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Pages 58-87 of Transcript from March 17, 2005
A Section of the Cross-Examination of the US Bank Trustee
More of the Transcript will be added in the coming weeks.
Daughters’ Attorney: Your Honor, I’m ready to go into a new
chapter in the 2004 return. Do you want to take a break?
The Court: No, I’d just as soon go ahead.
Daughters’ Attorney: Okay.
Q: All right. [US Bank Trustee], if you could turn to the pages of the
final report that deal with the 2004 issues.
A: Okay.
Q: I see that there are three little sub reports. They’re quarterly
reports. Does the bank have the ability to issue a nine-month report?
Why couldn’t you combine those three reports into one for the beneficiaries?
A: They could of.
[Editorial Notation: The three little sub reports made the nine-month
2004 accounting all the more difficult to decipher and further concealed
the very poor rates of return for 2004. These little sub reports were
US Bank’s way of hiding the poor returns and hiding their dubious
actions. If they “could of” provided a nine-month report, then
they should have.]
Q: Now we talked a little bit ago about May 8th balance being $675,000
and then that money was actually invested in some additional funds; is
that right?
A: Yes.
Q: Okay. And, again, the purpose of those investments -- what was the
investment goal when you made that transfer from the First American Prime
Obligation Account ino the various other accounts?
A: I would say that it was a conservative approach to try to generate
maximized income and offer some growth for the portfolio.
Q: And offer some what?
A: Offer some growth for the portfolio, potential for growth.
[Editorial Notation: This so-called “maximized”
return was worse than if the Trustee had simply left the original investments
alone.]
Q: And that money was left invested roughly until June of 2004; isn’t
that correct?
A: Correct.
Q: You were aware, of course, that XXXXX died in June?
A: Correct.
Q: And why did you then liquidate those other accounts and move it back
into the Prime Obligation Fund?
A: To prepare for distribution.
[Editorial Note: Distribution was not possible at the time, and would
not be possible for many months later. The appeal regarding the farmland
was still ongoing at the time, and US Bank knew full well that the appeal
would not be completed until at least the end of September. Moreover,
at the beginning of June, US Bank purchased a six (6) month treasury bill
for the Trust that would not come due until the end of November. If US
Bank was actually “preparing for distribution,” what were they
doing purchasing a 6 month Treasury Bill? The Treasury Bill could not
be distributed until December of 2004. And, indeed, there still has not
been a distribution of the Trust as of June 2005. So, it’s nearly
been a full year since they put all of the money in the First American
Prime Obligations Fund.]
Q: Is there any reason you couldn’t have distributed those assets
in kind?
A: Could have. However, we wanted to make sure that there wouldn’t
be any other volatility in the account, run the risk of portfolio maybe
going down during that period of time between distribution.
[Editorial Note: We believe this statement to be an outright lie. Indeed,
if US Bank is so concerned about “volatility” with the First
American Funds than they should have pulled all of their clients' investments
out of the First American Funds during this period and put them in the
First American Prime Obligations Fund, like they did with our grandfather’s
Trust. The fact that US Bank did not do this, underscores the lie. After
all, what does this kind of a response say about US Bank’s own confidence
in the First American Funds if they allegedly fear volatility? And, obviously,
the real reason they put all the money in the First American Prime Obligations
Fund was because that was most lucrative for US Bank. It also apppeared
to be retaliatory when the daughters were involved in a legal case against
US Bank’s actions with the farmland.]
Q: Now during tha time that this money was invested in those sub accounts,
can you tell from these reports how much was in the First American Prime
Obligations Fund?
A: On a day-to-day basis?
Q: Right.
A: No.
Q: Well, I’m going to hand you what I did again trying to put everything
in chronological order for the 2004 years and this, again, was the same
methodology. I knew what the beginning balance was from the 2003 which
was all a consolidated report and then I just put in the purchases of
FAPO and the income from the various accounts and just to review for the
Court let’s -- let’s look at this a little bit. The methodology
is that the income would come in from these various accounts and then
there would be a purchase for the First American Prime Obligations Fund
so those -- that -- that income was then put into the Prime Obligation
Fund, correct?
A: Uh-huh, uh-huh.
Q: Okay. So that was the methodology. By following that in and out and
in and out I saw that the FAPO account at the end of January was 72,000+;
at the end of February it was 67,000+; and then there’s the balance
in March and, again, subject to my addition being correct and so on and
so forth. And then I get down to at the end of May there’s $46,055.34
in the First American Prime Obligation Account. Do you follow my methodology
anyway?
A: Uh-huh.
Q: Do you agree that there was approximately that amount in the account
at that time at the end of May?
A: Assuming -- assuming you’ve added all the entries and have the
transactions, that’s what’s indicated.
Q: But I’m not off by tens of thousands of dollars, am I? You think
that’s fairly accurate, give or take?
A: I would say so.
Q: Is that fair?
A: Yeah, I would say so.
Q: Okay. On the portion of the bank’s printout that shows April through
June -- Could you locate that for me?
A: Okay.
Q: And I’d ask you to go to Page 3 of that sub report.
A: (Witness complies)
Q: Okay?
A: Uh-huh.
Q: Are you there? In the top portion which is labeled contributions I
see an income contribution on June 3, 2004 and it says cash disbursement
transferred to principal, $260,201.46 and then it shows the receipt in
principal there, cash receipt transfer from income. So they pretty much
balance out?
A: Uh-huh.
Q: But what I couldn’t understand is what was the source of that
cash that allowed the distribution to principal?
A: The accounting system keeps track of income cash and principal cash
and so this was an accumulation if you will. It’s not really cash
itself but an accummulation of transactions that have occurred. It’s
a running total and so this was the rebalancing from principal to income
to make those zero as of the date of death. Well, it was prior to her
date of death.
[Editorial notation: This is precisely where the US Bank trustee slipped
up and revealed the truth that transactions were, in fact, backdated.
Our grandmother did not pass away until June 8th, 2004; however, on the
accounting statement, US Bank had this “rebalancing” dated June
3, 2004, the same day they claimed to disburse that 61,000+. Yet if “rebalancing”
was all contingent upon her death, they couldn’t have been doing
this on June 3rd. She didn’t even go into the hospital until June
7th. More on that to come in the transcript.]
Q: But going through all of 2003 and the first six months of 2004 I don’t
see any accounting that shows an accumulation of income of $200,000.
A: It would be other transactions that would have taken place.
Q: Should it even be in this report?
A: I’m sorry?
Q: Should it even be in this report?
A: Yes, it was. It was a transaction that took place to reallocate between
the principal cash and the income cash columns.
Q: So you’re saying that there was income cash that had already been
distributed to [our grandmother’s name] at least on paper?
A: It’s an -- Well, again, it is a confusing report.
[Editorial notation: The US Bank Trustee admits here that the report was
“confusing.”]
Q: Yeah. And follow that down to income distributions, again, on June
3, 2004, the middle of Page 3.
A: Uh-huh.
Q: It shows a cash disbursement to another account of $61,000.
A: Uh-huh.
Q: Where’d that money come from?
A: That’s the net income in the trust for ‘03 that was distributed
to [her].
[Editorial Notation: 61,000 was NOT the net income for
2003. That number appears nowhere else in the accounting statements for
2003 nor is the calculation explained in the 2004 statements. Moreover,
a portion of the 2003 net income had already been distributed to her on
May 8, 2003. All of the net income prior to May 8, 2003 had already been
distributed. And the remaining net income for 2003 was nowhere near 61,000.]
Q: How -- how does the trust accumulate income if not in the First American
Prime Obligations Account? Isn’t that where the trust accumulates
income?
A: That’s where it’s swept into, the income from all the investments.
Q: So on June 3rd I don’t see where there was $61,000 to distribute.
Can you explain to me where that comes from?
A: Not based on the information I have in front of me, no.
Q: Well, nor could we, I would point out. You’re aware, aren’t
you, that XXXXX died on June 8th?
A: I am.
Q: Okay. So June 3 would have been five days prior to her death?
A: Uh-huh.
Q: Were you aware that she was ill?
A: I was aware that she was receiving dialysis?
Q: Okay.
A: But I did not realize that she was in the hospital or was ill.
Q: Were these transfers made in contemplation of her imminent death?
A: No.
Q: Why did you wait to transfer income over to principal until five days
before [her] death?
A: The -- the transactions were done to distribute the net income on June
3rd to reallocate things to get it in balance so we could make that distribution
of net income that hadn’t been done. The net income for -- for 2003
had not been done.
[Editorial Notation: Again, the 2003 net income through
May 8th, 2003 had already been distributed on May 8th.]
Q: Why not?
A: I have no idea. I was absent.
Q: Why did you wait until five days before her death to do it?
A: I would say it was a coincidence.
[Editorial notation: This is such an obvious lie.]
Q: Well, let me ask this point of you. Did you backdate any transactions?
A: No.
Q: So that it -- You did not?
A: No. There’s no backdating of any transactions permitted.
[Editorial notation: Again, another lie. See earlier notation on the rebalancing
as of the date of death.]
Q: What does the trust document provide for accrued but undistributed
income at the date of death of [our grandmother’s name]? Do you know?
A: It would be due to [her].
[Editorial notation: This is wrong, as is noted below.]
Q: But the trust document doesn’t say that accrued but undistributed
income is to be paid over to her. It says she gets the income during her
life and upon her death the credit shelter amount is distributed to three
children. So I read that to say that any undistributed accumulated income
would go to the bypass charge --
Son’s Attorney: Objection. Is that a question?
[Editorial Notation: This is the only time during the entire hearing that
the son’s attorney interjected. This could only be because the son’s
attorney knew that US Bank had done the son a special favor with that
June 3rd distribution.]
Daughter’s Attorney: Would you agree with me?
A: Yeah. And I -- I would say that that is -- she should have --
yeah.
[Editorial Notation: The US Bank trustee agreed that undistributed income
should have gone to the three children/beneficiaries. And yet that is
not what US Bank did by backdating the transactions. Note the stuttering.]
Q: So I think I’m understanding that you’re telling me with
respect to the $260,000, that’s just like off the book or something.
That’s income from a whole bunch of periods. Just simply you were
converting from income to principal?
A: It’s not income. It is a downtake summary of all the transactions
that were posted in the income cash column. What happens with -- with
the money market or the Prime Obligations Fund is that as income comes
into the account, it’s posted into the income cash column and then
at the end of the day whatever that net number is is purchased into the
First American Prime Obligation. It’s swept in there.
Q: Right.
A: The purchases made out of the principal cash column as opposed to the
income cash column so what you’ve got is this running accumulation.
The same way with the sale. It sells out of the Prime Obligation and posts
into the principal cash column when any expenses are paid.
Q: All right. Let me -- let me back up and go through that a little more
slowly because I do find this to be terribly complicated. [She] gets the
income?
A: Uh-huh.
Q: So when income is paid from these various [First American] stock accounts
and [First American] bond accounts that you’ve invested in, you purchase
First American Prime Obligation assets?
A: Uh-huh.
Q: Right?
A: Uh-huh.
Q: So when do you distribute that income to [her]?
A: Should have been done on an annual basis.
Q: But it was not?
A: In ‘03 it was not. And that’s -- that’s why the reallocation
was done in June -- on June 3rd, to get the net income to her.
[Editorial Notation: It was done up until May 8th, 2003.
The 2003 net income from January through May 8th, 2003 had already been
distributed.]
Q: The -- then the -- the distribution of 61,000 also on June 3rd, that’s
the accumulated income as -- for 2004 as of that date?
A: No, it was for ‘03.
Q: You lost me again. What was the 260,000 up above?
[Editorial Notation: Again, part of the 2003 net income
had already been distributed on May 8th. And the remainder was nowhere
near 61,000.]
A: That is the accumulation -- again, a downtake total of all these transactions
that take place.
Q: Beginning at what point?
A: Would have been probably since the inception of the account, any activity
that would have been taking place between the principal and income cash
columns.
Q: So when you did the tax return for 2002 you hadn’t really distributed
the income; you just accumulated it in the account?
A: The ‘02 return?
Q: Right. I’m talking ‘02, yeah.
A: ‘02. I’d have to have the ‘03 [sic] accounting to look
and see here when the income was done.
Q: Because I understood you to just say this 260,000 is accumulation from
the date of inception.
A: And it’s not -- again, it’s not an accumulation of income.
It’s an accumulation of the transactions that take place in there.
So it could represent distributions, expenses, income expenses that are
taken out. That affects that total in the income cash column. But it’s
not truly income.
Q: Okay. How did you learn of [her] death?
A: I don’t remember if it was [her son] that contacted me or his
attorney.
Q: I see on June 16th of 2004 that an undivided half interest in the farm
was transferred over to [her] account; is that right?
[Editorial Notation: the daughters’ attorney was confused here. This
was not right. The undivided half interest was transferred to a sub account.
Keep in mind, the accounting ws 60+ pages, so it was easy to get confused.]
A: No.
Q: Oh, that’s the sub account.
A: It was moved into the sub account for the farm so we could keep it
separate.
Q: Why -- why was the trust still holding onto the farm?
A: Because of the litigation that was pending relative to the appeal of
the decision.
Q: Do you remember at what point that was resolved?
A: I don’t remember the exact date.
Q: And if I were to suggest to you that it was in the fall of 2004, would
you argue with me?
A: No.
Q: And as of now that interest in the farm is still in the sub account?
A: Correct.
Q: Okay. And the litigation involving the [the violation] of the funding
formula is closed; isn’t that correct?
[Editorial Notation: For clarification, the litigation was NOT in regards
to the funding formula per se. It was exclusively in regards to
the removal of the farmland and the violation of the funding formula
by removing the farmland.]
A: Yes.
Q: So why haven’t you made distribution yet?
A: We’re waiting for the approval of the final report.
[Editorial Translation: US Bank knows that that they did something
very wrong with the farmland. US Bank knows that the farmland case was
manipulated in its early stages and that the daughters were sold-out and
treated wrongly. US Bank knows there was collusion. US Bank knows that
they blatantly violated the Trust code and the Trust agreement. US Bank
knows that they only got away with it because of the manipulation and
collusion in the case back in April of 2003.]
Q: On June 4th of -- Let me see if I can find my -- you purchased $250,000
in First American Corp bonds. Do you see that? That’s on Page 6 or
8 [of the quarterly report for the June period].
A: Okay. Yes, I do see it.
Q: On the same date you purchased a treasury bill for 125,000, okay?
A: Uh-huh.
Q: Now [she] had died. You indicated you’re trying to consolidate
things for distribution. Why were purchasing those types of assets?
A: Those were purchased prior to her death. Her death was on June the
8th.
Q: Oh, on the 4th, okay. Why did you purchase the First American Corp
bond fund on June 4th?
A: It was to maximize income.
[Editorial Notation: “Maximize income,” my foot. This was June
4th, the day after that June 3rd “rebalancing” and that June
3rd “distribution.” And these bonds that were purchased on June
4th were sold less than 11 days later.And it is very likely that the purchase
of those bonds generated commissions for either US Bank or the US Bank
trustee. These transactions, too, appear to be backdated when one examines
the accounting statements.]
Q: Okay.
A: As opposed to leaving it in a money market account.
[Editorial Notation: The US Bank trustee had no problems leaving over
675,000+ in a money market account for nearly eight months in 2003, and
the US Bank trustee has had no problems leaving over 675,000+ in a money
market account and a 125,000 Treasury Bill for nearly a year now. That’s
now over 20 months of having virtually the entire Trust in a money market
account. And, again, these bonds were sold within a mere 11 days later
and then replaced with a money market account only 11 days later. There
could not be a more blatant lie.]
Q: Okay. And what about the treasury bill? Why did you purchase the treasury
bill?
A: The treasury bill appears to be a short-term type of situation so,
again, maximization of income.
[Editorial Notation: It was a six-month situation that generated only
$141 per month. “Maximization of income,” my foot.]
Q: Do you know what that treasury bill paid?
A: I’d have to look down through the transactions to find it.
Q: Then I see on June 7th and on June 15th you sold the First American
Corp Bond fund. Why did you sell the bond fund at the time?
A: Are you talking about the -- June the 15th would have been sold after
her date of death.
Q: And on June 7th a portion was sold?
A: I can’t comment to that, why our investment portfolio manager
sold it on that day.
[Editorial Notation: This is the very first time the beneficiaries had
ever heard of this alleged “investment portfolio manager.” Nobody
at US Bank had ever told them that there was allegedly an “investment
porfolio manager.” If there was such a person, then he did a very
bad job in 2003 when he left the entire Trust invested in the First American
Prime Obligations Fund for nearly 8 months and then again most recently
for nearly a year. Never once did anybody at US Bank mention this person.
This seems like a convenient way to avoid a question.]
Q: Would you agree with me that you paid $250,000 for that asset and you
sold it for $248,869.60?
A: I would.
Q: So in that two-week period you lost $1,100. Isn’t that correct?
A: Yes.
Q: And is that consistent with faithful management of this trust account
for these beneficiaries?
A: No, probably not.
Q: And in addition to that loss were there also fees inside the fund that
had to be paid because these were proprietary mutual funds or proprietary
bond funds?
A: There would be fees in those funds, yes.
Q: Where did the money come from to purchase the First American Corp Bond
fund?
A: Which transaction?
Q: Well, to purchase on June 4th.
A: Purchase on June 4th. It may have been sitting -- again, without having
a detailed day-to-day transaction, it may have been money that was sitting
in the prime obligation fund.
[Editorial Notation: No, there was not that much money in the FAPO fund
at the time..]
Q: Okay. But, again, assuming that my little chart there that I showed
you is accurate, at the end of May there’s only 40 some thousand
dollars in the account.
A: I’m just looking right now through the transactions to see if
something else --
Q: Sure. That’s fair.
A: On June the 4th there was a US Government Mortgage Fund sold, a portion
of that sold on June the 4th. That’s on page 8 of 8.
[Editorial Notation: There was NOT enough sold on June 4th to cover the
purchase of the Bonds and to cover the purchase of the Treasury Bill.
It simply does not add up.]
Q: Okay. But you agree that there was a whole lot going on on June 4th?
A: Yeah, there was.
Q: Do you remember that date, June 4th, when you see this many transactions
on one day?
A: I don’t remember the day specifically but there are a lot of transactions
going on.
Q: My review of the calendar reflects that it was a Friday so there’s
no business transacted the next two days and then [she] dies on Tuesday.
Again, you see nothing other than coincidence?
[Editorial Notation: She went into the hospital on June 7th, Monday. So
that was just one business day before.]
A: That’s correct.
[Editorial Note: What are the chances of this being a mere coincidence?]
Q: Do you know where the money came from to purchase the US Treasury Bill?
A: Would have come from prime obligation account also.
Q: I saw that the -- As you pointed out to me on Page 8 of 8, the First
American Government Mortgage Fund was sold on June 4th for 200,000 but
as I look at the purchases in the First American Prime Obligation Fund
on Page 6, I don’t see a corresponding purchase at that time. Should
there be one?
A: Should be a purchase into the -- into the prime obligation for the
net of those transactions that took place on that day.
Q: But, in fact, I don’t see any purchase on June 4th.
[Editorial Note: Indeed, there were not any purchases of the FAPO fund.
Hence, it’s a lie.]
A: I would say it appears that there was an overpurchase for whatever
reason.
Q: What’s an overpurchase?
A: Well, it did not have the cash in prime obligations. There must have
been a trade error in that he thought that he had that money liquid to
do it and then that’s probably why he turned around and sold that
particular investment we were talking about, the one sale, the core fund
on the 7th.
[Editorial Notation: Now he admits that he did not have the cash available
in the prime obligations fund. And, again, there is an ambiguous reference
to a previously-unmentioned portfolio manager.]
Q: [US Bank trustee], we’ve obtained through discovery in another
case some grain records from XXXXX Grain company in XXXXX which indicate
that the XXXXXXX Trust had an interest in 3,299 bushels of soybeans and
9,694 bushels of corn. Were you as the trust officer aware of those assets?
A: What date are those as of? I guess I was not aware of those specific
assets.
Q: Well, just -- I’ll show ‘em to you and I don’t have
copies and I guess I don’t intend to mark ‘em as an exhibit
but just for your reference. This is the sheet showing the corn.
A: Okay.
Q: And what it appears to show is that grain was moved from farm storage
to the elevator in the spring and early summer or whatever of 2004. Do
you see this?
A: Uh-huh.
Q: And you’ll see what’s been highlighted in purple down there?
A: Uh-huh.
Q: The trust -- or the trust’s interest in the grain?
A: Uh-huh.
Q: Similar to the soybeans?
A: Uh-huh.
Q: Okay.
A: Okay.
Q: Okay. So the trust did have some additional assets that you as the
trust officer weren’t even aware of; is that right?
A: Grain from the production of the farm but yes.
Q: How would you categorize this grain? Is it income or is it principal?
A: I would say it’s income.
Q: It’s income. So it doesn’t have to be sold to be income?
It just has to be severed from the land, am I right?
A: Well, I guess in your example it was actually sold so I was considering
it as income.
[Editorial Notation: No, the grain had not been sold.]
Q: Oh, I’m sorry. So my understanding is it’s just moved to
storage, not sold?
A: Don’t those indicate checks that were done? I’m sorry, I
glanced at ‘em very quickly but --
Q: No, okay. I want to be clear on this.
A: Okay.
Q: As I read these they’re scale tickets not sale tickets.
A: Okay.
Q: And that they are still in storage and if you see something else, let
me know.
A: Okay. Yeah, I apologize. I thought they were sale tickets. So in that
case they were assets.
Q: And, again, my question, how do you categorize them, as income or as
principal?
A: I would say as assets given that example.
Q: Assets?
A: Principal.
Q: Principal. In your 2004 report I think I do see that some income was
recognized in September. We need to go to the June to September portion
of that report.
[Important Editorial Notation: A certain amount of income was “recognized
in September” right before the end of the September accounting statement
because had it not been recognized, the Trust would have been approx.
15,000 below the 675,000 mark after the subtraction of fees. In other
words, the Trust would have shown a loss and no gains whatsoever in principal
for the two daughters/beneficiaries over that nearly 3 year period. So,
US Bank recognized a little income in September 2004 to push the final
figure slightly over 675,000 so that it wouldn’t look so bad. That’s
how they arrived at the 681,000+ as the end of the accounting. They were
playing with numbers to make it not look as bad as it was. They still
had not recognized all of the income. And the accounting that was provided
in November 2004 only went through the end of September 2004.]
[Editorial Notation, Part 2: After floating the Trust
above the 675,000 mark, US Bank was also trying to give 13,000+ of that
September 2004 income to our grandmothers' estate (which her son and her
son's attorney were in control of), even as it properly belonged to the
three remaining beneficiaries, according to the terms of the Trust. This
was pure partialitiy and quid-pro-quo. US Bank recognized just enough
income in September to get the Trust above the 675,000 mark and then essentially
gave the remainder to the son. This action represented total disregard
for the Trust agreement.]
A: Okay.
Q: I’m sorry, I think that might be in a sub account. Do you have
the sub account in front of you?
A: Uh-huh.
Q: It was Page 1 of 4 of the June -- July to September portion of the
sub account. It shows a First American Prime Obligation, 31,395.
A: Uh-huh.
Q: And that tracks through to Page 3 on June 8 of 2004, cash receipt in
miscellaneous income sale of grain.
A: On September 8th?
Q: September 8th. Did I say that?
A: You said June but it was September, yes.
Q: Okay. I want to go back to my Exhibit Number 1 and direct your attention
to the third page of that exhibit, Item Number 10, grain in storage. And
to refer again back to the xxxxxx Grain documents. This reflects that
XXXXX Trust had 9600 bushels; XXXXX had 9600 bushels and XXXXX’s
reporting the sum of that total in her probate inventory. Do you see that?
A: Uh-huh.
Q: Okay. Similarly, with the beans -- whoops, two pages in corn. For the
same calculation, [she] is showing the entire amount in her probate inventory
yet a one-half interest of that amount would be 54,000 plus dollars, correct?
A: Yes.
Q: On this report you show grain income of only $37,000. Isn’t there
some grain income missing?
[Editorial Notation: The daughters’ attorney is himself confused
here. That $37,000 would not have been from the grain sitting in storage
because the grain sitting in storage had not been sold yet. And the 54,000
of grain in storage was due to the Trust.]
A: I don’t know what the valuation per bushel obviously was on her
date of death. 2.76 for corn and 8.51 for soybeans.
Q: And I realize that those markets fluctuate but there hasn’t been
that kind of fluctuation, has there, between May and September ‘04?
A: I am not sure. I’ve got receipt tickets so we’d have to look
at ‘em.
[Editorial Notation: US Bank has never provided those receipt tickets
to the beneficiaries and they were not provided at the hearing. And if
US Bank has receipt tickets for that 37,000 then that is not the same
as the 54,000 since the trustee “was not aware of those specific
assets.”]
Q: Another thing that I recognize, that this 37,000 is pretty close to
one-third of that $109,000 figure, and I’m wondering if you thought
that the amount XXXX sold needed to be divided into thirds rather than
half. Is that possible? You don’t know?
[Editorial Notation: Again, the daughters’ attorney is a bit confused.
It was very easy to get confused by the accounting statements. The 109,000
worth of grain had never been sold. It was still sitting in storage at
the time in November when these accounting statements were produced.]
A: No.
Q: Do you have Exhibit C of your final report available?
A: Yes.
Q: I want to start down with the sub account first.
A: Okay.
Q: It reflects that there was an over distribution of the 2003 income.
A: Correct.
Q: What’s that from?
A: It was a miscalculation on the distribution on the net income to her
so we over distributed that.
Q: Does that relate to that grain deposit that we were just talking about
in this account?
A: No.
Q: In my review of the sub account, I didn’t see any other distribution
of income.
A: It’s all just sitting there in the sub account.
Q: So this is not a complete report?
A: Yes, it is.
Q: Then why don’t we see that?
A: Because this is reflecting the balance as of 9/30 is $31,000. It’s
an estate -- I guess it’s an estate asset based on litigation.
[Editorial Notation: No, for clarification, it is a Trust asset, not an
estate asset in this case since the estate was separate. And, no, that
31,000 had nothing to do with the farmland litigation at all.]
Q: An estate or a trust asset?
A: I would say it’s an estate asset.
Q: It hasn’t been distributed from the trust yet, has it?
A: That’s why it’s sub accounted, to keep those transactions
separate.
Q: Okay. But even in the sub account transaction I only see one distribution
of income and that’s the sale of grain on September 8th and you’re
telling me that this over distribution of 2003 income does not relate
to that line item and I don’t know what other line item there would
be. Can you explain that?
A: There was an over distribution of income from the trust in order to
put money back into the -- the trust with the original 675,000. The --
the proposal is to take $563.99 from those funds that are sitting in the
sub account and transfer them over to the $675,000.
[Editorial Notation: There is no explanation whatsoever how the trustee
arrived at that $563.99. None whatsoever.]
Q: But the computer printout that you’ve presented to the Court as
the full accounting of the sub account shows no distribution of income?
A: That’s correct. These haven’t -- these are proposed transfers.
They haven’t taken place yet, these three down here that are listed.
Q: But the overpayment has, right?
A: Correct. The overpayment was out of -- was part of the distribution
that was done from the $675,000 trust if you will.
Q: Okay. Similarly, you’re refunding the real estate taxes that were
paid out of the bypass amount.
A: Uh-huh, uh-huh.
Q: And similarly the one-third interest -- or share of the fertilizer
expense was erroneously paid out of the bypass amount, correct?
A: Correct.
Q: So basically those are mistakes. You caught ‘em; you’ve moved
them back in and you’re trying to ---
A: Moving them back in to part of the -- to be available for the distribution,
correct.
[Editorial Notation: No, they were not mistakes. They represented poor
management of the farmland. Also, moving them back was another way
of floating the final figure over 675,000 so as to not show a loss.]
Q: All right. Then, you know, going back up to the top you talk about
these fees pending approval and I certainly understand that and then I
also understand that such fees and court costs are paid half from principal
and half from income. But it appears to me that you are assigning all
50 percent of the principal portion of those fees and expenses to the
bypass trust. Isn’t that right?
A: Yes.
Q: There are other principal assets in the trust though, aren’t there,
to-wit, the farmland and the crops? Shouldn’t they be sharing that
as principal and a portion of those expense?
A: Again, they’re not an asset of the bypass trust given the litigation
that happened.
Q: I understand they’re not. But they are assets of the trust --
of the XXXXXX Trust? Those are assets, correct?
A: I would say, again, the litigation that took place and the ruling that
was was that farm was to transfer to [her].
Q: And it’s been parked in the sub account but it’s still an
asset of XXXXXX Trust. Shouldn’t it share in the principal expenses
of these fees and expenses?
A: I -- I don’t believe it should
Q: A portion of those fees were accrued in 2003 before the litigation
was resolved and when clearly the farmland was an asset fo the XXXXXX
Trust; isn’t that correct?
A: Yes.
Q: If we go to the income portion of those expenses, I see the methodology
that was used. You calculated the total number of days that income was
being
accrued; you calculated the number of days that XXXXX was alive and you
attempted to charge XXXXX with only that portion of that expense. But
my question is couldn’t you also prorate it in a different manner?
For example, across all of the income that was paid and if 90 percent
of the income was paid to XXXXX, why wouldn’t XXXXX pay 90 percent
of the one-half that comes from income?
A: I guess I’ve never done that calculation that way before. It’s
always been 50/50 principal income. I guess if you wanted to calculate
and spread as you had indicated then the market value of the farm would
need to be included in this calculation and it wasn’t. The market
value of the farm per the accounting is 0 as a carrying basis, if you
will, of half of the date of death value of XXXXX. But for fee calculations
the farm wasn’t included.
Q: Right.
A: As a --- so ---
Q: You’re familiar with the Iowa Trust Code, of course, aren’t
you?
A: Yes.
Q: You are aware then that section 633.4201 of the Code requires that
a trustee administer the trust according to the terms of the trust?
A: Yes.
Q: But, in fact, you did not follow the funding formula that was expressed
in the trust?
A: Again, it’s been litigated. The application was made and approved
by the Court.
[Editorial Notation: So, if you are the beneficiary of a Trust managed
by US Bank, be prepared for US Bank to blatantly ignore the funding formula
and then advise against that funding formula in Court. Be prepared to
have to litigate to get US Bank to abide by the terms of the Trust and
the terms of the Trust Code, and then be prepared for US Bank to argue
against the standards of the Trust Code. Frankly, the application was
only approved by the Court due to collusion.]
Q: Section 633.4202(1) imposes a duty of loyalty and impartiality on a
trustee and says that a trustee, quote, shall act with due regard, closed
quoted, to the respective interests of the beneficiaries. Do you feel
you did that?
A: I think I did.
[Editorial Notation: We think he did not. In fact, we don’t
simply think that; US Bank did not act impartially nor loyally at all.
That is a fact here.]
Q: With respect to the respective interests of the beneficiaries, of course
the income beneficiary wants income; the residual beneficiaries would
like to see growth; isn’t that right?
A: Sure.
Q: Okay. You indicated that you adopted a conservative approach, correct?
A: Did you talk with [our grandmother] and [her son] about that particular
approach?
Q: Not with [her son].
A: Okay. Just with [our grandmother]?
Q: With [our grandmother] and her attorney [sic -- the son’s attorney]
-- excuse me, her attorney.
[Editorial Notation: We believe that the US Bank trustee did say “his
attorney” in Court but that the Court Reporter corrected something
in the first half of the sentence that she shouldn’t have. The Court
Reporter also edited out the part of the hearing where the judge (he)
expressed great, almost motherly-like concern about US Bank’s attorney’s
diabetic condition and the need to take a break to accommodate that state,
without the US Bank attorney even requesting a break in the first
place and then declining the need for a break after the judge had spontaneously
offered one. Based upon such spontaneous, unprompted concern, one would
almost think that they were friends outside of Court. It was all very
odd.]
[Editorial Notation, part 2: The US Bank trustee could make up anything
that he wanted about informing our grandmother insofar as she was no longer
alive to dispute what he was saying and insofar as “her attorney”
was actually the son’s attorney and insofar as US Bank had obviously
struck some kind of a deal with the son. Also, she was in no capacity
to be comprehending any investment information, and that should have been
obvious to US Bank.]
Q: Did you talk to any of the residuary beneficiaries about the appropriate
mix?
A: Not at that time, no.
Q: How did you consider then the respective interests of the residuary
beneficiaries when you made these investment decisions?
A: By having the mix of, again, what would be prudent for an account of
this nature, having a 30 percent equity exposure.
[Editorial Notation: Not during the nearly 8 months of
2003, when there was over 675,000+ invested in the First American Prime
Obligations fund.]
Q: And that’s not according to any standard, is it? I mean that’s
just subjective decisions of the trustee based upon what the trustee knows?
A: I would say that it’s through the trustee’s input and the
portfolio manager.
[Editorial Notation: Again, peculiarly, this “portfolio manager”
had never once been mentioned in any of the conversations or meetings
that the daughters had had with US Bank. So, this sudden invocation of
a “portfolio manager” was very strange and odd.]
Q: Yet you knew of the dispute within this family. That’s how you
got appointed to be trustee; isn’t that right?
A: Yes.
Q: You indicated that you didn’t particularly pay any attention to
the other income resources that XXXX had. Had you done so do you think
that might have affected the mix of investments?
A: I don’t believe so.
[Editorial Notation: This is virtually impossible to believe. Had she
not had other sources of income, she would not have been able to survive
on the income during certain periods when the Trust was invested in the
FAPO fund.]
Q: Okay. How much income did XXXXX need?
A: I don’t have a dollar amount.
Q: You know, don’t you that [the two daughters] attempted to go over
your head and they talked with your supervisor XXXXXX?
A: Yes.
Q: As a result of that, didn’t you treat them less favorably than
you did XXXXX?
A: I don’t think I treated them less favorably.
[Editorial Notation: We find this impossible to believe. The partiality
was blatantly obvious in the decisions that were made.]
Q: You didn’t communicate with them as much as you communicated with
XXXXX or XXXXX’s attorney, did you?
A: XXXXXX was the primary beneficiary at the time.
Q: She’s only the income beneficiary. Why do you say primary?
A: Primary income beneficiary.
Q: And you also managed an account for XXXXX?
A: Correct.
[Editorial Notation: That account was set up at the time that our grandmother
was under a guardianship in 2003, and the guardian was the other residual
beneficiary, her son. And the attorney was actually her son’s attorney.
The account, by all indications, was a quid-pro-quo favor to US Bank from
the son’s attorney in return for taking the farmland out of the Trust
for the son’s exclusive benefit.]
Q: In which you drew fees?
A: Correct.
Q: Do you think that in any way influenced your decision with respect
to the mix of the assets that favored XXXX?
A: No.
[Editorial Notation: Again, impossible to believe, especially when US
Bank gave away all of the best assets, which was the exact opposite of
what they should have done. It was all part of the quid-pro-quo deal.]
Q: But you certainly had more knowledge of her assets than you did, for
example, of the residuary beneficiaries?
A: Yes.
Q: Now Section 633.4202(5) (d), you know, basically allows the use of
proprietary mutual funds and I don’t want to present anything differently.
But it says, nonetheless, you must follow the prudent investor rule. Do
you feel that you did so?
A: I believe we did.
[Editorial Notation: No, they certainly did not. That is beyond obvious
given the poor returns, especially from the FAPO fund.]
Q: It goes on to say that you must disclose on annual reports to the beneficiaries
the rate and the method of the proprietary mutual fund’s compensation
to the trustee. Do you think you did that?
A: The annual disclosure is done.
[Editorial Notation: Note: He did not say that it “was”
done. He said that it “is done.” Yet it was not ever done
in this case. After all, the beneficiaries did not even know the entire
Trust was being invested in the First American Funds. They were given
no information about this at all, let alone information about compensation.
They had to figure this out for themselves after November of 2004.]
Q: Where?
A: Done corporately. They do a mass mailing on an annual basis.
[Editorial Notation: The beneficiaries did not receive any mailings
whatsoever. This is a blatant lie.]
Q: This says that as part of the annual report you will make that disclosure.
You didn’t do that?
A: It is not part of the annual report, I would agree.
Q: So if we look for a second at the Prudent Investor Act, Section 633.4203
(3), it requires us to examine the trust portfolio as a whole area and
as part of the overall investment strategy. What was the investment --
well, I think maybe you have answered that, the 60/30 split, so I’ll
forget that question. In the Prudent Investor Act, Section 674.4303 considers
consideration of a whole laundry list of -- for example, the economic
conditions that pertain at the time the decisions are made. And at the
time that you made this decision, the 60/30 split for example, you knew
basically what the market economy was at the time?
A: Through working with our portfolio manager, yes.
Q: You’re supposed to consider the tax consequences. Did you do that?
A: I believe he did.
[Editorial Notation: Once again, this never-mentioned-before “portfolio
manager” appears in the testimony. And, of course, since US Bank
never notified the beneficiaries of his existence before, they could not
call him as a witness. How convenient for the US Bank trustee to shift
the blame to someone who the beneficiaries had never met and, for all
we know, might not have had anything to do with the Trust.]
[Editorial Notation, Part 2: No, US Bank did not take into consideration
the tax consequences. That is blatantly obvious. They sold or distributed
all of the original tax-free bonds and replaced them with taxable assets.
They also advocated for the removal of the farmland, the most aggressive
asset, which now results in a substantial tax liability that would not
have existed had US Bank not done this.]
Q: So there’s somebody else who is making these decisions, not you?
A: With respect to the investment net or the investment purchase and sales,
yes.
[Editorial Notation: Again, never once did the Trustee nor any of his
supervisors at US Bank ever mention this person. And if there was such
a person, that person severely mismanaged the investments.]
[Editorial Notation, Part 2: And
had US Bank actually mentioned this alleged person previously, the daughters
would have called him as a witness. However, they could not call him as
a witness since he had never been mentioned prior to this March 2005 hearing.
We highly doubt that this so-called "portfolio manager" had
anything to do with the Trust since not once did anybody at US Bank, at
any level of the bank, mention this alleged person as being involved with
the Trust or making investment decisions. They only mentioned the trustee
himself. Whenever the daughters talked to the trustee's supervisor, the
supervisor always referred them to the trustee, not to anybody else. Surely,
if someone else had been involved, the supervisor would have mentioned
this. Nor did the trustee ever mention this alleged person when
the daughters met with the trustee, at their request, several times in
2002 and 2003.
Q: Section 633.4205 talks about a trustee and his special skills who holds
themself out as having special skills. Certainly US Bank has special skills
in trust management, don’t they?
A: Yes.
Q: And they advertise that way. They hold themselves out as having those
special skills, correct?
A: Yes.
Q: Yet not withstanding those special skills, when the funding formula
issue came up, US Bank did nothing to point out to the Court the proper
funding method, correct?
A: I don’t have the exact litigation things that went on but I would
think it was part of that discussion. It was pretty lengthy, that whole
process was.
[Editorial Notation: This is the most blatant lie. The April 2003 “hearing”
on the farmland only took 10-15 minutes, and according to the brief record,
US Bank advised against maintaining the most aggressive asset in the Trust.
So, US Bank advocated against the funding formula, and never once after
that did they do anything to note the proper funding method throughout
the next year and a half. The process in April 2003 was not “lengthy”
nor did US Bank point out the proper method to the Court, and they had
ample opportunity and time to do so during that next year and a half of
the appeal. At any point during that year and a half, US Bank could have
spoken up and corrected what they said in April of 2003.]
Q: But you were here for that --
A: Yes.
Q: -- meeting with the judge? You didn’t point out the funding formula
because I needed to point it out to you today. Did you know the funding
formula?
A: I must have.
Q: Section 637.4213 talks about the trustee reporting to the beneficiaries
at least annually. And obviously we’ve got a report here that’s
one year and nine months, correct?
A: Uh-huh.
Q: So you did not report annually, and why not?
A: Due to all the litigation that was going on. We were in the process
of preparing the ‘03 report for -- for presentation. XXXXX died.
The thought was that we would include the -- the next time period along
with the annual report for ‘03. Hopes to save some expenses that
way.
[Editorial Notation: This is the biggest lie. They should have had the
‘03 report done in either January or at the latest February 2004.
And the daughters have an email from the US Bank supervisor saying that
they were in the process of preparing the accounting at the end of March
2004, well over two months before our grandmother passed away. If they
were in the process at the end of March, they were not waiting for the
litigation to end at that time because the litigation was ongoing. And
certainly it should not have taken them over two months to be “in
the process” of preparing something that should have been prepared
in January or February.. Moreover, the notion of “saving expenses”
is only laughable given how much US Bank made off the Trust in fees and
commissions. And only laughable given how much the Trust lost during the
periods in which it was invested in the FAPO fund and the Treasury Bill.
Simply put, this is nothing less than a cover-up for the lack of an annual
report. There was no excuse for this. An annual report is a requirement
by law, both according to the Trust Code and according to the Trust Agreement.
And this is what the fees are, in part, supposed to pay for. The Trustee
still received his annual fee for both of the 2003 and 2004 years, so
there was no savings in expenses whatsoever by combining the reports.
US Bank still received the same fees, and it was the same expense for
the Trust. So, this is the biggest lie.]
The Court: Folks, let’s break for lunch. We’ll reconvene at
12:45.
[Editorial Notation: Note the interruption of the Judge before the daughters’
attorney could even question this last statement by the US Bank trustee.]
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