Sunday, October 24, 2021

MN Attorney General takes Otto Bremer Trust to court on Monday

After eight months of investigation and a year of legal motion, the Minnesota Attorney General’s office will take three trustees of the Otto Bremer Trust to court on Monday in an effort to replace them with new managers of one of the state’s oldest philanthropic works.

The civil trial, which opens before Ramsey County District Court Judge Robert Ausumb, focuses on the day-to-day operations of the St. Paul-based charity and the trustees’ longtime efforts to oust the board of the charity’s biggest asset, Bremer Bank, the first step towards a potential bank sale.

The trustees have said that selling shares in St. Paul-based Bremer Financial Corporation will increase assets for their philanthropy, which will benefit non-profit and charitable causes.

Since its inception in 1944, the trust has distributed over $700 million in grants and charitable investments in Minnesota, Montana, North Dakota and Wisconsin. However, the prospect of selling a major Minnesota agricultural lender to an East Coast hedge fund or competing institutions has worried bank officials and prompted concerns from the office of Minnesota Attorney General Keith Ellison, which regulates the charity.

The trustees’ lawyers summed up the scope of the case in a joint legal statement last month, writing, “The record here is clear: there is no breach of fiduciary duty by the trustees, let alone a serious breach.” “There is no legal basis for removing the trustees in the absence of serious violations. … The Trustees have faithfully and successfully served the Trust. He has a combined 60 years of management experience (the Otto Bremer Trust), one of Minnesota’s oldest and foremost philanthropic organizations.

However, among the allegations against him is that trustee S. Brian Lipschultz and Daniel Reardon ignored conflicts of interest and used the wealth of philanthropy to self-treat – that is, to reward friends, influence political outcomes, run unrelated businesses, grow their own businesses. for. salaries, administration of their personal affairs and punishing those who exceed them. Employees allege a hostile work environment that does not allow oversight of financial decisions.

“The continued appointment of trustees will result in future disputes, a waste of (state) and charitable resources and court time,” wrote attorneys for Ellison’s office in the joint statement. “The trustees have lost the confidence of the community they should serve.”

$500,000 for the Police Union; Punishment for a former mayor?

For example, the Attorney General’s Office says that the trustees gave a $500,000 grant to the St. Paul Police Federation to influence which candidate the union would back for chief of police. In another example, former St. Paul Mayor Chris Coleman and his homebuilding nonprofit are presented as victims of trustees’ financial maneuvering.

When Coleman learned that out-of-state investors were looking to buy out controlling interests in Bremer, a $15.7 billion St. Paul-based bank with deep community ties, he won. “While remote decisions are being made about your community, they vary,” said Coleman, chief executive officer of Twin Cities Habitat for Humanity, in a November 2019 article in Pioneer Press.

Coleman’s concerns were enough to cost her St. Paul-based nonprofit a major grant related to affordable housing, at least temporarily. Trustees of the Otto Bremer Trust – which has served as the parent company of Bremer Bank since 1944 – had long sought hedge funds that would force a merger or bank sale.

Court filings by attorneys for the Minnesota Attorney General’s office Pent Lipschultz and Reardon last year as condoning negative media attention, especially in light of a lawsuit filed against them by bank leaders with the intention of preventing a sale.

In January 2020, Lipschultz told Habitat for Humanity that the Otto Bremer Trust was withdrawing its major grant proposal due to a “significant financial commitment” to the nonprofit “by our subsidiary, the Bremer Bank,” according to a legal memorandum filed in August. will not fund. 2020 by the Attorney General’s Office. In a legal statement, Lipschultz testified that Coleman’s alleged allegiance to Bremer Financial Corporation had emerged as a concern.

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Lipschultz and Reardon questioned the former mayor’s “motivation to provide assistance to the press” to Bremer Financial, according to the legal memo, and they noted “something fishy” as the bank’s marketing director, Erin Daddy, spoke to Coleman at City Hall. had worked for. The amount of the scattered grant was not described in the court documents.

Lipschultz, in an email to the two communications firms on November 22, 2019, previously expressed surprise that a reporter might be working on an article about how Coleman, Humanity’s former Habitat CEO Sue Hai, and other community leaders felt Said that potential bank sales could affect the sector.

“I’m also puzzled about the reference to ‘community leaders’ who ‘worked with Bremer’? Huh?” He wrote citing media scrutiny. “With the exception of HFH (Habitat for Humanity), where Bremer Bank has entered into an insane mortgage purchase commitment so that Jean (Crane, Chief Executive Officer) can elevate his profile, community leaders are of no value to Extended comment Why would be working with Bremer. Bremer is just a bank. That’s it.”

Nevertheless, Habitat for Humanity was able to secure funding from philanthropy in a later grant round.

additional charges leveled

It is one of several allegations in an eight-month investigation by the attorney general’s office that began in early 2020. A witness list runs upwards of two dozen potential witnesses on each side, summarizing the scope of the trial in a 15-page joint statement.

This decision could play into a number of related lawsuits that have been kept pending judgment in the Attorney General’s case. Among them, bank leaders sued the trustees in Ramsey County District Court in November 2019, and the trustees did not retaliate for a long time. The Financial Hybrid Opportunities Fund sued Bremer Financial Corporation in December 2019, and the Malta hedge fund sued Bank Corporation in March 2020. Employees of Bremer Bank, which is partly employee-owned, sued the trustees. January 2020.

Additional allegations raised by Ellison’s office in the civil filing include:

  • According to the civil complaint, in October 2019, the trustees sold shares of Bremer Financial Corporation to 19 hedge funds “quickly and recklessly” that failed to secure the best price and did not receive court approval.
  • Over the course of eight years, Lipschultz and Reardon increased their annual compensation from about $120,000 to more than $540,000, primarily by firing their executive directors and hiring trustees—their own.
  • Through charges for asset management, a bank sale could increase each individual’s compensation by more than $1.8 million, the complaint alleges.
  • Trustees use trust assets to make private and potentially high-risk investments, in violation of the federal Volcker Rule, which aims to limit bank relationships with hedge funds and private equity firms. From late 2019 to May 2020, he transferred $143 million, or most of the trust’s $228 million, to non-Bremer Financial Corporation assets. Since then he has had to disinvest from those funds and pay disinvestment penalties and legal fees.
  • When the Attorney General’s office launched an investigation, Lipschultz allegedly erased threads of text messages from his cellular phone and then dropped the phone into a lake.

In legal filings, the trustees argue that they have been transparent in their financial transactions and successfully run an established foundation. The Otto Bremer Trust’s expense ratio has been consistently low compared to other Minnesota foundations.

The expenses are approved annually by the district court, without objection by the attorney general’s office, and any potential conflicts of interest related to the grant are fully disclosed. Their investment strategy, they wrote, “was transparent to the Federal Reserve and has outperformed traditional benchmarks and other non-profits.”

To replace the three trustees, Ellison’s office hired Marcia Avner, a senior fellow at the Minnesota Council of Non-Profits, Carlin Rhodes, former president and chief executive officer of the St. Paul Foundation and Minnesota Community Foundation, and retired Hennepin County Judge Pamela Alexander. is recommended. .

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