The News Desk is a collection of news, notes and breaking items affecting the Fredericksburg community.
City’s lawyer questions accuracy of Slavery Museum’s bankruptcy filing
By Chelyen Davis
RICHMOND—The lawyer representing Fredericksburg in the U.S. National Slavery Museum’s bankruptcy proceedings is questioning whether the museum has accurately reported its finances, and says $1.6 million may be missing.
Richmond attorney Jeffrey Scharf, who is representing the Fredericksburg treasurer’s office, is also suggesting the bankruptcy should be moved from Chapter 11 —which allows the museum to reorganize—to Chapter 7, which requires the museum to liquidate and would let the city of Fredericksburg move forward with selling the museum land in the city.
A status hearing in the case, scheduled for Monday in Richmond, did not happen because the museum’s lawyer failed to show up.
Former Gov. Doug Wilder chose Fredericksburg as the site for his U.S. National Slavery Museum nearly a decade ago, although no museum was ever built. The museum’s ability to solicit charitable donations expired, and Wilder earlier this year said the recession had made fundraising difficult.
Wilder filed for Chapter 11 bankruptcy protection for the museum in a Richmond in September. Documents show the museum has about $7 million in debts and no cash, its only real asset the land at Celebrate Virginia. That land was donated to the museum by the Silver Cos. and assessed at about $7.6 million, but the city of Fredericksburg wants to auction it off to pay back taxes of about $300,000 that the museum hasn’t paid.
Now Scharf is asking the court to appoint an examiner or trustee to investigate the museum’s finances, which show inconsistencies in the amount of cash that the museum should have had.
“The debtor’s financial picture is uncertain and there appear to be discrepancies in its record keeping that should be closely investigated,” Scharf wrote in a filing entered this month.
As a non-profit, the museum filed federal tax forms, form 990, through 2007. But no records appear to have been filed since. And a review of the 990 forms that were filed, Scarf wrote, “raise questions as to the fiscal integrity of its bankruptcy schedules.”
Specifically he cites the 2005 form, which “indicates a large amount of donations (significantly in excess of expenses for that year) but results in a net decrease in cash.”
According to a court summary of the museum’s 2005 form, the museum started that year with about $1.59 million. It brought in $938,186 in donations and reported $603,897 in expenses. That should have left the museum with a year-end balance of $1.9 million. But it reported an ending cash balance of $315,865, leaving $1.61 million unaccounted for.
In the document, Scharf says the question was raised at a previous meeting of creditors, but “the debtor was unable to explain this discrepancy and no explanation has been made since.”
Investigating the finances “would allow a proper evaluation of this Debtor’s financial status and the likelihood of its reorganization and operation,” he wrote.
The law allows a party in a bankruptcy case to request a trustee for various reasons, including “fraud, dishonesty, incompetence or gross mismanagement of the affairs of the debtor,” according to Scharf’s filing.
Further, Scharf wrote, given the “serious questions about the management of the Debtor,” he thinks it’s unlikely the museum can reorganize under Chapter 11. Scharf noted that the museum has no cash and no assets, and said that in a previous creditor meeting, Wilder’s attorneys admitted that the only way they could pay back their creditors was to return to fundraising.
Scharf said the museum has shown no signs of making effort in that direction—it let its fundraising permission expire and has not tried to get that permission reinstated.
“The debtor is not taking any steps to move to reorganize,” Scharf wrote. “The debtor has no funds available, has no ongoing operations, and has not taken any actions to resume its fundraising activities.”
The museum also missed a November tax payment to the city of Fredericksburg, Scharf said.
Given all that, he asked the court to convert the case into a Chapter 7 bankruptcy, which is essentially liquidation.
He told reporters outside the federal courthouse that he had expected Wilder’s attorney, Sandra Robinson, to show. The hearing has now been postponed until Jan. 18.
“Fredericksburg wants the taxes paid,” Scharf said.
The museum’s secured debts include the city tax bill and a debt to Pei Partnership Architects of $3.68 million.
In April 2010, a New York Court awarded the architectural firm $5.17 million in a lawsuit against the slavery museum. C.C. Pei, the company’s principal and a son of famous architect I.M. Pei, had designed the museum.
The museum also owes nine different companies, from Fredericksburg to New York to California, for construction, engineering, marketing, lawn maintenance, legal work, accounting and storage services.
These unsecured debts total $3.2 million.