Firm's creditors seek funds from McMaster trusts

9/17/2004

Ronald McMaster

Toledo's McMaster family is believed to have amassed a fortune through advances in glass-manufacturing made by the patriarch, the late Harold McMaster.

And now creditors of a failed Toledo brokerage house, whose founder has been accused of diversion of client assets by the U.S. Securities and Exchange Commission, want a piece of it.

Mr. McMaster, founder of Glasstech Corp., died a year ago at age 87. But, claiming he and son, Ronald, are liable for certain obligations of Continental Capital Corp., creditors have pursued the men in Probate Court in Wood County and U.S. Bankruptcy Court in Toledo.

Harold McMaster's family was forced to open a probate case this summer under pressure from two banks over loans involving Harold McMaster and Continental Capital.

Many wealthy people are able to avoid probate court by establishing family trust funds and other measures providing for the transfer of cash and property before death or immediately afterward, according to lawyers.

Mr. McMaster and his wife, Helen, have established several such trusts, according to court records.

The family did not initially file a will or ask for the appointment of an executor, but did so after Henry County Bank in Napoleon - claiming Mr. McMaster owed $120,000 - attempted June 11 to open a probate case and have itself installed as executor. The claim arose after Mr. McMaster allegedly co-signed for a loan taken out by Continental Capital.

The family opposed the bank's demand, but eventually settled, according to court documents. Attorney Mary Jo Tarini, who represented the McMasters, declined yesterday to discuss the size of the settlement.

But then another claim, this one involving a $260,000 loan linked to Continental Capital, was filed last month by State Bank & Trust, a Defiance bank, asking the court to open a case.

At that point, the family consented, even though it disputes the debt. Judge David Woessner, of Wood County Probate Court appointed Mr. McMaster's widow, Helen, as executor. The McMasters have agreed to submit an inventory of estate assets in November, but claims in court filings that no such assets will be listed, because it contends that Mr. McMaster had no assets subject to probate court.

Mr. McMaster's will, filed in probate court, did not state the value of all of his holdings, and shed little light on how its assets will be divided other than that 20 percent will go to the Harold & Helen McMaster Foundation Inc.

David Swift, a Columbus attorney who represents the bank, said Mr. McMaster is believed to have been a millionaire and he would like to see proof that there are no assets that are subject to probate court.

While Mr. Swift's client, State Bank & Trust, claims it loaned the $260,000 to Mr. McMaster, the family's attorney said that all valid claims have been paid and denied that the inventor received any money from a loan.

Meanwhile, in bankruptcy court, creditors of Mr. McMaster's son are fighting his attempts to be released from $20 million in claims stemming from his service as a member of the board of directors of Continental Capital.

The Securities Investor Protection Corp., a quasi-governmental insurer that oversees the liquidation of failed brokerages, has asked Bankruptcy Judge Mary Ann Whipple to declare that Ronald McMaster's debts are non-dischargable.

Trustee Thomas Zaremba, a Toledo attorney, said in court filings August 2 that he is still investigating the firm's failure but that Mr. McMaster "in his capacity as a director ... was aware of or was reckless in failing to discover illegal and damaging conduct" by Mr. Davis, Continental Capital's chief executive.

Ronald McMaster, in a Chapter 7 petition filed April 16, listed $23 million in debts and $1 million in assets.

Mr. Zaremba said in an interview that such a ruling would allow the securities insurer to recoup from Mr. McMaster in the future some or all of the money it pays to defrauded investors.

Also seeking to prevent Ronald McMaster's release from debts are two former clients of Continental Capital.

Physicians David Tullis and Michael Mack, claiming that Mr. McMaster will receive future payments from various family trusts, argued in a bankruptcy court filing July 30 in Toledo that he is "manipulating the intent of the bankruptcy code to relieve himself of legitimate obligations..."

The request, filed by Toledo attorney Marvin Robon, claims that Mr. McMaster and other directors failed to conduct an audit of Continental Capital that would have identified wrongdoing.

Kurt Landower, Mr. McMaster's attorney, said policy at his law firm prevented him from commenting on pending lawsuits.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.