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).