Scumbag Wiederhorn gets only 18 months, $2m restitution bill
For being one of the masterminds of the biggest Ponzi schemes in US history, 1997's "Oregon Entrepreneur of the Year" at last gets nailed. But because his main accomplice suffered a debilitating stroke and was unable to testify, he's getting off easy. (Compare that to a hungry guy who rips off food from a convenience store!) But what about the public employees who didn't get a shit (and still don't) about what kinds of environmentally and socially damaging schemes their PERS monies were invested in?
If these guys weren't discovered, they'd still be lauded to the skies by the O and the corporate community.
Wiederhorn pleads guilty
Friday, June 04, 2004
JEFF MANNING and JAMES LONG
Andrew A. Wiederhorn, founder of a high-risk loan company whose cozy deals with Capital Consultants fueled one of the biggest collapses of an investment management firm in U.S. history, pleaded guilty to two felonies Thursday and drew an 18-month prison term.
The 38-year-old executive, recognized in 1997 as Portland's "Entrepreneur of the Year," admitted that he paid an illegal gratuity to Jeffrey Grayson, former chief executive officer of Capital Consultants, a major lender to Wiederhorn's financial empire. He also pleaded guilty to filing a false tax return.
Wiederhorn, who also agreed to pay $2 million in restitution and a $25,000 fine, is to report to prison Aug. 2. U.S. District Judge Anna Brown ordered Wiederhorn to surrender his passport and not leave the country or the state without permission.
Wiederhorn's plea deal caps a marathon investigation stretching nearly five years into one of the city's largest and highest-profile white-collar scandals. Wiederhorn is the 12th person in the case to be indicted or to plead guilty to criminal charges.
Capital Consultants collapsed in September 2000, costing the firm's clients, many of them union pension funds, about $350 million. Wilshire Credit Corp., a company then controlled by Wiederhorn, was Capital Consultants' largest borrower, defaulting on $160 million.
Wilshire's failure to repay the loans sent Capital Consultants into a financial tailspin that ended with the company's seizure by federal regulators.
"We're very gratified with the outcome, two felony convictions and $2 million in restitution," said Lance Caldwell, the lead prosecutor on the case. "I think it sends a very strong message."
Wiederhorn and his attorneys took a defiant stance, blaming his current straits on his former lawyers' unfamiliarity with the law. Those lawyers were unaware of portions of the federal criminal code that under certain circumstances make gifts to a pension fund adviser a crime, Wiederhorn's current criminal defense lawyers have argued.
"Every agreement between Wilshire and Capital Consultants was a bona fide business transaction, not a corrupt, backroom deal," Wiederhorn said in a written statement. "I knew that Wilshire was represented by highly respected and very capable attorneys in every one of these transactions."
Wilshire credit was one of several affiliates and subsidiaries of Wilshire Financial Services Group, the umbrella organization for Wiederhorn's financial business.
Mark Peterman, Wilshire Financial's attorney, declined to comment. Robert Maloney Jr., who formerly represented Capital Consultants, said crucial facts were never disclosed to him.
The Oregonian first printed revelations of secret financial ties between Wiederhorn and Grayson in the spring of 2000. Companies controlled by Wiederhorn loaned more than $5 million to Grayson personally in the late 1990s while Grayson's Capital Consultants was sending massive loans to Wilshire Credit. Various Wilshire units also helped Grayson out of financial jams by buying troubled loans out of Capital Consultants' portfolio.
Grayson went to Wiederhorn for the first $1.7 million loan in late 1995 to pay a Labor Department fine for overcharging his union clients.
Grayson's health hindered case
Grayson pleaded guilty to fraud charges in April 2002 and three weeks later suffered a debilitating stroke. Federal prosecutors moved to dismiss criminal charges against Grayson last month, citing his ill health.
Proving criminal charges against Wiederhorn, difficult anyway because of the complicated nature of the case, was made more so by Grayson's inability to participate.
"This is a very unusual and complex case, particularly given the fact our primary witness is incapacitated," Caldwell said.
Not everyone was thrilled with the settlement. Steve English, a Portland attorney who led a host of union pension trustees and other plaintiffs in civil lawsuits against Wiederhorn, Grayson and others, said Wiederhorn's prison time is insufficient.
"I have a lot of respect for Lance Caldwell," English said. "But the sentence is too short, too short for the pain he's caused a lot of people."
English also took issue with the $2 million in restitution, noting that Wiederhorn borrowed $64 million from Wilshire Credit during the latter half of the 1990s. Wiederhorn, who controlled Wilshire Credit, forgave himself the loans as part of the 1999 bankruptcy reorganization.
"Two million sounds like a lot of money until you realize he took $64 million out of the company," English said. "I hope he invested it wisely."
The gratuity count against Wiederhorn stemmed from a December 1997 deal involving a defunct catering company called The Hand That Feeds You, which had defaulted on $4.2 million in debt to Capital Consultants.
Rather than report the losses to his clients, Grayson managed to hide the loss by selling the loans to Wiederhorn's Wilshire Funding, another of Wilshire Financial's subsidiaries. Grayson told his clients the deal had produced a handsome return. But Wiederhorn wanted additional security. He forced Grayson to personally guarantee repayment of the loans.
In the fall of 1998, Wiederhorn's company was on the verge of ruin, as the company suffocated under a heavy debt load during a global financial crisis. A desperate Wiederhorn turned to Capital Consultants for additional funds.
Grayson offered to loan Wilshire Credit another $25 million, much of it from funds that were supposed to be held in safekeeping for the security of his clients. Grayson also demanded that Wiederhorn release him from the personal guarantee of The Hand That Feeds You loan.
Wiederhorn admitted in court that the quid pro quo was an illegal gratuity, though he also said his attorneys and Capital Consultants attorneys approved the deal.
Robert Maloney, a partner at the Lane Powell Spears Lubersky firm that long worked for Capital Consultants, denied any knowledge of the forgiven loan guarantee.
"That was never disclosed to me," Maloney said. "That is a total lie."
Lane Powell paid $25 million to settle lawsuits filed against the firm by Capital Consultants clients. Stoel Rives, where Peterman worked when he began representing Wilshire Financial, was also sued and paid $12.5 million to settle.
Peterman remains with Wilshire Financial, which is under new management.
Wiederhorn also admitted to overstating losses on his 1998 tax return, reporting a paper loss of about $7.4 million. He admitted Thursday that the losses had no "economic substance."
After the crash of the Wilshire empire, Wiederhorn took control of a minor Wilshire subsidiary. He named the company Fog Cutter Capital Group and served as its chairman and chief executive officer. The company has made a variety of investments in London real estate, a Los Angeles burger chain, a now-defunct California home furnishings retailer and a French modeling agency.
A Fog Cutter director said Thursday that Wiederhorn will take a leave of absence while in prison. It's unclear whether he will return to the company.
Jeff Manning: 503-294-7606; email@example.com
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