ST. PAUL — After months of investigation, Minnesota Attorney General Keith Ellison’s office is asking a Ramsey County court to remove the three trustees of one of St. Paul’s oldest philanthropic organizations.

Ellison filed two petitions and a 108-page memorandum of law in Ramsey County Probate Court on Wednesday, Aug. 13, asking that Otto Bremer Trust trustees Brian Lipschultz, Daniel Reardon and Charlotte Johnson be fired and replaced with three interim trustees.

Among his accusations, he accused them of lavish spending, hiking up their own compensation, paying themselves redundant fees and attempting to sell Bremer Bank.

“I do not take this action lightly,” said Ellison, in a written statement. “But as the chief law officer of the state and supervisor of charitable trusts in Minnesota, I have the duty to make sure charitable assets are used properly and for the benefit of the public, not the private aims and personal enrichment of the trustees.”

“Because the trustees’ misconduct is particularly serious, it requires particularly serious action by my office,” he said.

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In a joint statement issued on behalf of Otto Bremer Trust, the three trustees called Ellison’s filings “an unprecedented example of putting politics over people.”

They said they explained their intent to sell the bank in a sit-down meeting with the state attorney general office’s charities division in August 2019 and received a letter in response that raised no red flags other than questions about the trustees’ financial compensation.

“What has changed since then? The only relevant change is that (Bremer Financial Corp.) has retained an adviser politically connected to the Attorney General,” they wrote, without naming names.

“For the past year the trustees have explored a sale of Bremer Financial Corporation that would have increased the trust’s assets by more than a billion dollars,” the trustees wrote. “This effort – which is true to the intent and direction of Otto Bremer – has met with opposition by (Bremer Financial Corp.’s) management and directors who are more concerned about maintaining their positions rather than increasing the value of the trust’s assets.”

Hostile takeover

Ellison’s petitions note the trustees sold large numbers of shares in the Bremer Financial Corp. last October to out-of-state hedge funds, facilitating a “hostile takeover” of Bremer Bank that “drained the trust of millions of dollars in expenses that should have been available for the charitable purposes of the trust.”

Bremer Financial Corp. sued its philanthropic parent last November in an attempt to halt the sale, setting off a series of additional legal actions, including counter-claims filed by the trustees last December and a class-action suit against the trustees filed by bank employees last January.

The trustees have defended their actions, noting a sale could put the bank on even firmer financial footing at a time when many banks are merging or vulnerable to take-over. The $13 billion bank, however, has shown no obvious signs of financial distress.

Ellison has asked the court to hold off on any further action in the ongoing lawsuits until his petition is decided.

On Oct. 28, the three trustees transferred approximately 37 percent of Bremer Financial’s voting stock to 19 out-of-state hedge funds, with the goal of replacing the Bremer Financial board of directors and putting the bank up for sale.

According to Ellison, those actions fly in the face of the charity’s mission, which was established by German immigrant and Depression-era philanthropist Otto Bremer in 1944.

Founded in 1943, Bremer Bank is the fourth-largest bank in Minnesota and the 11th-largest farm and agricultural lender in the country. The charitable trust — which has issued more than $800 million in grants and charitable investments since its founding — has been a 92 percent shareholder in the bank, which is otherwise employee-owned.

Accusations outlined

In a written statement outlining his accusations against the trustees, Ellison alleged “serious breaches of fiduciary duty, their longstanding failure to administer the trust effectively and in accordance with the directives of its founder, and multiple violations of state laws governing charitable trusts.”

Among the accusations:

  • Making self-interested grants to promote their status in the community, including million-dollar grants to charities with which they were personally affiliated.
  • Creating a hostile work environment for employees that exposed the trust to liability and created a universal fear of retaliation among employees.
  • Misusing charitable assets and self-dealing to run unrelated private businesses out of Otto Bremer Trust offices.
  • Spending excessively on lavish office space and other overhead.
  • Paying themselves redundant and unnecessary fees.
  • Significantly raising their own compensation without a corresponding rise in their duties.
  • Creating and not remedying deficiencies in governance and oversight.

As interim trustees, Ellison has recommended that the court appoint former Hennepin County District Court judge Pamela Alexander, former Minnesota Council on Nonprofits public Policy Director Marcia Avner and former St. Paul Foundation and Minnesota Community Foundation President and CEO Carleen Rhodes.

On Wednesday, officials with the Bremer Financial Corp. released a written statement saying, “We are in complete support of the attorney general’s filing and believe these actions are necessary to fulfill Otto Bremer’s vision for the Trust. We look forward to working with the attorney general’s office as we move forward.”

None of the trustees are familial descendants of Otto Bremer, but they are the children and grandchildren of Bremer’s business advisers and attorneys.

Self-interested grants

In Ellison’s legal memorandum, Trust staff, currently composed of 22 employees, questioned $3.8 million in grants to nine charities that the trustees were personally affiliated with, either by serving on their boards or having close family on them.

“We have sworn affidavits and testimonies from current and former employees that are being filed in the form of exhibits,” said John Stiles, a spokesman for Ellison’s office. “We have 238 exhibits.”

Reardon, according to the memorandum of law, allegedly “boasted to a staff member that he had successfully championed a half-million dollar grant to … (an) entity for the purpose of advancing the political appointment of an acquaintance, stating ‘there’s a method to my madness with these grants.'”

Staff, who said they frequently had to turn down requests for funding for affordable housing and other causes, said they chafed when a grant went to a New York-based nonprofit to support what they described as a “glitzy event.” Until then, the Trust had made it a point not to fund one-time gatherings.

Lipschultz and his family allegedly attended a trip to Africa with the organization, which does educational trips abroad.

“When you hear things like the trust is funding a seal exhibit, that’s

money that isn’t going to help hungry kids or to build community infrastructure,” said an unnamed staff member, quoted in the memorandum.

$2.5 million for high-rent new offices

In 2016, the trustees commissioned a $2.5 million build-out of their new offices in downtown St. Paul, even though they rarely had visitors. Annual rents grew from $179,000 in 2010 to $438,000 in 2019, according to Ellison’s legal memo.

According to Trust staff, Reardon at the time said they should not meet with U.S. Sens. Amy Klobuchar or Al Franken in their new offices because “the display of wealth would be off-putting and would cause them to investigate or inquire more serious(ly) about how we are spending our money.”

After joining the board of trustees in 2012, Lipschultz called for changes to the Trust’s organizational structure. In 2014, the three trustees fired the trust’s executive director and named themselves as senior executives, drawing letters of concern from the president of the McKnight Foundation and other philanthropies.

From 2010 to 2019, their base salary increased from $120,000 to $358,000.

The trustees then hired Lipschultz and Reardon to perform additional duties as consultants for the Trust’s non-bank investment portfolio, earning the two men $194,000 in added fees in 2019 alone.

Services were also provided by outside investment advisers such as the Tealwood Investment Fund, where Johnson’s husband Ward Johnson served as a consultant until at least 2018.

Staff said Lipschultz never attended any trainings specific to his duties as a trustee, and he had his assistant spend 30 percent of her time each day on his personal schedule and other items unrelated to the Trust, such as scheduling his children’s soccer practice.

Around the time of his appointment, he had previously told a supervising court that his Trust-related “duties and responsibilities is a full time job,” and “I have no employment elsewhere.”

Ellison’s filing, however, noted Lipschultz listed himself as an officer and manager of several for-profit business entities that were based out of Otto Bremer Trust offices.

Questioned by the attorney general’s office, Lipschultz said the Trust technology, postage and office space devoted to his private businesses amounted to about $1,000 annually, and was so minimal as to approach zero.