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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.
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Sidebar:
The Investigation
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
Corporation--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
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