Daily Progress, Jacksonville, TX

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December 11, 2012

DISCONNECT: Can an Texas Attorney General investigation into missing money cost Lon Morris College even more money?

JACKSONVILLE —

Contradictions continue to crop up in federal court documents and public statements made by the Lon Morris College bankruptcy estate.

This most recently was exhibited in the estate's response to Texas Attorney General Greg Abbott's ongoing investigation into missing LMC endowment funds.

In a federal hearing last week, LMC estate officials sought permission to take out a second "debtor in possession" loan to defray its Chapter 11 bankruptcy costs. A written request to U.S. Bankruptcy Judge Bill Parker from LMC Chief Restructuring Officer Dawn Ragan blamed the need for the loan in part on the Texas Attorney General's Office's investigation.

During the actual hearing, Ragan and attorney Hugh Ray III asserted that both the Texas AG's investigation and subsequent media coverage is causing deliberate and irreparable harm to its upcoming auction sale.

In the petition, Ragan asserted that the AG investigation forced college officials to spend more money to conduct their own inquiry into missing endowment monies.

"Compliance with the Attorney General’s requests requires fees and other expenses for, among other things, professional time, which were not anticipated in the First DIP Facility budget," reads Ragan's petition.

The first disconnect comes in that despite the college allegedly conducting its own investigation into the matter, Ragan states in the petition that the college estate anticipates spending even more money trying to keep the attorney general from redirecting any endowment money away from LMC.

"The Attorney General has indicated that it may seek to redirect to another college certain gifts and bequests given to Lon Morris," Ragan wrote. "Defense of Lon Morris’s interests in the funds will require additional expenses."

Despite the fact that a $500,000 loan was requested by LMC officials during this proceeding, the judge authorized them to borrow $150,000. There will be a followup hearing later this month during which the attorney general will object to LMC borrowing the remaining $350,000, AG spokesman Thomas Kelley said.

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