The Office of the United States Attorney for Oregon announced today
that Jeffrey Grayson pleaded guilty to one count of mail fraud and one
count of aiding in the preparation of a false tax return. As part of
his plea, Grayson agreed to cooperate with the United States Attorneys
Office in their continued investigation of Capital Consultants' borrowers
and union organizations, and personnel. The prosecution is being handled
by Assistant U.S. Attorneys Lance Caldwell and Neil Evans.
The charges stem from a joint federal investigation of Grayson's dealings
as head of Capital Consultants, an investment management firm located
in Portland Oregon, which was placed in receivership in September, 2000.
Grayson admitted that between 1994 and September, 2000, he engaged
in a scheme to defraud Capital Consultant's clients, mostly union pension
plans and benefit plans. He admitted to receiving financial benefits
in connection with loans to Wilshire Credit Corporation (WCC). In return,
he directed Capital Consultants to make loans and loan commitments to
WCC. Between 1994 and 1998, Grayson caused Capital Consultants to loan
approximately $160,000,000 to WCC. He concealed the reciprocal nature
of these transactions from Capital Consultant's clients.
In 1998, WCC experienced financial difficulties and was unable to
meet its loan obligations to Capital Consultants. Grayson admitted that
he then orchestrated the sale of the $160,000,000 loan, at par value,
to a third party, Sterling Capital, LLC (Sterling). Sterling was formed
at Grayson's direction by another Capital Consultant borrower, Dan Dyer.
Grayson participated in the issuance of incomplete and misleading reports
issued to Capital Consultant investors, which incorrectly represented
that the Wilshire loan had been sold to an independent buyer. Grayson
concealed the fact that Dyer controlled Sterling and also concealed
the non-recourse, unenforceable nature of the purchase agreement.
By spring of 1999, Sterling was in default on it's purchase of the
Wilshire loan. Again, Grayson failed to disclose the default to Capital
Consultant investors.
Upon Sterling's default, Grayson persuaded another Capital Consultant
borrower, FAFCO, controlled by Tim Gamwell, to act as a conduit for
additional Capital Consultant loan proceeds to be used to make the monthly
Sterling loan payments. Grayson agreed to loan Gamwell additional funds
for FAFCO, but only if Gamwell agreed to use a portion of the loan proceeds
to acquire 66 per cent of Sterling's interest in the Wilshire loan.
Grayson directed that Gamwell set up two new companies, Brooks Financial,
LLC (Brooks), and Beacon Financial, LLC (Beacon). Grayson then caused
Capital Consultants to loan approximately $73,000,000, including approximately
$54,000,000 of union funds, to Brooks and Beacon. Approximately $22,000,000
of that money was diverted back through Sterling to make interest payments
on the Wilshire loan.
Grayson admitted to mailing false reports to his company's clients.
He also billed his 3 per cent annual management fee based on the Wilshire
loan's par value.
The information charges one count of violation of Title 18, U.S.C.
§§ 1341, Mail Fraud, for Grayson's use of the United States mail to
send false reports for the fourth quarter of 1997 from Capital Consultants
to the Oregon Laborers-Employers Pension Trust Fund. That report falsely
represented that an investment loan known as "The Hand That Feeds You!"
had been paid off by an independent third party. In fact, the loan was
paid off in a reciprocal transaction involving WCC.
The information also charges one count of violation of Title 26, U.S.C.
§§ 7206(2), Assisting in the Preparation of a False Tax Return. Grayson
admitted to advising and aiding John Abbott, a union trustee, in the
filing of a false 1997 Individual Federal Income Tax Return. Abbott
falsified his return by failing to disclose approximately $76,000.00
of gratuities received from Grayson in 1997. Abbott served as a trustee
of the Idaho Laborer's Pension Plan, Oregon Laborer's Defined Benefit
Plan, Oregon Laborer's Defined Contribution Plan and the Oregon Laborer's
Health and Welfare Plan. Between 1990 and 1998, Grayson secretly paid
Abbott approximately $200,000.00 for his continued influence and access
to the union investment boards.
Abbott pleaded guilty in February, 2001 to receipt of gratuities,
and to filing a false tax return for failing to report the gratuity
income. He was sentenced to 15 months imprisonment.
Grayson's son Barclay, pleaded guilty to mail fraud in March, 2001,
admitting that he engaged in a scheme to defraud pension plans by, among
other things, overstating the value of the Wilshire Loan investment
made by Capital Consultants on behalf of the plans. He was sentenced
on November 20, 2001 to 24 months in prison. Barclay Grayson's cooperation
played an important role in events leading to his father's plea and
cooperation with the United States Attorney's office. It is anticipated
that the government will file a motion to reduce his sentence because
of his role.
Mail fraud and the tax charge carry maximum penalties of 5 years and
3 years in prison, respectively. Each also carries a maximum fine of
$250,000 and a $100 fee assessment. The actual penalty imposed will
depend upon many factors under the sentencing guidelines.
U.S. Attorney Mosman praised the outstanding investigative work of
agents of the Internal Revenue Service, Criminal Investigation, the
Federal Bureau of Investigation, and the Department of Labor Office
of Inspector General, Pension and Welfare Benefits Administration, and
Office of Labor and Management Standards. Questions may be directed
to Assistant United States Attorneys Lance Caldwell and Neil Evans at
(503) 727-1000.
