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February 26, 2013

Dr. Miles McCall sued by Texas Attorney General for 'grossly negligent management' and other financial mismanagement alleged to have led to the demise of Lon Morris College

AUSTIN — Texas Attorney General Greg Abbott contends erratic borrowing and spending on the part of former president Dr. Miles McCall led directly to the extinction of Lon Morris College — which only recently concluded bankruptcy proceedings.

In a lawsuit filed this month in Travis County's Probate Court No. 1, Abbott contends Dr. McCall did not exercise reasonable business judgement between 2006 and 2012, instead leading the college on a haphazard pattern of spending, borrowing, and expansion that left the institution struggling to survive debt and completely unable to serve its charitable educational mission.

Ultimately, Dr. McCall tried to survive the financial spiral by borrowing $8.5 million from Amegy Bank.

This loan was funded through a “swap agreement,” using permanent endowment assets as collateral, the lawsuit shows. These endowments were subsequently liquidated and expended.

Had this “swap” not occurred. the AG contends there might have been enough money left to keep LMC from going belly-up.

But there wasn't and the 158-year-old college went into bankruptcy in summer 2012. Nearly all staff was put on furlough as Dawn Ragan, chief restructuring officer, began the process that led to bankruptcy and liquidation proceedings.

News of this lawsuit comes around the same time a press release was circulated announcing Dr. McCall had been hired as executive vice president at Commercial Bank of Texas in Nacogdoches.

Reached at that particular workplace Tuesday, McCall declined to address the attorney general's allegations.

“I know you're just trying to do your job, but you know I can't make any comments pending litigation,” McCall told a Jacksonville Daily Progress reporter.

Abbott legally characterizes McCall's actions as “grossly negligent management” and “breach of fiduciary duty.” Abbott and his staff are requesting a jury trial and assert that among the other damages, Dr. McCall also is liable for the loss of LMC's charitable assets.

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