Thursday, January 1, 2009

Deal would keep instruments in Hall of Fame

The Country Music Hall of Fame and Museum won't have to surrender musical instruments played by the likes of Bill Monroe and "Mother" Maybelle Carter to resolve claims on behalf of the estate of the donor accused of stealing more than $60 million from investors through a Ponzi scheme.

Under the proposed settlement filed with the local U.S. Bankruptcy Court on Tuesday, the museum has agreed to pay $750,000 and give up sharing in any money recovered for the estate.

If approved by the court, the agreement would resolve claims filed a year ago by bankruptcy trustee Bob Waldschmidt, who had sought either $1.5 million or for the museum to surrender the instruments whose purchases were funded by the late Murfreesboro stockbroker Robert W. McLean. McLean had given that amount to the museum among various charities and also spent some clients' money on himself.

He committed suicide in September 2007. Waldschmidt has continued efforts to recover money from donations McLean made and payments received by investors to help pay back those who lost money.

Creditors have until Jan. 21 to object to the museum's settlement, which requires Bankruptcy Court approval. The museum will have 30 days after the required approval to pay the $750,000.

"This gets us close at least to closing this chapter in our history and in the history of those instruments, which has been a demoralizing and taxing time for us," said Kyle Young, director of the museum. "It was important for us for those instruments to stay where they belong."

The museum has launched a campaign to raise the $750,000. It also has arranged for a loan with SunTrust Bank for any amount not yet raised at the time that the money is due.

Monroe's 1923 Gibson F-5 mandolin and Carter's 1928 Gibson L-5 guitar are on display in the museum as part of its Precious Jewel exhibit. Court records show McLean gave the museum $1 million to fund purchase of the mandolin and $269,414.48 to fund purchase of the guitar. Also, McLean bought two guitars formerly owned by Johnny Cash for $249,086.66 and donated them.

Carter's guitar was last priced at $575,000, Monroe's mandolin was once priced at $1.125 million, while each of Cash's guitars priced at about $125,000, according to previously published reports.

Waldschmidt, the bankruptcy trustee, wouldn't say how the $750,000 amount was reached after lengthy talks between the parties. "Recovering gifts made to a nonprofit organization poses a unique set of issues," he said. "This resolution is a fair compromise, and will benefit the bankruptcy estate and its creditors, while preserving the museum's collection of instruments."

Settlements sensible

James F. Blumstein, a Vanderbilt University law professor, said in such cases cash settlements are a more sensible approach than the potential recovery of an illiquid asset by the suing party. If the creditors had won possession of the instruments, they would have faced additional costs, such as hiring someone to sell them, and have no guarantee of getting more than the settlement amount, he said.

"The museum wants the instruments, and the creditors want money," he said. "It doesn't make sense to take an asset and go through the process of turning it into money because you're going to always lose some value related to the sale of that asset."

Several creditors contacted Tuesday declined to comment on the agreement, pending review of the details, though one sounded a positive note. "I would be confident that Bob Waldschmidt as trustee and the board of the (Country Music) foundation have reached an agreement in the best interest of both parties," said Lee Moss, chief executive of MidSouth Bank in Murfreesboro.

As part of the agreement, the museum waived rights to any distribution from the bankruptcy estate. Officials had claimed $870,850 in unfilled pledges that McLean had made to the museum.

If approved, the agreement with the museum would mark the latest recovery in the case by Waldschmidt. Middle Tennessee State University, which received money from McLean to buy 54 Steinway pianos and build a new baseball stadium, agreed to a $570,000 settlement with the trustee in June.

Waldschmidt seeks a total of $8 million to $9 million from individual investors who gave money to McLean and then received payments from him over the past four years. In a filing Tuesday, he asked the court to declare that what McLean ran was a Ponzi scheme and that he was insolvent at all times during the four years before the bankruptcy filing.

That declaration is key for Waldschmidt to be able to collect money from the investors.

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