Daily Progress, Jacksonville, TX

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

Ben Tinsley
Jacksonville Daily Progress

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.

The lawsuit calls into question Dr. McCall's aforementioned practice of borrowing money from Amegy Bank, N.A., illegally using secured endowments as collateral.

“Had these gifts been retained as permanent endowments, they would now be available to support the charitable educational and religious purposes of the college — or, if the gift so indicated to a specific charity upon the dissolution of the college,” Abbott wrote.

A message sent to an Amegy representative seeking comment about the role company officials are alleged to have played in this “swap” loan process was not immediately returned.

One of the more publicized endowment examples was McCall's alleged liquidation of an endowment fund earmarked for Sam Houston State University. Sam Houston also is suing McCall in court in an attempt to recover this money.

Additionally, the Lon Morris College bankruptcy estate has attempted to claim insurance money based on Dr. McCall's actions as an administrator.

The Attorney General — in his capacity as the protector of the public's interest in charity — decided to sue after scrutinizing Dr. McCall's actions between June 2005 and May 2012.

The lawsuit contends the agreement between Amegy and McCall was amended five times prior to the bankruptcy to extend the college additional credit. McCall offered additional collateral. The assets-to-debt ratio the college was required to maintain was altered in the process, the suit alleges.

Notes payable by the college grew from $5 million in 2005 to $18 million in July 2011.

Texas Attorney General Spokesman Thomas Kelley declined further comment. CRO Ragan did not return a request for comment.