AG alleges mismanagement at trust linked to Auto Museum



By Eric Russell

Portland Press Herald

 

TREMONT — Richard Paine Jr. spent his adult life amassing an antique automobile collection that has few rivals.

In 1963 he founded the Seal Cove Auto Museum on the quiet side of Mount Desert Island to display his most-prized cars from the late 19th- and early 20th-century period known as the Brass Era.

Despite its remote location, the museum attracts more than 10,000 visitors each year who get to see dozens of rare, restored cars (and a few motorcycles), some worth as much as $800,000.

Paine descended from an old-money Boston family and provided substantial funding to keep the museum operating. Since his death in 2007, that money has come from a charitable trust established in his name.

But a dispute has developed between the museum and the men responsible for managing the trust, threatening both Paine’s legacy and the museum’s future.

For the last two years, the trust and the Maine Attorney General’s Office have been trying to settle a lawsuit filed by the state that alleges two trustees, John Sanford of Camden and John Peabody Monks Higgins of Cape Elizabeth, paid themselves excessive fees and inflated the value of the trust’s assets to increase those fees.

The AG’s office, which filed the complaint after a 2016 lawsuit brought by the museum was thrown out, has asked a judge to determine whether Sanford and Higgins were indeed paid excessive fees and, if so, to order both men to pay back the amount deemed excessive. It has even suggested dissolving the trust and transferring its assets to another public charity.

Sanford has been connected to Paine dating back to the early 1980s and was previously investigated by the state related to his management of the trust. He declined to speak about the allegations, as did Higgins, who has been involved only since 2008. Toby Dilworth, an attorney representing the trust, forcefully denied that either man did anything wrong.

“Many of the issues are based on false and misleading information provided by others who are not happy with the way Richard Paine chose to leave and direct the management of his estate,” he said in written responses to questions from the Portland Press Herald/Maine Sunday Telegram.

The AG’s office would not comment on specifics of the case but said it only investigates credible complaints.

“We look carefully at cases where we believe there is evidence that the trustees or board members are putting their personal interests ahead of the charitable mission,” the office said in a statement. “Unfortunately, sometimes litigation can’t be avoided.”

It appears little progress has been made, which means the lawsuit could be headed to trial — one that likely would reopen a complicated, decades-old battle involving members of Paine’s family, Sanford and others, all of whom are trying to assert that they know best what the dead man’s wishes were.

Dan Boxer, a former University of Maine School of Law ethics professor, reviewed the publicly available documents associated with the case and found aspects of them troubling. But Boxer also said he’d be surprised if the case is not settled because the Maine Nonprofit Corporation Act, the set of laws that governs nonprofits, is not set up to be punitive.

“The AG’s office, unfortunately, doesn’t have the resources to carry these things out to the end,” he said.

Museum board members don’t have legal standing in the current case but are watching closely because the fate of their quirky museum could be at stake.

Sanford‘s control

The Paine family has expressed concerns about Sanford’s management of trusts created by Paine for many years. Eventually they went to the Attorney General’s Office, which launched an investigation.

In 2007, three months after Paine died, the state filed a complaint alleging that Sanford had been paying himself fees from the trust without any oversight — from as little as $21,464 in 1996 to as much as $91,863 in 2002. The AG’s office also alleged that the trust violated the Maine Nonprofit Corporations Act because it had only two directors and later because the only other board members were colleagues of Sanford at his law firm.

Initially, the state suggested Sanford be removed from the museum board and pay back that money — $558,000 over a 10-year span — but that didn’t happen. Instead, as part of an agreement, Sanford was required only to remove himself from the museum’s management structure and board and then add another trustee for the Paine Trust, Higgins. The museum continued, but Sanford — who still controlled the trust — kept a hand in its decision making.

In September 2008, another Maine museum — the Owls Head Transportation Museum — hosted an auction by London-based Bonhams auction house, of 60 or so of Paine’s cars, including a 1913 Rolls-Royce Silver Ghost and a 1910 Mercedes-Benz Tourabout. All proceeds from those sales, about $8.4 million, went to the endowment.

Although Paine’s family expressed concern about the liquidation, Dilworth said this is precisely what Paine called for in his trust documents. He said all the autos that were sold were “tier three” and not essential to the collection. Dilworth also said the trust was designed explicitly to make sure the Seal Cove Auto Museum did not own the collection or have authority over trustees.

“It is not the museum’s role — and the museum has no authority — to supervise the trust,” he said.

Since that agreement, Dilworth said the trustees have grown the endowment by $1 million and have not had to sell any more vehicles. It has supplied the museum with regular payments for operation and allowed the museum to showcase Paine’s collection. Although it does not own the cars, the museum has primary responsibility for maintaining them.

It was Paine’s own will that left all his money to the charitable trust — except for a $100,000 gift to a former aide and one antique car each for his two daughters. Dilworth pointed out that Sanford did not draft the will, nor did he draft the documents establishing the trust. A Boston firm did both.

Although that’s true, as Paine’s longtime conservator, Sanford still had a major role in the handling of his assets.

Suit alleges mismanagement

Seal Cove Auto Museum executive director Raney Bench and other board members became curious about the trust’s finances in 2014 after David Glaser, an attorney and accountant, joined the board and took over treasurer duties.

Glaser said he noticed discrepancies and omissions in the tax documents for the Paine Trust. Sanford has managed the trust since its inception and Higgins was brought on board in 2008. Both provide what their attorney called “sustained, strong professional financial and overall management of the trust and assets,” which are valued at approximately $27 million.

From 2009 to 2013, tax documents that were prepared for the trust listed no compensation for the trustees, Glaser said, even though he knew that not to be true. The documents were later amended.

Payments to Sanford and Higgins increased steadily. In 2012 the two split $179,420. By 2015 they combined to earn $276,949.

During the same period, monthly payments the museum received from the trust started to fall, Bench said. The highest payment, $28,184 per month, was in 2012-13. The currently payment, she said, is $21,990.

After debating about it at length, the museum’s board voted unanimously to sue Sanford and Higgins in 2016 for mismanaging Paine’s assets.

“It wasn’t something we entered into lightly,” Bench said.

That case didn’t get far before it was dismissed by a judge, who ruled that the museum was not legally a beneficiary of the trust. But the suit did put the matter back on the radar of the Attorney General’s Office. The state filed an amended complaint in 2017 that included many of the same allegations made by the museum, most notably that Sanford has paid himself and Higgins excessive fees from the trust — some $2 million from 2008 to 2016. It also alleges that Sanford was reimbursed for travel expenses to places like Pebble Beach in California and Amelia Island in Florida that were “not necessary to carry out the exempt purposes of the [trust].”

The AG also has alleged that the trust inflated the value of its assets, which matters because the trustee fees are equal to 1 percent of the assets. In one case, the state claims that Sanford directed the value of a 1900 Skene steam car, purchased for $82,000, to be increased after restoration to $750,000.

Additionally, the trustees hired Charles Chiarchiaro, former director of the Owls Head Transportation Museum, to appraise the entire collection. Chiarchiaro and Sanford knew each other because Sanford has served on the board of that museum in the past.

Chiarchiaro valued the collection at $19.4 million. The museum hired a different appraiser, International Vehicle Appraisers Network, which arrived at a value of $8.6 million, and the AG’s office later hired an independent appraiser that arrived at a total closer to the lower end.

The difference between 1 percent of $19.4 million and 1 percent of $8.6 million was about $100,000 in fees.

Either way, Boxer said, the fee seemed high.

“There is no way you can justify a private trustee to charge a management fee of 1 percent for fixed assets. … That’s unconscionable,” he said.

Many Portland-area financial advisers charge far less for asset management fees, especially for amounts that high. Additionally, when the value goes up, the percentage used to calculate the fee often comes down, Boxer said.

Legacy at stake

Dilworth has issued denials of almost every claim made by the Attorney General’s Office and the museum directors. He acknowledged that the AG’s office recently proposed that Sanford and Higgins earn a flat fee of $45,000 annually. Both rejected that. Dilworth told the newspaper that trustees consulted a local law firm before setting their fee of 1 percent, were told it was entirely reasonable and said the state hadn’t raised concerns before now. He also said the trust stands by Chiarchiaro’s appraisal of the assets.

Museum board members have been careful not to call out Sanford or Higgins directly, but they all want to see the state intervene.

“I want the Attorney General to do its duty and look over their shoulder to make sure that The Paine Charitable Trust received everything it was entitled to receive,” Glaser said.

For the museum’s staff and board, it’s not about the money but the future of Paine’s collection. The 1900 Skene that for half a century was hidden away in a barn in central Maine. The 1913 Peugeot, the grandfather of race cars. Several early model Fords.

Sanford already has told board members he wants to sell the Peugeot, possibly the collection’s most valuable piece, to “increase the liquidity of the charitable trust,” the complaint states.

As the legal fight has intensified, the trust has raised its own concerns about the museum, claiming it lacks a sprinkler system, has an inadequate humidity control system and that its staff and board members have failed to grow its endowment.

Bench disputes that characterization. There is climate control in the building, she said, and a standard sprinkler system would not aid in the kind of fires that could happen at the museum. In fact, sprinklers could further damage the collection in the case of a fire. The museum has worked out other solutions with its insurance company, she said.

Last year a record number of visitors — more than 12,000 — walked through the doors, including comedian Jay Leno, a well-known car buff who visited in the fall to shoot an episode of his online show with Maine summer resident Martha Stewart. The museum has earned many industry awards for its exhibits.

If the trustees have done so well with the endowment, Bench asked, why have payments continued to drop?

“The museum has worked hard to raise funds to cover that gap,” she said, noting the museum doesn’t have its own endowment separate from the trust. “We’ve doubled our earned income. We’re growing despite the reduction in support, but we don’t know about the future.”

Settlement discussions between the trust and the AG’s office have taken place privately, but board members have heard that Sanford has proposed moving all of the Paine trust assets under the administration of the Owls Head museum.

Sarah Hinckley and Liz Graves contributed to this report.

 

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