PORTLAND, Ore. - Pension fund clients of money manager Capital Consultants LLC expect to get back less than half of what they had invested with the now-shuttered money manager.
Eighteen months after the firm was placed in court-ordered receivership, five class-action lawsuits filed in U.S. District Court by plan participants against trustees of 12 mostly union pension and health-care fund clients reached tentative settlements March 7, while a number of lawsuits brought by former clients are close to settlement. The tentative settlements must be approved by the court; a hearing is scheduled for May 21.
Additionally, a motion was filed March 21 in U.S. District Court to postpone the criminal trial against former Capital Chief Executive Officer Jeffrey Grayson. The trial was to begin March 26. The motion, filed by the U.S. Attorney's office in conjunction with Mr. Grayson's criminal case counsel Harvery Silets, was prompted by Mr. Grayson's agreement to plead guilty to new criminal charges. Neither Mr. Silets nor Lance Caldwell, assistant U.S. attorney for the district of Oregon, would disclose the new charges. The plea date is scheduled for April 23.
Another 20 cases related to the Capital situation have yet to reach conclusions. It is a complicated matter: in some of the remaining unsettled litigation surrounding Capital, pension fund participants are suing Capital and their plans' trustees in separate cases; in other cases, plan trustees are suing Capital.
And consulting firms are not exempt: Segal Advisors is one of the defendants in Piet vs. Lantine, in which plan participants in the $104 million Sheet Metal Workers Local 9 pension fund, Lakewood, Colo., are seeking $25 million in damages from the plan's trustees and Segal.
Greg Veralrud, an attorney representing Mr. Grayson in the civil cases, did not return repeated calls for comment.
$355 million loss
In his second interim report, court-appointed receiver Thomas Lennon reported Capital had managed to lose $355 million of a $452 million private investment portfolio. The losses equal 79 cents on the dollar, the report said.
But there's a paucity of assets to pay the claims. Capital Consultants - which had managed $1 billion for 60 pension fund clients and 270 retail clients when it was placed in receivership - has only $11 million in real estate assets remaining, said Loraine Pedwitz, an attorney representing Mr. Lennon.
What's more, pension fund trustees had inadequate fiduciary liability insurance to cover claims. In a recent example, Richard Birmingham, an attorney representing the trustees of the 8th District Electrical pension and profit-sharing funds, Aurora, Colo., said he is working on a settlement with plan participants that could return half of the fund's $93 million in losses to the plan. The trustees have a $9 million liability insurance policy.
All told, it means some pension funds are expected to get back only 40 cents to 50 cents on each dollar they had invested with the Portland-based money manager, said attorneys involved in the cases.
Meanwhile, Mr. Grayson is still defending himself in suits filed against him by government agencies and investors since Sept. 21, 2000, when the U.S. District Court for the District of Oregon placed the firm under the control of Mr. Lennon.
On that day, the firm and its principals were permanently barred from conducting business with any Employee Retirement Income Security Act-governed plan.
Also, the Department of Labor and the Securities and Exchange Commission accused Mr. Grayson and his son, Barclay Grayson, who was president of Capital, of imprudently investing $150 million on behalf of pension funds between 1995 and 1998.
They also were accused of securities fraud and operating a Ponzi-like scheme.
Series of loans
The investments were a series of loans to now defunct Wilshire Credit, Portland, Ore., a buyer and servicer of low-quality consumer loans.
Aggravating the matter was Capital's alleged additional loans to Wilshire even after Capital executives knew the original investments had dropped in value.
At the time Capital was placed in receivership, approximately half of its $1 billion under management was "at risk," said Chrys Martin, a defense attorney with the Portland law firm Bullivant Houser Bailey PC. She represents trustees of the 12 pension funds involved in the March 7 settlements.
The settlements were reached among the pension and health-care plan participants, the plans' trustees and the Department of Labor.
The agreement calls for the trustees' insurers to pay $16 million in losses to 12 pension, 401(k) and health-care plans belonging to Idaho Laborers, Oregon Laborers, Plumbers Local 290 and Office & Professional Employees International Union Local 11. The agreement also calls for 12 trustees of the funds to resign.