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Stewards of James Brown Estate Sue Morgan Stanley
Thursday April 24, 2008 11:37 pm ET
By LYNNLEY BROWNING

A dispute over the estate of the legendary soul singer James Brown has reached a bitter new pitch — on Wall Street.

The estate’s guardians are accusing Morgan Stanley, the investment bank, of failing to prevent the estate’s previous manager, David G. Cannon, from draining millions of dollars held for Mr. Brown at the bank.

The money, which was to be used to finance Mr. Brown’s lavish personal lifestyle, came from the 1999 sale of $26 million of “Pullman bonds” that were tied to Mr. Brown’s future royalty income.

The Brown estate’s guardians have already sued Mr. Cannon and two other former business managers, contending that the three men defrauded Mr. Brown, the “Godfather of Soul,” over many years. On Monday the guardians, who are court-appointed trustees, filed a separate civil lawsuit against Morgan Stanley in Federal District Court in South Carolina. Both lawsuits seek to recover the lost money as well as damages.

It is unclear how much is left of Mr. Brown’s estate, though his songs, including classic soul hits like “I Got You (I Feel Good),” continue to produce royalties. Some of his heirs want to turn his home in Beech Island, S.C., into a Graceland-style attraction for fans.

After Mr. Brown, the self-proclaimed “hardest-working man in show business,” died on Dec. 25, 2006, a welter of lawsuits emerged involving his children and grandchildren, people who claim to be his children, his wives, and women who claim to be his wives, each seeking a piece of the singer’s estate. His latest will was drawn up around 2000 by H. Dewain Herring, a Columbia, S.C., lawyer who is serving 30 years in prison for the 2006 murder of a strip club employee.

In a statement Wednesday, Morgan Stanley said that the newest lawsuit “is without merit and we will contest it vigorously.” The bank said it had documentation authorizing Mr. Cannon to manage the funds in question.

Though held in the name of James Brown Enterprises, the Morgan Stanley investment account was set up to produce $1.1 million a year for Mr. Brown’s personal use.

The estate trustees, Adele J. Pope and Robert L. Buchanan Jr., who are both lawyers, accuse Mr. Cannon of improperly engineering $6.7 million in withdrawals from 2000 to 2002 to James Brown Enterprises, which was controlled by Mr. Cannon and which, with Mr. Brown’s trust, controlled the bulk of Mr. Brown’s estate. Mr. Cannon then transferred $4.2 million to himself, the new lawsuit contends. The entire $10 million account was depleted by 2002.

Joseph Lizzio, the Morgan Stanley financial adviser who oversaw the account, said in a 2007 deposition that “it was just understood” that the account was for Mr. Brown’s personal use, not for Mr. Cannon or for business enterprises.

Mr. Lizzio said that he questioned Mr. Cannon about the transfers and received cursory replies, and even tried to call Mr. Brown once but could not reach him. Mr. Lizzio said he was worried about offending Mr. Brown by calling him too much.

While it is not atypical for estate lawyers or court-appointed trustees to sue former business managers, it is unusual for them to sue the banks that managed the accounts overseen by the former managers, said Alan F. Rothschild Jr., an estates lawyer who is a senior member of the section of the American Bar Association that focuses on estates and trust law. Such disputes are typically handled through arbitration.

Lawyers for the estate have argued that Mr. Brown never signed any documents agreeing to arbitration. Nevertheless, the trustees have filed arbitration proceedings over some of the transfers.

In 2002, Mr. Cannon transferred the assets of James Brown Enterprises to Seventh Decade Productions, an entity he exclusively owned and controlled, which opened its own account at Morgan Stanley. Mr. Lizzio, who also oversaw the Seventh Decade account, said in his deposition that had he known that Mr. Brown had no ownership in or control over Seventh Decade, he would have devised a new investment strategy for Mr. Brown.



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