Capital Consultants salesman found guilty of illegal gratuities

From Northwest Labor Press

A top salesman for defunct Capital Consultants Inc. (CCI) was found guilty June 16 on 26 felony counts of giving gratuities to pension fund trustees, wire fraud and obstruction of justice.

Two union pension trustees on trial in the same court were found not guilty of accepting gratuities.

“In the case against Dean Kirkland, his own damning statements and the overwhelming evidence of his illegal actions provided abundant proof of his guilt,” wrote U.S. District Court Judge Anna Brown of Portland in a 101-page ruling.

Kirkland was a vice president and top salesman for CCI, a pension fund management firm taken over by federal regulators in September 2000 and accused of operating a “Ponzi scheme” that resulted in about $350 million in losses. Clients were primarily union pension funds.

Kirkland was not accused by the federal government of participating in the alleged conspiracy to mislead the investment company’s clients, but rather for buying trustees expensive gifts and taking them on exotic hunting trips. He left the company just days before the government stepped in. A few months later he set up his own investment firm. He was president of Portland-based Granite Investment Advisors, LLC, until June 16, when he resigned, according to the company's Web site.

Dean’s father, Gary D. Kirkland, was found not guilty on 11 counts of illegally receiving gratuities from CCI. Kirkland is a former executive secretary-treasurer of Portland-based Office and Professional Employees Local 11 and was co-chair of the Western States 401(k) pension plan and health and welfare plan — which employed Capital Consultants to manage funds.

Kirkland was defeated in a union election in April 2002. He later accepted a position as assistant to the president of OPEIU President Michael Goodwin.

Also found not guilty was Robert Legino, a former business manager of Denver Electrical Workers Local 68 and trustee/and or co-chair of three pension plans covering the Eighth District of the International Brotherhood of Electrical Workers (Idaho, Colorado and Montana). The government charged him with eight counts of illegally receiving gratuities.

Dean Kirkland, however, was found guilty of giving illegal gratuities to Legino; to John Lontine, a trustee of the Denver-based Sheet Metal Workers Local 9 pension and health plans; and to Dennis Talbott, a trustee on two Akron, Ohio-based Sheet Metal Workers Local 33 health and welfare and pension plans.

In 2002, Talbott pled guilty to accepting illegal gratuities from CCI, and Lontine pled guilty to a misdemeanor crime of falsifying a trust report.

The younger Kirkland also was found guilty on 12 counts of wire fraud for submitting false expense reports to CCI, and on one count of obstruction of justice for lying to federal agents on Oct. 20, 2000.

The case was the first involving CCI that has gone to trial. It lasted 22 days and included 43 witnesses and volumes of exhibits. The defendants hired high-profile attorneys Robert Bennett of Washington, D.C., and Stephen Houze of Portland, who waived their right to a jury trial.

Several principals have pled guilty to federal crimes, primarily mail fraud and filing false income tax reports. They include CCI owner Jeffrey Grayson, CCI president Barclay Grayson, Wilshire Financial Services Group chief executive officer Andrew Wiederhorn, Wilshire president Lawrence Mendelsohn, and John Abbott, former executive secretary-treasurer and pension trustee of the Laborers District Council.

[Wilshire Financial Services Group and an associated company, Wilshire Credit Corporation, defaulted on more than $160 million in loans obtained from Capital Consultants using union members’ pension funds.]

Barclay Grayson and Abbott served 18-month sentences in federal prison; Mendelsohn was sentenced to six months of home confinement and 18 months probation; Wiederhorn will begin serving an 18-month sentence Aug. 2 and was ordered to pay $2 million (which his new publicly-traded company, Fog Cutter Capital Group, paid on his behalf; and all charges were dropped against Jeffrey Grayson because a stroke has allegedly confined him to a nursing home.

In her ruling on Gary Kirkland and Legino, Judge Brown said there was no doubt the union trustees received items of value from Capital Consultants, but that the government failed to prove the two union trustees “received the thing of value because of one or more specific actions or decisions as a trustee.”

She referred extensively to U.S. vs Sun Diamond Growers (1999), a Supreme Court decision that said the government “must provide a link between a thing of value conferred upon a public official and a specific ‘official act’ for or ‘because of’ what was given” to establish a violation...”

In her ruling, Brown said that from from 1995 to 2000, “Dean Kirkland and CCI spent tens of thousands of dollars [more than $100,000 between Gary Kirkland and Legino] to repeatedly bestow gratuities on targeted union trustees who regularly made decisions and took actions that benefited Dean Kirkland and CCI. She said Dean Kirkland was paid $2.4 million in commissions alone between 1995 and September 2000.

“Nonetheless, Robert Legino and Gary Kirkland eluded criminal liability under [U,S, Code] 1954 in spite of their blatant and unethical conduct as trustees and the government’s presentation of all of the considerable evidence against them,” she said.

Brown wrote further: “The Supreme Court’s Sun Diamond analysis ... produced this anomalous outcome. In fact, the more gratuities Gary Kirkland and Legino accepted and the more frequently they took such actions or made such decisions, the more unlikely it became that the government could establish beyond a reasonable doubt the motivational link between a particular gratuity and one of their specific actions or decisions as required under 1954 and the principles of Sun Diamond.”

Sun-Diamond was a precedent-setting case against former Agriculture Secretary Mike Espy for accepting gifts from the company.

Judge Brown said that “The overwhelming evidence of (Dean Kirkland's) illegal actions provided abundant proof of his own guilt. Un- fortunately, however, evidence of a defendant’s subjective state of mind linking the giving or receiving of a particular gratuity to a trustee’s specific action or decision will rarely be found. Without such proof, all of the ‘common sense’ inferences on which the government is forced to rely ... will generally fall short of proof beyond a reasonable doubt.

“The Court agrees with the government that Congress could not have intended such an anomalous outcome. Nonetheless, the opaque language of (U.S. Code) 1954 and the absence of useful guidance in Sun Diamond leaves regulators, prosecutors, and trial courts with the confounding challenge of enforcement and adjudication. Moreover, trustees and other fiduciaries who work in a marketplace where gratuities seem to flow like gravy are not clearly on notice as to when their actions are criminal. Finally, and perhaps most important, (U.S. Code) 1954 in its current form provides little, if any, protection to the public.

“Although the goal of (U.S. Code) 1954 is clear, that goal will remain elusive until Congress addresses the murkiness of the statutory language in light of Sun-Diamond. If anything good can come from the catastrophic collapse of CCI, let it be that Congress will take the steps necessary to revisit (U.S. Code) 1954 and to write a law regulating the giving and receiving of gratuities that works.”

Sentencing for Dean Kirkland is scheduled for Sept. 9.