Donation Puts UO On The Spot
A court-appointed receiver wants the return of $800,000 donated by Jeffrey Grayson of the ill-fated Capital Consultants
By Jeff Manning of The Oregonian staff
Wednesday, June 20, 2001
Grayson Hall, once a symbol of the University of Oregon's fund-raising prowess, has become an albatross for the Ducks.
In 1997, the university named its former law school in honor of Portland investment adviser Jeffrey Grayson and his wife after the UO graduates pledged to donate $1.5 million.
Four years later, the university has received only about half of the promised money, and its deep-pocketed benefactor stands accused of losing hundreds of millions of his clients' dollars and lying about it. To top it off, a court-appointed receiver wants the university to return the $800,000 that Grayson did donate.
The Grayson Hall matter shows just how far-reaching the Capital Consultants scandal has become. The investment firm's collapse last September has enveloped its thousands of clients as well as many of the highest profile individuals and institutions in Oregon.
In a report issued early this month, Thomas Lennon, the receiver appointed to liquidate Capital Consultants, claimed the same union pension funds and other clients that lost an estimated $355 million in failed and allegedly fraudulent investments also funded some of Grayson's high profile philanthropy. Lennon claimed the money Grayson donated to the university came largely from management fees Capital Consultants had collected from its investment clients.
Taking the money out of Capital Consultants, which was insolvent at the time, constituted a "preferential transfer" and the receiver is legally entitled under state law to recover the money, Lennon argued in court papers.
University officials declined to say whether they will comply with the receiver's demand. "At this point, we haven't received any letter or other notice from the receiver," said Melinda Grier, a university lawyer. "It would be inappropriate to speculate on what might happen if we receive such a notice other than to say we would review them carefully."
Even before the receiver's demand, some Oregon alumni were
wincing at their alma mater's close association with Grayson. The U.S. Department of Labor and Securities and Exchange Commission seized control of the firm last September and accused Grayson of engineering a Ponzi-like scheme – throwing good investor money after bad -- to conceal losses.
A federal criminal investigation continues into the matter. Grayson's son, Barclay, pleaded guilty in March to mail fraud. John Abbott, a former union official and pension fund trustee, pleaded guilty in February to taking nearly $195,000 in payoffs from Grayson.
"The university should have written a check five months ago and sent it back," Philip Lowthian, a Portland lawyer, said last week. "If they haven't done it yet, they should do it today. And if they can't get it done today, they ought to do it first thing tomorrow."
Lowthian obtained his undergraduate, master's and law degree from Oregon.
"They need to give that money back, it's not their money," added Gordon Carey, another Portland lawyer with close ties to the university. "It wasn't Grayson's money. It's dirty money."
Carey's parents have donated heavily to UO. He represents a former Capital Consultants borrower who has filed a claim against the firm.
Scott Thomason, prominent Portland car dealer and a director of the University of Oregon Foundation, argued that the university negotiated with Grayson in good faith and that the donation already has been earmarked to support certain programs.
"I hate to see us have to do that," Thomason said of returning the money. "It's a mess. I've known Jeff for a long time."
Others doubt UO will have to return the money.
"If I were the receiver it would be on my wish list to get that money back," added Don Tykeson, a Eugene businessman and foundation director. "But I think it's unrealistic that it will happen."
Both Thomason and Tykeson have joined the dozens of former Capital Consultants clients suing the firm and Grayson.
The University of Oregon Foundation raises about $55 million a year, said Karen Kreft, its executive director.
Grayson has dedicated a lot of time to his alma mater, co-chairing a successful campaign that raised $200 million in donations. He also served as president and chairman of the University of Oregon Foundation, the school's fund-raising arm.
The roots of the current controversy date back to 1997. In April of that year, University President Dave Frohnmayer went to the Oregon Board of Higher Education seeking approval to rename the school's then law school building Grayson Hall. Frohnmayer needed the board to grant him an exception from state administrative rules prohibiting the naming of a university building after a living person.
The law school has since moved to another larger building. Grayson Hall houses classrooms for the university's Arts and Science College.It's unknown what kind of due diligence Frohnmayer or his staffers conducted on Grayson. Frohnmayer was traveling and unavailable for comment.
Less than two years before Frohnmayer approached the board, Grayson and his firm were sued by the U..S. Department of Labor for allegedly overcharging a client. Capital Consultants repaid $2 million to the client to settle the suit.
Nevertheless, the higher education board approved Frohnmayer's request and Grayson Hall was soon emblazoned across the front of the building. For good measure, the university added a second line of signage "Jeffrey L. Grayson and Susan W. Grayson.
Susan Grayson is Jeffrey Grayson's spouse and also a UO
University officials would not say whether Grayson ever produced the promised $1.5 million. Three sources close to the school said, however, that Grayson gave only the $800,000 mentioned by the receiver.
"It's my understanding that the $1.5 million was a pledge," Thomason said. "And the pledge was partially done, just partially."
In an earlier interview, Lennon predicted the university and other recipients of Grayson's alleged improper payments will be drawn into the court-ordered mediation, which seeks to settle numerous civil lawsuits filed against Grayson and Capital Consultants.
UO spokeswoman Maureen Shine vowed that once they know more about the receiver's request, university officials "will do what is morally and legally appropriate for us to do."
Critics think the administration should have moved months ago to distance itself from Grayson. "This is so easy to fix, that's what I can't figure out," Lowthian said. "Just write a check. Write it to the receiver and be out of it. Better to the receiver than to Grayson so he can buy someone another trip somewhere or grease another wheel."
Jeff Manning can be reached at 503-294-7606 or by e-mail at