Labor Department Secures Stipulated Order Appointing Receiver And Freezing Assets Of Oregon Investment Manager

Archived News Release — Caution: Information may be out of date.

The U.S. Department of Labor has secured a stipulated order appointing a permanent receiver and freezing assets of Capital Consultants, LLC, of Portland, Ore., and preliminarily barring the firm and its principals from doing business with any plan governed by the Employee Retirement Income Security Act (ERISA).

The permanent receiver is expected, among other things, to make an accounting of the company’s assets and to take steps to protect the interests of the ERISA plans and other investors.

The order partially resolves a lawsuit filed by the department today against Capital Consultants and its principals Jeffrey L. Grayson and his son, Barclay Grayson. The department’s lawsuit alleges that defendants imprudently invested $150 million of the assets of its employee benefit plan clients in a series of imprudent loans with consumer and automobile loan servicing corporations, causing the plans to lose over $100 million.

Capital Consultants, a registered investment manager with the Securities and Exchange Commission (SEC), provides investment services to more than 60 primarily union-sponsored pension, health and welfare plan clients governed by ERISA. Jeffrey Grayson is the principal owner and chief executive officer of Capital Consultants, and his son Barclay Grayson is president of the firm.

According to the lawsuit, the defendants violated ERISA by:

• using plan assets to make a series of imprudent loans from 1995 through 1998 to Wilshire Credit Corporation, an Oregon S-Corporation which acquired and serviced performing and non-performing consumer loans
• continuing to make loans to Wilshire Credit despite evidence that the plans’ investment with the firm had declined substantially in value, thereby placing additional plan assets at risk
• imprudently loaning plan and other client assets to Sterling Capital, LLC; Oxbow Capital Partners, LLC; Brooks Financial, LLC; and Beacon Financial Group, LLC, to facilitate “paper sales” of all or a portion of the Wilshire loan at an inflated price and thereby conceal losses suffered by the plans on the original investment
• charging the plans excessive fees for investment management services by basing the fees on a percentage of the full amount of the Wilshire credit loans even though the plans’ investments had declined in value.

The department’s lawsuit also seeks a court order permanently barring the defendants from doing business with any plan governed by ERISA, and requiring them to restore all losses suffered by the plans and to return all illegal profits or benefits received by them.

The stipulated order and the department’s lawsuit regarding alleged violations of ERISA were filed today in federal district court in Portland, Ore. Concurrently, the Securities and Exchange Commission filed a lawsuit and obtained similar relief against the same defendants.

The department’s lawsuit grew out of an investigation conducted by the Seattle District Office of the Labor Department’s Pension and Welfare Benefits Administration and joined by the SEC.

(Herman v. Capital Consultants, LLC)
Civil Action 00-1291-HA

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Archived News Release — Caution: Information may be out of date.