Fog Cutter Capital Group Inc. Issues Statement Regarding CEO Andrew Wiederhorn

Business Wire, July 2, 2004

PORTLAND, Ore. -- The Board of Directors of Fog Cutter Capital Group Inc. (Nasdaq:FCCG) today released the following statement prepared by former White House Special Counsel Lanny Davis as published on the opinion page of the Oregonian newspaper. The Board released Mr. Davis's statement as part of Fog Cutter Capital's continuing effort to ensure that all of the facts regarding this case are made available to the public:

Wiederhorn felony case: Let's stick to the facts

Saturday, June 19, 2004

Lanny J. Davis

Facts are stubborn. They cannot be deleted or distorted. They survive good and bad journalism and cannot be overcome by emotion, however understandable.

The Oregonian's June 5 editorial ("What message was that?") and Jeff Manning's June 14 story ("Wiederhorn case about what could be proved") about Andrew Wiederhorn and his recent plea to two felony counts deserve a response. For example, Manning said that the "fundamental truth of the American criminal justice system" is that it requires proof of guilt through due process of law. He also complained, in effect, that Wiederhorn had the audacity of "taking steps that slowed prosecutors" -- namely, "lawyers and accountants" "vetted" his business transactions and he relied on their advice.

Let's remember that for a good period of time, Wiederhorn's investments were very successful and no one complained when the union pension funds profited as a result. Then in the late 1990s Wiederhorn experienced the same losses that other similar investment advisers experienced across the United States -- losses largely generated by the bursting of financial market bubbles in Eastern Europe, Asia and in many parts of this country and beyond Wiederhorn's control.

But, business mistakes are not crimes. There is a big difference.

Here are eight additional, important facts that are not in dispute -- not by the prosecutors, not by anyone:

--Wiederhorn pleaded guilty to two crimes, one -- forgiving a loan guaranty by Jeffrey Grayson in violation of U.S. pension law -- without his having any criminal intent and pursuant to the advice and permission of some of the Northwest's most prominent lawyers. To reiterate, he is going to do time for a crime the government concedes he did not specifically intend to do.

--In the second of the two violations, Wiederhorn pleaded guilty to a crime of filing a false tax return in which he had included a loss arising from the sale of loans to a family company. That loss was real, did not reduce his tax payment at all and did not cost taxpayers or the federal government one dime. Some crime.

--Regarding the plea to a crime under the pension laws, Wiederhorn at all times relied on the advice of some of the best legal experts in Portland. They approved his forgiveness of Grayson's personal guaranty of $3 million, not the $160 million often wrongly reported.

--Wiederhorn passed three different lie-detector tests administered and reviewed by two retired FBI agents. He provided prosecutors with videotapes of these sessions and even offered to take tests by a government examiner -- an offer that was declined.

--None of the acts to which Wiederhorn pleaded involved Fog Cutter Capital Group Inc., a majority of which he and his family own.

--For exactly this and other reasons in the interest of Fog Cutter and its shareholders, its seven-member board of directors chose to pay Wiederhorn during his period of custody. They did so in part because of his pivotal role in the company's future success and his past performance.

--Had the offenses to which Wiederhorn pleaded guilty anything to do with corporate financial fraud, accounting fraud or any other intentional criminal misconduct in the other company, Fog Cutter's board would not have agreed to the paid leave of absence agreement that they did (a $2 million payment to Wiederhorn, equal to his fine). Further, it is important to remember that Wiederhorn had nothing whatsoever to do with Grayson's Ponzi scheme that defrauded the unions and his other investors.

--Finally, Wiederhorn has repeatedly expressed responsibility and regret for the losses suffered by the pension funds. He has made substantial financial contributions to make up for these losses. And the pension funds were, in fact, almost totally reimbursed for the losses attributable to Wiederhorn's investments -- with total payments in the settlement of the civil suits exceeding $110 million, let alone all the profits received over the prior years.

In distant and recent U.S. history we've seen in our own communities the atmosphere that has enveloped Wiederhorn in Portland. It occurred back in the U.S. Senate in the early 1950s.

So it's time in Portland and elsewhere to remember this bleak lesson from the past and learn from it -- especially, not to allow innuendo, accusation, guilt by association and a rush to judgment to be surrogates for facts and truth and fairness.

Lanny J. Davis is counsel to Fog Cutter Capital Group Inc. and former special counsel to President Clinton from 1996 to 1998.