When the board of the Bremer Financial Corporation decided not to sell Bremer Bank, the trustees of its philanthropic parent company – Otto Bremer Trust – decided to go ahead anyway.

The Minnesota Attorney General’s Office maintains that in August 2019, Trustees Brian Lipschultz and Daniel Reardon ignored key legal and financial guarantees and quickly set in motion the sale of 725,000 Bremer Financial shares to 19 hedge funds controlled by 11 banks. Until the state stepped in, the directors took the first step towards a hostile board takeover and bank sale, with the goal of becoming millionaires.

Legal representatives for the St. Paul-based charity argued otherwise. They argue that the sale of shares was not only legal, but anything but necessary to meet Internal Revenue Service standards. Trust receives 92% of dividends generated by Bremer Financial – one of the Midwest’s largest agricultural lenders – and the charity is required by IRS rules to pay at least 5% of its assets to beneficiaries each year.

A hearing to consider Attorney General Keith Ellison’s request to replace the foundation’s trustees began this week with opening statements delivered Monday before Judge Robert Awsumb. The hearing for trial-like evidence is expected to continue for at least a week.

VALUE OF THE BANK SALE ESTIMATED AT NEARLY 1.9 BILLION DOLLARS

A non-binding letter of intent from a potential bank buyer estimated Bremer Bank’s sale value at nearly $ 1.9 billion, roughly double its book value of $ 1 billion.

Based on the higher number, according to lawyers for the trust, Bremer Bank’s $ 50 million in annual dividend payments to the trust are expected to double. It would quickly eat away at their cash flow.

“It could put them into a death spiral,” said William Berens, an attorney for Dorsey and Whitney for the trust, during day five of probate testimony in Ramsey County District Court.

Bremer Bank officials have challenged how these payments should be calculated, and Attorney General Keith Ellison’s office accused the trustees of quickly seizing on a convenient excuse to force a bank sale and get rich. Based on self-operation allegations, the attorney general‘s charities division sought to install three new stewards as heads of one of the state’s oldest philanthropic organizations.

COMPLIANCE WITH THE TAX LAW OF 1969

The Ford Foundation, the Blandin Foundation and other foundations across the country were forced by federal tax law to sell their corporate subsidiaries decades ago, and the Otto Bremer trust is a major exception. On the other hand, the founding documents of philanthropy of 1944 indicate that it was Otto Bremer’s wish that the bank not be sold except in cases of “unforeseen circumstances”.

The directors have openly acknowledged that the purpose of selling company shares to foreign investors was to overthrow the board of directors of the Bremer Financial Corporation and force a bank sale, but they maintain that this would increase the coffers of the company. philanthropy and reap major benefits for good causes across the Midwest.

The Otto Bremer Trust last year disbursed a record $ 71.2 million in grants and low-interest loans, mostly in Minnesota. Grants and charitable investments have also been made in Wisconsin, North Dakota and Montana.

LACK OF SUPERVISION

In 2014, the three directors dismissed executive director Randi Roth and appointed themselves co-CEOs. Former program officers and other staff testified this week that without an executive director, director of human resources, or a board to report to, directors have repeatedly crossed ethical lines. The trustees said they are regulated by the courts and the attorney general’s office.

INVESTMENT FEES

Reardon and Lipschultz appointed themselves investment advisers in 2010 and 2012, respectively, earning a percentage return on the trust’s investments, although other internal and external advisors played similar roles. Among them, until recently, was the Tealwood Investment Fund, staffed by the husband of trustee Charlotte Johnson.

Over the years, the remuneration of the trustees has increased to exceed $ 300,000 for Johnson and $ 500,000 for each of the two men. With the investment costs, those numbers could exceed $ 1 million in the event of a bank sale. Trust officials said their compensation remained within limits set by the trust’s founding documents.

PRIVATE COMPANIES

An executive assistant said earlier this week that Lipschultz did his fax, file and ship packages for his side business, Eagle Street Partners, during staff time using his personal credit card, then request a refund from the trust itself. After raising her concerns to the trust’s financial controller, she said Lipschultz continued to shop for her private business, this time using her own credit card.

Reardon said on Friday that Lipschultz paid the trust $ 1,875 back after he was called. “It was an honest mistake.… We are human,” Reardon said Friday.

SUBSIDIES

Former program officers testified this week that they were careful to check grant applications and make sure they adhere to Otto Bremer’s vision – “the donor’s intention” – to fund the grant. ‘youth enrichment, economic development, disaster response and other specific causes.

They were surprised when they learned that the trustees had awarded their own grants, without staff approval, including $ 1 million for the Ordway Center for the Performing Arts, $ 1 million for the exhibition on seals and sea lions from the Como Zoo; and additional funding for Blake School, St. Paul’s College, and faith-based nonprofits.

Arts, animals, education, and religious causes were not among Otto Bremer’s priorities in the Trust’s founding documents, but at least some of these recipients may still be eligible as they provide enrichment resources to youth, emergency housing and poverty reduction.

OTTO BREMER TRUST

Based in Saint-Paul. 46 employees.

Founded in 1944 by the philanthropist Otto Bremer.

Issuing over $ 50 million annually in grants and charitable loans in Minnesota, Wisconsin, North Dakota and Montana.

Owns 92 percent of Bremer Bank.

Aggregate assets of $ 1 billion to $ 2 billion.

Led by Trustees S. Brian Lipschultz, Charlotte Johnson and Daniel Reardon.

BREMER BANK

Based in Saint-Paul. 83 branches. 2000 employees.

Minnesota’s third-largest bank in terms of assets, with $ 15.7 billion.

Earned a net income of $ 155 million in 2020 and distributed $ 73.4 million to the Otto Bremer Trust that year.

General Manager Jeanne Crain.