Closing arguments in a lengthy probate hearing that could decide control of the Otto Bremer Trust – one of the state’s oldest charities – as well as St. Paul-based Bremer Bank, is scheduled before a Ramsey County Circuit Court judge next Monday .
Citing a lack of checks and balances and accusations of selfishness, the Minnesota Attorney General’s office sought to replace three trustees of the trust, a St. Paul-based charitable foundation with assets of at least $1 billion.
“The trustees have consistently failed to manage the trust, and removing the trustees is in the best interest of the beneficiaries,” the Minnesota Attorney General’s Jan. 11 legal document said.
Lawyers for Brian Lipshultz, Charlotte Johnson, and Daniel Reardon argued that their corporate approach to charitable foundations continued to be consistent with Otto Bremer’s intentions. Otto Bremer was a German immigrant who founded a charity in 1944 and before that used his personal wealth to support banks and farming communities in the Midwest during the Great Depression.
The Jan. 10 filing, filed by attorneys representing trustees with Ciresi Conlin Law Firm, highlights the powers granted to trustees by the trust’s articles of association.
“The instrument of a trust provides its trustees with considerable discretion in both the selection of charitable purposes for funding and the overall administration of the trust and its estate,” Michael Ciresi, Ian Conlin, Cathy Lehmann and Matthew said in the proposed order. Korte.
THE DECISION MAY HAVE FURTHER CONSEQUENCES
Between the two parties, the written findings of fact, opinions of the law, and proposed writ, presented to Ramsey County District Court Judge Robert Osumba in mid-January, are nearly 300 pages long.
The probate decision could have far-reaching implications for Bremer Bank, a major midwestern farm lender. The trustees sought to sell voting rights in the bank — a $16 billion financial institution believed to be at least the fourth largest bank in the state — to put it up for sale.
The bank’s board of directors considered the possibility of a sale or merger in 2019, but then decided against it. The move was made over the objections of bank president Jeanne Crane and other board members.
The Bremer Trust trustees, led by Lipschultz, went on to transfer majority shares to 19 East Coast hedge funds in October 2019, on the stated premise that the sale of the bank could fund a huge expansion of the charity’s philanthropic activities.
Lawyers for the trustees argued that the charity’s legal structures require her to spend a certain percentage of her assets on charity, and the bank’s rising value in 2019 left no choice but to sell the institution to meet the requirements.
The bank and its employees filed separate lawsuits to stop the sale, the trustees filed counterclaims, and several hedge funds filed lawsuits of their own. The transfer of shares was suspended by the court pending resolution of legal disputes.
The legal battle proved costly. The trustees spent $20 million in legal fees related to the sale of a majority stake in Bremer Bank and another $7.5 million to fight the attorney general’s petition to fire him. Most of this money came from the foundation’s philanthropic assets. As of the end of November, the insurance company had paid out $3 million in connection with the removal petition.
According to Minnesota Attorney General Keith Ellison’s office, Reardon and Johnson largely allowed Lipschultz to instill “corporate thinking” at the charity, which adopted the slogan that it “works at the intersection of finance and philanthropy.”
The trio fired the trust’s chief executive in 2014 and appointed themselves as co-executive directors, effectively removing day-to-day financial oversight of their decisions. Their salaries rose substantially, and Lipshultz and Reardon also benefited significantly by calling themselves the Trust’s investment advisors.
Rather than let Ellison’s office remove the trustees, their attorneys argued for a raise to $200,000.
Trustees currently earn an average of $450,000 a year, which is equivalent to about 2 percent of the trust’s cash income. In addition, Reardon and Lipshultz share another $388,000 between them in “investment advisory services.”
Their lawyers called the compensation low, given that the articles of incorporation allow them to pocket up to 4 percent of the trust’s cash income. They recommended an annual salary of $425,000 to $460,000 for Johnson and $650,000 to $720,000 for each of the two men.
“The trustees have not received compensation at or near the 4% level and are not asking for compensation at that level now,” their latest legal document states.
GRANTS TO RELIGIOUS ORGANIZATIONS
In addition to their traditional grant giving philanthropy, the three trustees began making loans advertised as “program-related investments” to Midwestern charities, causing some confusion among nonprofit recipients.
Program staff testified that the foundation has not historically funded arts organizations, religious institutions, charitable foundations, schools, one-off special events, or non-profit organizations located outside of Minnesota, Wisconsin, North Dakota, and Montana.
However, often working outside the traditional screening process, the trustees have directed grants and loans to faith-based organizations, a private school that offers developmental programs for low-income youth from Minneapolis, the Como Park Zoo and Conservatory, and the Ordway Center. the performing arts, WE Day student events hosted by a Canadian organization, and a charity newsletter written by a public relations consultant, among other reasons that seemed to deviate from Bremer’s stated priorities.
“This place didn’t feel like honesty,” a program employee said, speaking as a witness in late September. “I felt there were grants that were misplaced.”
Other behavior in the office annoyed key employees, some of whom approached Ellison’s office with concern.
Lipschultz, who joined the charity in 2012, led the name change from the Otto Bremer Foundation to the Otto Bremer Trust in light of his more corporate approach to philanthropy.
He continued to oversee Eagle Street Partners, an investment firm he founded that supports wireless infrastructure businesses, occasionally using his executive assistant at Trust to send faxes, files, and send packets.
The assistant testified that he asked her to use her personal credit card and claim a refund from the charity. When she expressed concerns to the fund’s financial controller about the use of trust resources for private business, Lipschultz asked the assistant to use his personal credit card instead.
Upon learning that he had violated Internal Revenue Service rules, Lipschultz testified that he later returned approximately $2,000 to the trust for the use of time and charitable resources, which in legal documents his attorneys deemed “an innocent … abuse that was properly and timely corrected.”
OTTO BREMER TRUST
- Based in Saint Paul. 46 employees.
- Founded in 1944 by philanthropist Otto Bremer.
- Gives out more than $50 million annually in charitable grants and loans in Minnesota, Wisconsin, North Dakota, and Montana.
- Owns 92 percent of Bremer Bank.
- Total assets from $1 billion to $2 billion.
- Led by trustees S. Brian Lipshultz, Charlotte Johnson, and Daniel Reardon.
- Based in Saint Paul. 83 branches. 2000 employees.
- Minnesota’s third-largest bank by assets ($15.7 billion).
- Made a net profit of $155 million in 2020 and donated $73.4 million to the Otto Bremer Foundation the same year.
- Big farm lender in the Midwest.
- CEO Jeanne Crane.