ST. PAUL — Not long after being sued for attempting to sell control of Bremer Bank to out-of-state investors, Otto Bremer Trust trustee Brian Lipschultz allegedly erased threads of text messages from his cellular phone. Then he dropped the phone into a lake, according to a civil complaint.
In those messages, some of which were later recovered, Lipschultz acknowledged the philanthropy’s decision to sell its bank shares could result in heavy job cuts and shuttered branches. It also would leave ownership of the storied St. Paul-based farm lender in the hands of hedge fund “guys that only care about making money,” according to the civil complaint.
“Maybe the trustees are motivated by money,” said Lipschultz, in a text message to fellow trustee Daniel Reardon and other contacts last November, according to the civil complaint. “But isn’t this a free society where the individual can make their own choices? … If we are honest, let’s point out everyone’s self-interest.”
500-page civil complaint
Many of those text messages were recovered by investigating attorneys with the Minnesota attorney general’s office, and appear alongside emails between Lipschultz and Reardon in an amended complaint filed this month by bank officials who have sought to block the sale of Bremer Bank shares.
Attorney General Keith Ellison is accusing the trustees of lavish spending, hiking up their compensation, paying themselves redundant fees and attempting to sell Bremer Bank. His office is asking a Ramsey County court to remove them from their positions.
The 500-page amended civil complaint alleges that over the course of eight years, Lipschultz and Reardon increased their annual compensation from roughly $120,000 to more than $540,000, largely by firing their executive director and hiring the trustees — themselves — to do the job.
In addition to salary increases, the pay growth came through fees earned for managing non-Bremer Bank assets, even though much of that work was outsourced to licensed money managers, which the two men are not, according to the civil complaint.
Both trustees had inherited their positions from their fathers, according to the civil complaint, and Reardon had in fact been fired by a Maryland brokerage firm in the 1990s, fined and banned from securities trading in Maryland for several years for violating stock exchange rules.
A bank sale could elevate each man’s compensation past $1.8 million, the complaint alleges.
The trustees, in turn, have accused bank officials of trying to save their own jobs. A bank sale would bring millions more dollars to the Bremer Trust, one of the Midwest’s oldest and largest philanthropies, which could expand the size and number of charitable grants it distributes regionally, though likely at the cost of shuttered bank branches.
“The bank blocked a multi-billion-dollar acquisition, a transaction the trustees supported, as it would have generated an additional $1 billion for philanthropic purposes in Minnesota and beyond,” reads a recent written statement from the trustees.
‘I am looking forward to observing the carnage’
In public statements, the trustees had told the bank board and the media they wanted to put the bank up for sale to put it on firmer financial footing, not reduce operations. Private texts seem to reveal otherwise. The bank has recently enjoyed record earnings.
“I’d favor eliminating as much as possible and just paying us for it,” Lipschultz wrote last November, in a text message submitted to the court by the Minnesota attorney general’s office.
“I am frightened for (Bremer Financial Corp.) if they try to withhold shares from the new investors,” said Lipschultz, predicting a drawn-out legal fight in a text retrieved from the phone of Joe Gulash, the trustee’s contact at Keefe, Bruyette and Woods, the firm that had been hired to court bank buyers.
“I picture an aerial bombardment the likes of which sleepy St. Paul MN has never seen,” Lipschultz wrote. “I am looking forward to observing the carnage.”
The amended complaint coincides with numerous depositions of Bremer Trust staff taken by the Minnesota attorney general’s office. The affidavits were submitted to Ramsey County District Judge Robert Awsumb this month as evidence that the three trustees should be removed from their positions and replaced.
The third trustee, Charlotte Johnson, who had objected to the salary increases over the years, voluntarily resigned from the bank board in April.
On Thursday, Awsumb met with attorneys for Ellison’s office and attorneys for the Trust to discuss initial scheduling matters in the removal petitions, which also seek to delay any action on a series of existing lawsuits until the petitions are settled.
In addition to Ellison’s petitions this month, legal claims have been filed by the bank against the trustees, by bank employees against the trustees, by the trustees against the bank, and by two hedge fund groups against the bank.
Employees raise concerns
With more than $13 billion in assets, Bremer Financial Corp. is one of the leading farm lenders in Minnesota, North Dakota and Wisconsin.
Otto Bremer, a German immigrant and philanthropist, reached into his own fortunes to save community banks across the region during the Great Depression, and he created the Trust in 1944 with the goal that Bremer Bank keep its good works funded long after his death.
The bank returned more than $81 million to the philanthropy last year, though not all of it made it into the hands of the community. The Trust, which has more than $1 billion in assets, in turn distributed $56 million in charitable grants and investments in 2019.
In depositions with the attorney general’s office, Trust staff said they questioned how the trustees — all of them descendants or relatives of Otto Bremer’s attorneys and advisers — had distributed some of the charitable funds.
Program officer Diane Benjamin recalled how heartbreaking it was to go into communities where the Trust was one of only one or two major charities and have to say no to funding essential services, such as food relief for the poor or affordable housing.
“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,” Benjamin said. “There was kind of a backdoor way that you could get a whole ton of money.”
Benjamin said a co-worker entered her office and explained that the Council on American-Islamic Relations had sought funding but “was not getting that grant because Brian doesn’t want to fund Muslims.”
Another staffer, who is Native American, recalled Reardon discussing with him for up to 30 minutes why he disliked funding Native American causes.
Discretionary spending for personal reasons
In recent years, each trustee had created a discretionary fund of roughly $1 million apiece for themselves, allowing them to make personal contributions to nonprofit causes without staff oversight.
Those grants helped fund WE Day (a youth empowerment day at the Xcel Energy Center in St. Paul organized by a nonprofit in Toronto), a boxing operation owned by a friend of Lipschultz, and a private school where staff said Lipschultz was interested in gaining a board seat.
Several staffers were taken aback by the WE Day grant, as the Trust had a tradition of not funding one-off gatherings and special events.
“I don’t know what the return on the investment is, specifically,” said Christine Fuglestad, the Trust’s director of communications, in her deposition, referring to WE Day. “They do a lot of promotion and awareness, but in terms of real impactful results, I’m at a loss.”
Another discretionary fund grant, this one for $500,000, went to the St. Paul Police Foundation, which funds police community outreach programs and officer wellness grants.
Reardon “just admitted to me in the elevator that he gave the SPPD a $500k grant to ensure that Todd Axtell was elected chief of police,” said Fuglestad, in an email she sent to herself in June 2016.
“Axtell was named chief on Monday — article in the (Star Tribune) said his ability to raise $$ put him over the top of other candidates for the job,” Fuglestad wrote to herself.
“The key word he used was ‘there’s a method to my madness with these grants, Christine,’” according to her email. ”‘There is always a method to my madness.’”
It’s unclear whether the grant made as much of a difference as Reardon may have suggested.
Led by a 32-member committee of community representatives, the search for a new St. Paul police chief began in late 2015, with the final appointment made by St. Paul Mayor Chris Coleman in June 2016.
When asked about the reference to Axtell, Sgt. Mike Ernster, a St. Paul police department spokesman, said, “The chief’s qualifications and community support speak for themselves.”