Dozens of union pension and other benefit funds reached a settlement May 13 with eleven parties to recover $110 million of losses involving allegations of pension fraud by the Portland, Or., based Capital Consultants LLC. Capital Consultants had $927 million under its management when federal agents seized its assets in Sept. 2000. Funds from Taft-Hartley plans and other employee benefit plans accounted for a large share of nearly $500 million in estimated investment losses The demise of Capital Consultants sparked lawsuits by a number of union trusts, alleging fraud and seeking to recover some of their losses. The proposed settlement, yet to be approved by the district court, calls for payments to the trusts by 11 companies and professional advisers, including legal and accounting firms.
In addition to the $110 million settlement, the court-appointed receiver has collected $140 million from the operation and sale of Capital Consultants assets. Also, litigation by some union members against their fund trustees resulted in a $16 million settlement in Mar. 2002. In total, plan participants have recovered merely 50% of their losses as the result of these various recovery actions. There are an estimated 500,000 participants in 67 trusts involved in the Capital Consultant litigation.
“This is an unprecedented settlement,” Steve English of the Portland law firm of Bullivant Houser Bailey, the lead counsel for the trusts, said in a statement. The resolution of the suits was due in part to the months of mediation led by U.S. Cir. Judge Edward Leavy (9th Cir., Reagan), he said. Legal fees and expenses are expected to be less than 7% of the total recovery, English added.
Most of the settlement money is to be paid by various insurers of the defendants. The settlement amounts are to be paid by the following eleven parties: 1) $40 million from the Wilshire Group and principals, a financial services company that defaulted on $155 million in loans from Capital Consultants. 2) $25 million from Lane Powel Spears Lubersky, Capital Consultants’ principal law firm. 3) $17 million from Moss Adams, an accounting firm that served as Capital Consultant’s accountant and performed asset valuations of the company’s private investments. 4) $12.5 million from Stoel Rives, Wilshire’s principal law firm. 5) $8 million from O’Melveny & Myers, an additional law firm used by Capital Consultants. 6) $2.5 million from McCarter & English, a law firm representing a Capital Consultants borrower. 7) $2 million from Weiss Jensen Ellis & Howard, an additional law firm used by Capital Consultants. 8) $1.35 million from C.F. Credit, a California private lender. 9) $1 million from Charles and Joseph Musumeci, owners of CJM Planning of N.J. 10) $500,000 from Barclay Grayson, ex-Capital Consultants president and CEO who recently plead guilty to crimes related to the scandal. 11) $100,000 Bear Stearns, a former lender to Wilshire.
Nevertheless, several of the trusts’ claims remain unsettled including claims against Capital Consultants, its owner Jeffrey Grayson, Deloitte Touche, an accounting firm that provided services to Wilshire and Pricewaterhouse Coopers, an accounting firm that provided services to Capital Consultants.
The major union trusts involved in the recovery action include the Or. Laborers-Employers Pension Plan, the Eighth Dist. of the Int’l Bhd. of Elec. Workers which covers Colo., Idaho, and Utah, the United Ass’n Union Local 290 Plumber, Steamfitter &Shipfitter Indus. Pension Plan in Portland, Or., and the Office & Prof’l Employees Int’l Union Local 11 also in Portland.
The settlement is subject to an approval hearing June 19 before U.S. Dist. Judge Garr M. King (D. Or., Clinton). The settlement represents a consolidation of 26 lawsuits listed in a May 13 hearing notice by King that summarizes the terms of the settlement. In his hearing notice, King said the settlement is in the best interests of the trusts because it avoids the delay and expense of protracted litigation. Also the settlement allows limited insurance funds to be distributed to investors rather than spent on litigation, he said. King also noted that the settlement prevents the trusts or plan participants from filing future claims against the settling parties. Court documents show that the plaintiffs and the receiver believed that Capital Consultants’ professional advisers bore part of the responsibility for the investment losses. However, the settlements contain no admission of wrongdoing by any of the defendants.
Lance Caldwell, an Asst. U.S. Attorney in charge of the Capital Consultants criminal investigation, said he is pleased that “so much money is being recovered for innocent victims” but that it will have little effect on potential new indictments. “The criminal and civil investigations have been largely separate and will continue that way.” In addition to Grayson, his son Jeffrey L. Grayson and ex-Laborers boss John D. Abbott have also plead guilty in the case. All have agreed to testify against others who are still under investigation by a federal grand jury in Portland.[BNA 5/16/02; Oregonian 5/14/02]