Minnesota AG submits closing arguments in dispute with Otto Bremer Trust – InForum

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ST. PAUL — Closing arguments in a lengthy probate hearing that could decide control of the Otto Bremer Trust — one of the state’s oldest philanthropies — as well as St. Paul-based Bremer Bank are scheduled before a Ramsey County District Court judge on January 31.

Citing a lack of checks and balances and allegations of personal dealings, the Minnesota attorney general’s office sought to replace the three trustees of the trust, a St. Paul-based charitable foundation that holds at least $1 billion in assets.

“The trustees have consistently failed in the administration of the trust and the removal of the trustees is in the best interests of the beneficiaries,” reads the Minnesota attorney general’s Jan. 11 legal filing.

Lawyers for Brian Lipschultz, Daniel Reardon and Charlotte Johnson have argued that their corporate approach to seeding charitable causes still adheres to Otto Bremer’s intent. Otto Bremer was a German immigrant who founded philanthropy in 1944 and had used his personal fortune before that to support banks and farming communities in the Midwest during the Great Depression.

A filing filed Jan. 10 by attorneys with the Ciresi Conlin law firm representing the trustees highlights the powers granted to the trustees by the trust’s founding documents.

“The Trust Instrument affords considerable discretion to its Trustees, both in choosing the selection of charitable purposes to be funded and in the general administration of the Trust and its property,” reads Michael’s proposed order. Ciresi, Jan Conlin, Katie Lehmann and Mathew. Korte.

The decision could have a huge impact

Between the two sides, written findings of fact, findings of law and proposed judgment orders submitted to Ramsey County District Court Judge Robert Awsumb in mid-January run to nearly 300 pages.

A decision in the probate case could have profound implications for Bremer Bank, a major Midwest agricultural lender. The directors sought to sell the voting rights of the bank — a $16 billion financial institution that ranks at least the fourth-largest among banks in the state — to position it for a sale.

The bank’s board had explored the possibility of a sale or merger in 2019, then backed out. The move came over objections from bank president Jeanne Crain and other board members.

The directors of Bremer Trust – led by Lipschultz – continued to offload controlling shares in 19 East Coast hedge funds in October 2019, under the stated principle that a bank sale could fund a huge expansion of philanthropy’s charitable work .

Lawyers for the trustees argued that the legal structures surrounding philanthropy required it to dedicate a certain percentage of its assets to charitable giving, and the bank’s rising value in 2019 left little choice but to sell. the institution in order to comply.

The bank and its employees filed separate lawsuits to stop the sale, the trustees filed counterclaims, and several hedge funds sued themselves. The share transfers have been suspended by the court until the disputes are resolved.

The legal battles proved costly. The administrators spent $20 million in legal fees related to the sale of majority stakes in Bremer Bank, and another $7.5 million to fight the attorney general’s impeachment motion. Most of this money comes from the charitable assets of philanthropy. By the end of November, the insurance had paid out $3 million related to the withdrawal request.

An “entrepreneurial spirit”

According to the Minnesota Attorney General’s Office, Keith Ellison, Reardon, and Johnson largely helped Lipschulz institute an “entrepreneurial mindset” in philanthropy, which adopted the slogan that it “works at the intersection of finance and philanthropy”.

The trio fired the trust’s executive director in 2014 and named themselves co-chief executives, eliminating day-to-day financial oversight of their decisions. Their salaries increased significantly, and Lipschultz and Reardon also received considerable benefits by appointing themselves as investment advisers for the Trust.

Rather than allow Ellison’s office to overthrow the administrators, their lawyers argued for raises of up to $200,000.

Trustee salaries currently average $450,000 per year, which equates to about 2% of the trust’s cash income. Additionally, Reardon and Lipschultz split an additional $388,000 in “investment advisory fees” between them.

Their lawyers called the compensation low, given that the founding documents allow them to pocket up to 4% of the Trust’s cash income. They recommended setting annual salaries between $425,000 and $460,000 for Johnson and between $650,000 and $720,000 for each of the two men.

“The directors have not been compensated at or near the 4% level and are not seeking compensation at that level now,” reads their latest legal filing.

Grants to faith-based organizations

In addition to traditional philanthropy grantmaking, the three trustees began issuing loans marketed as “program-related investments” to charities in the Midwest, which caused confusion among nonprofit recipients. lucrative.

Program officials testified that the foundation does not historically fund arts organizations, religious institutions, animal causes, schools, one-time special events, or nonprofits located outside of Minnesota, Wisconsin, Dakota. North and Montana.

Nonetheless, often working outside of the traditional staff review process, trustees have made grants and loans to faith-based organizations, a private school that provides enrichment programs for low-income Minneapolis youth, the Zoo and Como Park Conservatory, the Ordway Center for the Performing Arts, WE Day student events hosted by a Canadian organization, and a philanthropy newsletter written by a public relations consultant, among other causes that seemed s away from the priorities specified by Bremer.

“It didn’t feel like a place with a lot of integrity,” said a program officer, taking the witness stand in late September. “I felt there were subsidies that were inappropriate.”

Other behaviors in the office angered key staff, some of whom approached Ellison’s office with concern.

Lipschultz, who joined philanthropy in 2012, spearheaded a name change from the Otto Bremer Foundation to the Otto Bremer Trust, in light of its more corporate approach to charity.

He continued to oversee Eagle Street Partners, an investment firm he founded that backs wireless infrastructure companies, while occasionally using his executive assistant at the Trust to fax, file and ship packages.

The assistant testified that he asked her to use her personal credit card and request a refund from philanthropy. When raising concerns with the foundation’s financial controller about the use of trust resources for a private company, Lipschultz instructed the aide to use her own personal credit card instead.

After being told he was violating Internal Revenue Service rules, Lipschultz testified that he then reimbursed approximately $2,000 to the trust for the use of staff time and philanthropic resources, which, in the legal documents, his lawyers considered “an innocent…abuse of it”. was correctly and quickly corrected.

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  • Based in Saint Paul. 46 employees.
  • Founded in 1944 by philanthropist Otto Bremer.
  • Issues over $50 million annually in charitable grants and loans in Minnesota, Wisconsin, North Dakota and Montana.
  • Owns 92% of Bremer Bank.
  • Global assets of 1 to 2 billion dollars.
  • Led by directors S. Brian Lipschultz, Charlotte Johnson and Daniel Reardon.
  • Based in Saint Paul. 83 branches. 2,000 employees.
  • Third bank in Minnesota in terms of assets ($15.7 billion).
  • Earned a net income of $155 million in 2020 and distributed $73.4 million to the Otto Bremer Trust that year.
  • Leading agricultural lender in the Midwest.
  • General Manager Jeanne Crain.
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