Lessons on how not to curry favor with a club
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Andrew Wiederhorn spent more than a year in prison after pleading guilty to two felonies related to a financial scandal. He recently returned to his Portland, Ore., mansion, his wife, six children and the helm of his investment company. Now he's waging a war over something he didn't get back -- his membership in the prestigious Multnomah Athletic Club.
"It's about justice," says Mr. Wiederhorn, 40 years old, the chief executive officer of Fog Cutter Capital Group Inc.
Earlier this month, a judge dismissed a lawsuit Mr. Wiederhorn filed against the club, saying he had waited too long. As his next step, Mr. Wiederhorn wants to comb the records of the club's 20,000 members to prove that there are plenty of unsavory folks already mingling in the eight-story clubhouse, swimming in the three pools and noshing in the four restaurants.
Mr. Wiederhorn says he's already found one member known for drinking and driving and one other convicted felon. His wife, Tiffany, who has been a member most of her life, has clipped items from the club's newsletter, "Winged M," that make passing reference to a member who was an arsonist and another who stole from a locker. "There are people with drug convictions," Mrs. Wiederhorn alleges. She and the couple's children are still members.
Assistant General Manager Tim Arbogast says the club will fight any attempt to get at its list of members and records of disciplinary action. He doesn't, however, deny that Mr. Wiederhorn would find lawbreakers among the members. "Just because you are a criminal doesn't mean you can't belong to the club," he says.
The Multnomah Athletic Club, founded in 1891, sprawls over 500,000 square feet across two city blocks. Its athletic teams have spawned world-class athletes including legendary track star Dan Kelly. It's also the premier social center for executives, politicians and socialites in this city of more than half a million. It hosts dances in the ballrooms and reunions in the library.
"It's the only club in town that matters," says Margaret Groening, 87, who has been a member for 65 years. Her five children, including Matt, creator of "The Simpsons," were also fixtures.
The Wiederhorn matter is a much-discussed topic. Mrs. Wiederhorn's mother, Joey Berchtold, exercises at the club's gym five days a week and often hears people gossiping. On a recent day, while she and another daughter worked out, two men on nearby treadmills began carrying on about Mr. Wiederhorn.
"They were saying what an a-hole he was, what a crook, and that it couldn't have happened to a nicer guy," Mrs. Berchtold recalls. She says her daughter finally asked them to stop.
Just before his sentence started in August 2004, Mr. Wiederhorn received a certified letter from the club. It stipulated that unless he agreed to resign his membership and never set foot on the premises again, the club would "automatically invoke procedure GBP 2, House Committee Investigation." Mr. Wiederhorn refused, and following an investigation, the club kicked him out.
The club says Mr. Wiederhorn's offenses are simply more egregious than those of other members, especially because he served jail time. He joins a short list of members who have been expelled -- the club won't say how many -- for everything from missing dues to bad behavior. Former Oregon Gov. Neil Goldschmidt was recently kicked out "for behavior unbecoming a member" after he admitted having a sexual relationship in the 1970s with an underage girl.
As for Mr. Wiederhorn, the club said in a court filing: "If two felony convictions and 18 months in jail is not sufficient to expel a member of a private club, what is?"
Mr. Wiederhorn bused tables at a Portland restaurant during high school. Before he was 30, he'd built Wilshire Credit Corp., a company that repackaged bad loans as securities. It employed 800 people and controlled $3 billion in assets. He bought an old mansion and expanded it to 17,000 square feet. He traveled in a private jet.
In the late 1990s, the business ran into trouble amid turmoil in overseas financial markets, and Mr. Wiederhorn couldn't pay back $160 million borrowed from a pension-fund money manager called Capital Consultants. As it turns out, the government says Capital was a fraud. It seized the firm, but not before Capital had lost $350 million belonging to investors, including union pension funds.
Wilshire also collapsed, but Mr. Wiederhorn continued to prosper. He started Fog Cutter Capital, which he listed on Nasdaq. The investment firm bought the Fatburger hamburger chain from Magic Johnson, Cher and other stars.
After a five-year investigation into the collapse of Capital Consultants, Mr. Wiederhorn pleaded guilty to filing a false tax return and for paying the head of Capital an "illegal gratuity." (Wilshire forgave Capital's chief $3.4 million in personal loan guarantees, violating a federal law that bars giving "anything of value" to a pension-fund adviser.)
Mr. Wiederhorn calls these violations technical and says he was just following the advice of lawyers and accountants. His suit notes that many of these advisers belong to the club, as does Lawrence Mendelsohn, a former business associate of Mr. Wiederhorn who pleaded guilty to filing a false tax statement in the same case but didn't serve jail time.
The club didn't ban Mr. Mendelsohn. Instead, it suspended him for five years. "He came into the club and said he was really sorry for what happened," says Stephen English, a member of 25 years' standing and one of several attorneys helping keep Mr. Wiederhorn out. For his legal services to the club, "I am discounting my normal rate," Mr. English says. Mr. Mendelsohn's attorney didn't return calls seeking comment.
If getting kicked out is difficult, getting in might be harder. A potential member needs a sponsor from the club plus other references. The candidate then has to wait for a lottery to determine who can replace those who've dropped out or died. "We just had a lottery in 2005," says Mr. Arbogast. "Before that, there wasn't one since, oh, 2000." Marrying a member gives you an automatic pass, as it did for Mr. Wiederhorn 17 years ago.
The man who prosecuted and tried Mr. Wiederhorn, Assistant U.S. Attorney Lance Caldwell, is a member. He's constantly besieged by people wanting to talk about the matter. "While the case was going on it was uncomfortable, because I couldn't talk about it," Mr. Caldwell says.
One June morning in 2004, just after Mr. Wiederhorn was sentenced, Mrs. Wiederhorn drove her black Range Rover into the club's garage. There, she spotted Mr. Caldwell's wife, Debbie, who had been in the courtroom during the sentencing hearing.
Mrs. Wiederhorn told Mrs. Caldwell that her presence in court was "inappropriate," because, Mrs. Wiederhorn said in a later interview, it felt like the prosecutor's wife was part of a "cheering section."
In the parking lot, Mrs. Wiederhorn added: "I don't know how you people sleep at night," according to separate letters sent by Mrs. Wiederhorn's attorney and Mr. Caldwell to a U.S. District Court judge.
In February, Mr. Wiederhorn's alma mater, Lincoln High School, held its annual auction at the club. Mrs. Wiederhorn combed the school's contract with the club to make sure it didn't specifically bar Mr. Wiederhorn from attending. They considered going (three of their children go to the school). In the end, they stayed home. "We didn't want it to overshadow the auction," she says.
First Published May 22, 2006 12:00 am