commission obtained the order seizing the investment firm shortly after the agencies filed separate lawsuits in federal court. The lawsuits charged that the Graysons and Capital Consultants orchestrated what one SEC lawyer termed "one of the largest frauds perpetrated by an investment adviser."

"Essentially (the Graysons) took people's retirement money and (they've) stolen it through the Ponzi scheme," said Kelly Bowers, assistant regional director of the SEC's office of enforcement.

Federal officials said the civil lawsuits don't preclude criminal prosecution that may result from an ongoing federal investigation that includes the Internal Revenue Service, the Federal Bureau of Investigation and the Labor Department.

The Graysons declined, through their lawyers, to comment.

Capital Consultants made loans totaling $160 million to the former Wilshire Credit Corp. of Portland. In 1998, Wilshire Credit and its affiliate Wilshire Financial Services Group nearly failed. The next year, Wilshire Financial went bankrupt.

The lawsuits in U.S. District Court contend that the Graysons, rather than tell their clients the $160 million was gone, concocted a scheme to hide the loss. They told their clients that a New Jersey firm, and later a Miami company, had assumed the debt.

To conceal the loss, the lawsuits say, Capital Consultants lent another $71 million to Sterling Capital and related companies, who returned some of the money to Capital.

This money was presented to clients as interest on the $160 million when in fact the $160 million was lost.

Capital Consultants continued to charge management fees for the amount of both loans.

With $1 billion under management and union clients stretching from California to Colorado to Kentucky, Capital Consultants was a major operator in the union-pension world.

At least 20,000 union workers - ironworkers in Hawaii, seafood processors in Alaska, sheet-metal workers in Colorado Springs and Cleveland and electricians in Phoenix, Salt Lake City, Oklahoma City and Chicago - entrusted hundreds of millions of dollars to the firm.

The United Association Local 290 Plumbers Steamfitters and Shipfitters have about $17 million on the line. The Oregon and Idaho Laborers invested $20 million. Local 11 of the Office and Professional Employees International Union has its entire 401(k) fund invested with Capital Consultants, though only an unknown fraction of that may be at risk.

Larry Miller, a longtime member of the Oregon Laborers Union local 296, said members are extremely anxious about the fate of their retirement money. "The retirees are calling me up," said Miller. "They want to know if they are going to get their pension checks, and I have to tell them I don't know the answer."