State says Bremer trustees attempted 'hostile takeover' by selling charity's stake in bank

Leaders of the Otto Bremer Trust attempted a "hostile takeover" of Bremer Financial Corp., the big Minnesota bank the trust owns but doesn't control, by inviting other investors to join their effort to sell the firm two years ago, a state attorney said on the opening day of a trial over their conduct.

The trustees — Daniel Reardon, Brian Lipschultz and Charlotte Johnson — have spent $16 million of the trust's money on legal fees as Bremer Financial and, later the state of Minnesota, tried to stop them from selling it, the state attorney said.

Mike Ciresi, the attorney representing the trustees, said in his opening statement that their attempt to sell Bremer Financial was "thoughtful." And the sale of some of the trust's shares to other investors to back their efforts was "objectively reasonable" in the face of opposition from Bremer Financial's top executives and other board members, he said.

The judge presiding over the case, Ramsey County District Judge Robert Awsumb, last fall restricted the trustees' ability to sell shares of Bremer Financial and curbed their pay pending a settlement or the trial. As testimony began Monday, Awsumb again urged the sides to seek a resolution out of court.

Ciresi said trustees have attempted to open lines of communication. "But they went nowhere," he said.

Both sides have agreed on some things, however, such as keeping confidential the names of the two companies who wanted in 2019 to either merge or buy Bremer Financial.

The dispute emerged because of the one-of-a-kind ownership arrangement — the Bremer Trust is the only charity in the nation to own a bank — and changes in technology and customer behavior that are causing sizable banks across the country to merge with each other.

The trust stood to make a windfall, perhaps $1 billion or more, by selling the banking company, which today has $15 billion in assets and is the fourth-largest bank in Minnesota.

But trustees would also likely gain financially and, with proceeds from selling the stake in the bank, could run the charity as more of an investment vehicle. That runs contrary to the intentions of Otto Bremer, who created the trust in the late 1940s to own the bank after his death, the state and Bremer Financial executives argue.

The three trustees sat quietly together in a row during the opening arguments. Attorney General Keith Ellison, who did not speak during the proceedings, was also present throughout the first day.

Carol Washington, the lead attorney from the attorney general's office, said the trustees should be removed from their jobs because they put their interests ahead of the charity's, such as by paying themselves investment advisory fees.

She said the trustees sometimes circumvented the regular vetting process for making grants to make separate "strategic initiatives" where they had a personal connection to those organizations. She said employees who work at the trust are fearful of speaking out because of potential retaliation.

And, she said, Lipschultz ran a private business out of the trust's offices and used trust resources for personal uses. "This is not just about FedEx charges," she said.

Ciresi said the trustees have served competently and that no one has questioned their fitness in their roles until the dispute over selling the Bremer Financial stake arose. Some of the trustees are fairly outspoken, he said, referring in particular to Lipschultz.

"It is no secret, your honor, that he is a hard charger," and has a direct and "sometimes edgy" communication style. But Ciresi added that he has helped modernize the trust.

The allegations that Lipschultz used trust offices and administrative staff for his personal purposes amounts to scheduling around his kids' athletic events and an incidental use of a fax machine. That issue has stopped and any costs have been repaid, he said.

"That constitutes the single breach in over 18 months of investigation," he said.

As for the human resources matters, Ciresi said the trust has "an incredibly diverse staff" it is proud of. But like most places, he said, a handful of complaints have arisen over the years. And for the grants in question where the trustees may have had a conflict of interest, he noted that they did not stand to gain financially from the grants and all the recipients were qualified to receive them.

More than two dozen witnesses, including the trustees themselves, are expected to testify in the coming days.