AFL-CIO puts Wiederhorn, Fog Cutter on Unfair List

Fog Cutter Capital Group Inc. and its chief executive officer Andrew Wiederhorn have been placed on the Unfair/Do Not Patronize List of the Oregon AFL-CIO. The action was taken at the state labor federation’s quarterly Executive Board meeting June 11 at the Plumbers and Fitters Local 290 Hall in Tualatin.

Wiederhorn — whose dealings with Capital Consultants as chief executive officer and controlling stockholder of Wilshire Financial Service Group (WFSG) precipitated the downfall of the investment firm and the loss of hundreds of millions of dollars in union workers’ retirement funds — pled guilty June 4 to two felony crimes and was sentenced to 18 months in prison, $2 million in restitution and a $25,000 fine.

He will begin serving his prison sentence Aug. 2.

But no sooner had the ink dried on the plea deal when Fog Cutter Capital’s board of directors, which includes Wiederhorn's father-in-law, agreed to grant him a paid leave of absence, plus a $2 million bonus — the exact amount he agreed to pay in restitution. Wiederhorn is paid $350,000 a year,

Fog Cutter’s action outraged union officials whose members and retirees have been affected by the collapse of Capital Consultants.

John Endicott, business manager of Plumbers and Fitters Local 290, one of the affected unions, called the deal “unbelievable.” He set in motion the action to have Fog Cutter and Wiederhorn placed on the Unfair/Do Not Patronize List.

Debbie Sluyter, secretary-treasurer of Office and Professional Employees Local 11, and Dave Tischer of the District Council of Laborers — representing other unions affected by the debacle — seconded the motion, with an addition that the listing be forwarded to the national AFL-CIO for its consideration on the National Unfair List.

In a citing letter to Fog Cutter, the AFL-CIO wrote: “The reason for this requested listing is your company’s decision to grant Andrew Wiederhorn a bonus and a paid leave of absence while serving prison time for felonies related to his dealings with Capital Consultants and Wilshire Credit Corp. Mr. Wiederhorn’s actions caused union members and other workers to suffer significant losses of their retirement assets. Your company’s payments to Mr. Wiederhorn appear to have rewarded his actions and set a deplorable standard for corporate responsibility.”

Fog Cutter Capital is a publicly- traded Portland-based company that specializes in brokering restaurant and commercial real estate mortgages. Fog Cutter owns a California restaurant chain (Fatburger Holdings), a commercial real estate mortgage brokerage firm (George Elkins Mortgage Banking Company) and a distribution center in Wilsonville that it leases to G.I. Joe’s, among other properties.

Fog Cutter Capital Group Inc. actually was spun off from Wilshire Financial Services Group. WFSG and Wiederhorn controlled several associated companies, including Wilshire Credit Corporation (WCC), a high-risk mortgage loan company, and the Wilshire Real Estate Investment Trust.

Capital Consultants was Wilshire Credit’s primary source of funding, and by 1998 Capital — using union pension funds — had loaned WCC nearly $160 million.

But also during that time, Wilshire had issued Wiederhorn personal loans totaling nearly $64 million. In June 1999, Wiederhorn signed the paperwork forgiving the loans and he never had to pay them back.

WCC later defaulted on the $160 million it borrowed from Capital Consultants. Workers, whose pensions were invested with Capital Consultants, suffered the loss of the $160 million. “And, they lost another $80 million as Capital [and its chief executive officer Jeffrey Grayson] threw good money after bad trying to cover up the deal and hide its losses,” said the Oregon AFL-CIO in its Weekly Update newsletter.

Capital Consultants was taken over by the U.S. Department of Labor in September 2000 and a court-appointed receiver from San Diego has been working ever since to recover as much money as possible.

Several participants were indicted, but all but a few have settled with the federal government.

In April 2002, Grayson pled guilty to one count of mail fraud and one count assisting the filing of a false tax return. He was cooperating with federal prosecutors in hopes of getting a lighter sentence when a debilitating stroke landed him in a full-time care facility. Since then, sentencing has been dropped.

Grayson’s son, Barclay, president of Capital Consultants, also pled guilty to one count of mail fraud. He spent 18 months at the Federal Correctional Institute in Sheridan, Ore.

John Abbott, a former executive secretary-treasurer and pension trustee of the Laborers District Council pled guilty in February 2001 to taking illegal payoffs from Jeff Grayson and filing a false income tax return. He served 15 months in the federal prison at Sheridan.

And Wiederhorn’s longtime partner and Wilshire president, Lawrence Mendelsohn, pled guilty to filing a false tax return. He was sentenced to to six months of home confinement, 18 months of probation and ordered to pay a $10,000 fine and $105,000 in unpaid taxes in exchange for his cooperation against Wiederhorn and others. But Mendelsohn, too, cashed in on the Capital scheme as he was forgiven $28 million in loans he took from WCC.

Neither Mendelsohn nor Wiederhorn paid income taxes on the forgiven loans because of legalities involving Wilshire bankruptcy filings.

On June 3, 2004, Wiederhorn pled guilty to the crime of paying an illegal gratuity to Jeff Grayson in 1998 when he released Grayson’s personal guarantee securing a $6 million bad loan that Wiederhorn took over from Capital Consultants. The release was in exchange for Capital Consultants releasing to Wilshire a $19 million cash collateral account that was to have, in part, secured Wilshire loans with Capital Consultants.

Wiederhorn also admitted guilt on a tax evasion charge related to overstating losses on his 1998 tax return related to the sale of assets from one of his family companies to another.

The U.S. Department of Justice recently concluded a month-long trial against former Capital Consultants vice president Dean Kirkland; former Local 11 executive secretary-treasurer and pension trustee Gary Kirkland, and former Denver Electrical Workers Local 68 business manager and Eighth District trustee Robert Legino, on charges relating to the giving and receiving of gratuities.

Dean Kirkland, the son of Gary, also has been charged with wire fraud and obstruction of justice.

U.S. District Court Judge Anna Brown issued a decision June 16, after this issue went to press.

Oregon union pension funds affected were Oregon Laborers-Employers Pension Plan and Trust; the Oregon Laborers Defined Contribution and 401(k) Fund; the Oregon Laborers Health & Welfare Plan; the Idaho Signatory Employers-Laborers Pension Plan; the 401(k) Retirement Fund of the Office & Professional Employees International Union Local 11; the OPEIU Health and Welfare Trust Fund; the United Association Union Local 290 Plumber, Steamfitter and Shipfitter Industry Pension Trust; the Local 290 Health and Welfare Plan; and the Local 290 401(k) Plan and Trust.

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