from: http://www.willametteweek.com/html/leada.html Click Here: <A HREF="http://www.willametteweek.com/html/leada.html">Willamette Week | Lead Story</A> ----- --Grayson's reputation might have been tarnished further had people known everybody he was doing business with. In 1998, WW identified Alvin Malnik as an early player in the local car-title loan business ("Shark Attack," WW, Sept. 2, 1998). That same year, Malnik came to Portland to ask CCI for a loan. According to the New Jersey Casino Control Commission, Malnik was an associate of the legendary mobster Meyer Lansky and other reputed organized-crime figures. Through a trust, Malnik owned a large stake in a Georgia company called Title Loans of America--the biggest player in that business. Grayson liked Malnik's pitch and agreed to a loan. "He runs an interesting business," Grayson says of Malnik, but he denies that CCI played a role in bringing the fast-growing title loan business to Oregon. (Malnik has never been convicted of a crime and has repeatedly denied connections to organized crime.)-- Om K ----- LEAD STORY The End of a Legend For more than 30 years, Jeff Grayson quietly won influence by investing other people's money to make them--and himself--wealthy. Then he bankrolled a kid named Wiederhorn, and now the feds want to know why. BY NIGEL JAQUISS [EMAIL PROTECTED] photos by Martin Thiel At Cleveland High, Grayson (class of '60) planned a different career: He served as president of the Future Teachers of America. A few years ago, while Grayson dined at the Ringside restaurant, a parking valet, confused by the hand controls of a Rolls Royce Grayson then owned, accidentally backed it onto West Burnside Street. An oncoming car totaled it. In his 32 years of lending, Grayson loaned money against assets ranging from airplanes to the liquor license on a Mexican restaurant in Wasilla, Alaska. "We don't take collateral that eats or shits," Grayson says, "but we'll take just about anything else." In 1976, Grayson and his partners were fined $300,000 and suspended for two weeks by the Securities and Exchange Commission for not notifying authorities that a firm they were investing in was breaking the law. Grayson's clients are still paying him fees on the $160 million he loaned to Andy Wiederhorn (above), despite the fact that many people think the money is gone forever. CCI has suffered from employee turnover. Between 1996 and 1998 Bill Schaub, the firm's counsel, and Greg Houser, Grayson's longtime partner, bailed out, as did the four managers who ran CCI's stock-and-bond portfolios. In January 1999, the empire created by Andrew Wiederhorn, the 34-year-old Portland financial wunderkind, teetered on the edge of bankruptcy. That same month, Jeffrey Grayson, perhaps the city's most prominent pension-fund manager, took out a license to carry a concealed handgun. Grayson says there's no connection between the events, but others disagree. Those familiar with his business say that given the $160 million of investors' money Grayson loaded onto Wiederhorn's sinking ship, he might feel a need for protection. For more than 30 years, Grayson, 58, has been Portland's leading wheeler-dealer, a flamboyant financier who has overcome daunting obstacles to make himself and a lot of others very wealthy. None of those past challenges, however, can match what he now faces. No one had a bigger stake in Wiederhorn's fortunes than Grayson. And today, as he sits in the cross hairs of investors and federal investigators who want to know why he made the loans, no one has more to lose from the young financier's collapse. "If cats have nine lives, then Jeff has 20," says a veteran Portland fund manager. "But this problem he's got now could be terminal." * * * Jeff Grayson manages money. Some in Portland manage more and some do it better, but none does it with such flair. "In a lot of ways, Jeff's kind of bigger than life," says real-estate developer Homer Williams, who has known Grayson for 30 years. The most obvious way in which Grayson differs from his peers is his disability. When he was 38, Grayson's doctor told him he had multiple sclerosis. "I went everywhere looking for another diagnosis," he recalls. "When I finally accepted it, I thought, 'Now I'm going to die.'" In fact, MS doesn't always shorten people's lives; but it can make them extraordinarily difficult. Grayson has lost the use of one arm and cannot walk. He is unable to dress himself, write or hold his grandchildren. Since 1983, he has spent his waking hours in a motorized cart. Without the voice-activated computers that are never far away, he'd be lost. "The Internet is my new life," he says. Grayson's friends say he hasn't let MS kill his spirit. He even fly-fishes with help of a raft and specially designed rod. "I've never, ever heard him complain," Williams says. "He's got an enormous amount of energy." Part of that energy has gone into living large. It's impossible to separate Grayson's disability from his conspicuous consumption. Even before he got MS, Grayson suffered a devastating loss: His twin sister, Janet, died in a car wreck on the eve of their 23rd birthdays. Later, when he finally accepted his diagnosis, he decided he might as well live as if there were no tomorrow. He bought a BMW motorcycle he had long coveted and a slightly grander toy. "I had always wanted to drive a Rolls Royce," he says. "So I said, 'Screw it,' and went out and bought one." Although Grayson can no longer ride a motorcycle, he hasn't lost his taste for cars. Today, he cruises around town in a $250,000 Bentley convertible equipped with hand controls. From a $400,000 jade collection to front-row Blazer tickets to the Cessna Citation jet he owns with two others, Grayson's lifestyle reflects his achievements--and is completely contrary to the low-key ethos of Portland's establishment. "This is a town that tends not to wear its wealth and tends to frown on it," Williams says. "But Jeff's got an independent streak." Grayson's office displays his diverse interests. On the wall across from his panoramic view of the Portland skyline and Mount St. Helens hang a pennant from the days when he and others, including car dealer Ron Tonkin, owned the Portland Beavers AAA baseball team; a program from a Chamber Music Northwest concert held at his 9,500-square-foot home; and photographs of him with George Bush, Jimmy Carter, Mark Hatfield, Neil Goldschmidt and Ron Wyden. Carter was reportedly intrigued by Grayson's electric cart when they met by chance on the Hawaiian island of Kauai. "Look at this, Rosalyn, we've got to get one of these," the then-president said to his wife. "If you cut off your legs and give them to me, you can have my cart," Grayson responded. Grayson is married to Susan Wilhelm, the granddaughter of trucking magnate Rudy Wilhelm and the former wife of Portland developer Selwyn Bingham. After his first marriage ended in divorce in 1984, Grayson listed criteria he wanted in his next wife. He sent out dinner invitations to a select few and summoned others to his home. If candidates fell short on even one criterion, they were off the list. "You can't be emotional about these things," Grayson says. Bette Sinclair, who runs a Portland public-relations agency, recalls getting a phone call. "I went to his house for what seemed like an interview," Sinclair says. "He was charming, but I didn't make the cut." Although Grayson obviously enjoys spending money, he's also a generous fund raiser and donor. When in 1994 the University of Oregon embarked on its largest fund-raising drive ever, it called on Grayson to co-lead the charge. Last year, at the campaign's conclusion, the take was $250 million--including $1.5 million from Grayson and his wife--$100 million more than targeted. Grayson has also served on the board of directors of Chamber Music Northwest, OMSI, the Boys and Girls Aid Society and the Oregon Chapter of the National Multiple Sclerosis Society. "His energy changed our whole organization," says the society's president, Carol Vogel. "He made us see we weren't just some rinky-dink charity." * * * Just as Grayson's Bentley has little in common with the Volvos and Subarus many of his professional peers drive, his investment strategy couldn't be more different. Most money managers--such as Portland's two best-known firms, Columbia Management and The Crabbe Huson Group--invest primarily in stocks and bonds. When Grayson founded his company, Capital Consultants Inc. (now Capital Consultants LLC), in 1968, he followed the conventional path at first--but not for long. Grayson hasn't been shy about showing his disdain for the stock-and-bond side of the business, once telling employees that "trained apes" could manage such investments. Instead, he concentrated on what are called "private investments. " Such investments usually were loans to companies that couldn't get financing from conventional sources. Grayson structured his loans so that his clients not only received interest, but also shared in the borrower's profits. Such deals grew from about 5 percent of the firm's activities in the mid-'80s to 50 percent today. Grayson's client list is also unusual. In 1969, he landed the Portland Plumbers and Steamfitters retirement fund, and since then, union pension funds have formed the backbone of his business. Grayson guards his clients' identities jealously, but admits that the majority of the money he manages comes from unions, including local groups such as the Oregon Laborers, Office and Professional Employees and the Oregon Hospitality Trust. Some local money managers say union pension funds should not invest in private deals, because such deals are more risky than conventional investments. Ralph Shaw, who ran U.S. Bank's money management operation before starting his own venture capital firm, sees another reason that labor groups should put their retirement money in more traditional investments. "Union trustees aren't the most sophisticated investors in the world," Shaw says. "They work more based on personal relationships than on performance." Grayson argues that his clients know exactly what they want: more income than bonds can generate and limited exposure to what they perceive as the excessive volatility of the stock market. He agrees, however, that customer contact is a crucial part of his success. "I can't play golf or go hunting anymore," he says, "so to make up for it, I stay close to my friends who are also my clients." From his mid-court, front-row Blazer tickets to jetting to Las Vegas for the fights, Grayson has shown pension fund trustees a slice of life they might not otherwise have seen. He also has an ace in the hole. CCI's top salesman, Dean Kirkland, is the son of Gary Kirkland, the longtime chief of the Office and Professional Employees Union. Equally impressive to many clients is the fact that the younger Kirkland played professional football for the Buffalo Bills. A former colleague recalls that trustees were often less interested in investment pitches than in getting a closer look at a Super Bowl ring Kirkland earned in one of Buffalo's losing efforts in the early '90s. * * * Whether the level of risk Grayson exposed clients to was appropriate or not, there's no question that some of his deals were home runs. Grayson's biggest local real-estate investment came when he loaned $70 million to developers of the building at 200 SW Market St., earning his investors a 22 percent annual return for two years. Deals didn't have to be nearby to interest him. On a working vacation to Perth, Australia, in 1992, he met the owner of Leeuwen Estates Winery vineyard, who was in deep financial trouble. After looking through the winery's books, Grayson low-balled creditors and bought the place, lock, stock and Shiraz-filled barrels. "We put in $4.2 million and 14 months later walked away with a 22.5 percent return," he says. Closer to home, Grayson loaned $3 million into West Coast Hotels, which operates the Benson and Riverplace hotels, earning 28 percent for investors over six years. He financed start-ups and commercial real estate but also such oddball ventures as the Grizzly Discovery Center in Yellowstone Park (investors earned 18 percent for seven years). "He was a brilliant deal maker," says Simon Acheson, who headed up private investments for CCI from 1989 to 1994. In addition, Grayson provided crucial early-stage financing to local companies such as Obie Media, a Eugene advertising company; FEI, a Hillsboro manufacturer of high-tech microscopes; CFI Proservices (now called Concentrex); and Crown Pacific Partners. "I can think of probably 10 local companies that would have ended up in the morgue if not for Jeff," says Marc Robins, CEO of the Red Chip Review, and a former CCI employee. Calling Grayson a kingmaker is no exaggeration. With his help, for instance, CFI/Concentrex's CEO Matt Chapman took his company public and in 1994 was named Oregon's Technology Entrepreneur of the Year. Crown Pacific founder Peter Stott, Oregon's Entrepreneur of the Year in 1999, has become one of Portland's most powerful businessmen and today holds Crown Pacific shares worth $50 million. "Is Jeff a tyrant to work for? Yeah. Could he be a pain in the ass? Absolutely," says Robins. "But if this was San Francisco, Jeff would be considered another Bill Hambrecht," he adds, referring to one Silicon Valley's legendary financiers. * * * Not every deal, however, thrilled Grayson's investors. Starting in 1991, CCI loaned about $10 million to Western States Inc., a local ship-repair company that subsequently declared bankruptcy. More recently, Grayson has dumped another $9 million into Athena Medical, a struggling Portland maker of testing and feminine hygiene devices. Grayson found himself facing bad publicity in the mid-'90s from more than just troubled investments. In 1995, following a two-year probe, the federal Department of Labor, which oversees pension investments, ordered CCI to repay Oregon Laborers-Employers Pension Trust $2 million for charging excessive fees. The punishment remains one of the most severe in DOL history. The following year, one of CCI's largest clients,the AGC-International Union of Operating Engineers Local 701, headquartered in Portland, fired Grayson and sued in federal court in Portland. AGC's lawsuit accused CCI of making imprudent investments and being less than forthcoming when those investments flopped. The suit was eventually settled out of court, but not before CCI's reputation had been dragged through the mud. Grayson took the defeats in stride, but they stung nonetheless. As he told employees, "I don't mind getting sued, I just mind losing." Grayson's reputation might have been tarnished further had people known everybody he was doing business with. In 1998, WW identified Alvin Malnik as an early player in the local car-title loan business ("Shark Attack," WW, Sept. 2, 1998). That same year, Malnik came to Portland to ask CCI for a loan. According to the New Jersey Casino Control Commission, Malnik was an associate of the legendary mobster Meyer Lansky and other reputed organized-crime figures. Through a trust, Malnik owned a large stake in a Georgia company called Title Loans of America--the biggest player in that business. Grayson liked Malnik's pitch and agreed to a loan. "He runs an interesting business," Grayson says of Malnik, but he denies that CCI played a role in bringing the fast-growing title loan business to Oregon. (Malnik has never been convicted of a crime and has repeatedly denied connections to organized crime.) Some in Portland's financial community suggest that bad publicity generated by litigation and some ill-fated investments stunted CCI's growth. "Consistency in your track record goes a long way in building your business," says Grayson's former partner, Butch Swindells, now vice-chairman of U.S. Trust Company, N.A. Portland's economic boom and the resurgence of bank lending, meanwhile, also squeezed Grayson's traditional niche. "The best market for Jeff was in the '80s when people with good deals didn't have access to banks," says Williams. "There's quite a bit more money around now." Whatever the cause, Capital Consultants' assets under management are about the same today as they were a decade ago, according to SEC filings. (SEC documents filed in March show that the company manages $825 million; Grayson says that figure has since grown to $1.1 billion.) In comparison, the assets of Columbia Management Co., which was founded in 1967, a year before CCI, more than doubled in the '90s to $20 billion. * * * In the late '90s, a time when Grayson needed salvation, Andy Wiederhorn must have seemed like a godsend. In many ways, Wiederhorn was a younger version of Grayson: Both were Portlanders desperate to make their mark on the city; both rejected orthodox ways of making money, instead panning gold where others saw junk. Just as Grayson loaned to borrowers that conventional lenders disdained, Wiederhorn bought mortgages that traditional financiers didn't want. His was a high-volume/low-margin business that required constant infusions of cash. Grayson started making small loans to Wiederhorn in 1993. "I was impressed by his hard work and success and the low profile he kept in those early years," he recalls. By 1998, the loans had ballooned $160 million--a staggering 40 percent of the money CCI allocated to private investments. Former employees say that CCI earned a fat 3 percent fee on the loans--nearly $5 million annually. Such fees are rare in the pension business. Had CCI invested the same $160 million in government bonds, for instance, its fee would be less than a million dollars annually. At first, betting so heavily on Wiederhorn looked ingenious. After going public in 1996, one of Wiederhorn's companies, Wilshire Financial Services Group, skyrocketed, tripling within a year. Times were good. Grayson and Wiederhorn served on the board of the Boys and Girls Aid Society together and talked constantly on the phone. Grayson even sent his younger son, Blake, to work for Wiederhorn for two years before Blake joined CCI. But Wiederhorn got drunk on leverage and took home too many lousy assets. Crippled in the global economic crisis of 1998, his company WFSG declared bankruptcy in March 1999. CCI clients now held $160 million in IOUs in a company that was essentially worthless. In the post-bankruptcy reorganization, CCI's clients, mostly pension funds, got the opportunity to convert their IOUs into stock that today is worth less than $10 million. And yet, as The Oregonian has reported, Grayson has apparently managed to convince pension fund trustees that their $160 million is safe. He claims to have found other investors willing to assume Wiederhorn's IOUs and pay the $18 million in annual interest payments they carry. The claim seems incredible, given that these new investors (identified by Grayson first as a New Jersey company called Sterling Capital and more recently a Florida company called Brooks Financial LLC) are apparently paying more each year for the right to buy stock than the stock itself is worth. Grayson's explanation, at least as it has appeared in print, has met with widespread disbelief in Portland's financial and legal community. One pension lawyer calls it "totally nonsensical." On the advice of his attorneys, Grayson will not discuss specifics of the Wiederhorn loans, except to deny that he has broken any laws. He remains optimistic about his clients' money. "It'll all work out in the end," he says. Several Grayson clients contacted declined to discuss the matter with WW, but Jay Miner, a trustee for Oregon Laborers-Employers Vacation Savings Trust, defended Grayson. "There's been a lot of bad publicity," Miner says, "but we haven't had a large drop in the value of the assets we hold." In fact, Grayson has publicly promised a third-party appraisal of those assets--the IOUs--but none has yet been made available. * * * Grayson says that he's cooperating fully with federal investigators. He spends his days in front of his computer on the third floor of his headquarters. Other than his two sons, nearly all his top aides have left the company, and friends in high places seem temporarily to have forgotten who he is. CFI/Concentrex's Chapman, despite repeated requests, did not return phone calls to talk about how Grayson helped him. Neither did Peter Stott. Andy Wiederhorn isn't talking. Even Carolyn Chambers, who co-led the U of O's Campaign for Oregon with Grayson, has nothing to say. Grayson insists he got his pistol for target practice, nothing more. "This kind of problem, it goes with the type of investments I make," he says of his current difficulties. "People ask me how I sleep," he says. "I sleep fine." But if indeed the $160 million is gone, it might help to be a good shot. ------------------------------------------------------------------------ The Investigation Representatives of federal agencies including the Department of Labor and U.S. Attorney's Office are scrutinizing Grayson's activities. Although the feds won't comment on their activities, observers in Portland's financial community speculate that the investigation centers on the loans Grayson made to Andrew Wiederhorn. One of the issues the feds may be looking at is prudence: Did Grayson put too many eggs in one basket? Linked to that question is the issue of Grayson's personal financial dealings. Grayson has admitted that in 1996 he borrowed money from CF Credit LLC, a California company connected to Wiederhorn. Borrowing from someone you're lending to might be a conflict of interest, but Grayson insists he didn't know of Wiederhorn's involvement when he got the money from CF. What Grayson hasn't addressed are puzzling financing statements filed in 1997 and 1998 showing that he pledged personal assets, including his ownership in CCI and what is now the Paramount Hotel, directly to Wilshire Credit Corporati on--the Wiederhorn company to which he loaned $160 million. Generally speaking, the Employer Retirement Income Security Act requires that pension fund managers must avoid transactions that could appear to be related to their investment of client funds, says James McElligott, an ERISA lawyer at McGuire Woods Battle & Boothe in Richmond, Va. "A fiduciary certainly has to be cautious about entering into transactions with an entity with whom he is investing," McElligott explains. Grayson says the documents were filed in error. In fact, Grayson says, WCC was merely administering additional loans he got from CF Credit. Finally, former Grayson employees allege that on more than one occasion, Wiederhorn loaned Grayson money to meet CCI's payroll. Grayson adamantly denies the accusation. "That's absolutely not true," he says. --NJ ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. 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