Peoria Journal Star

December 9, 2004

Bielfeldt family sued for millions
State Attorney General's Office sites conflicts of interest, seeks to recover more than $30 million

By Dori Meinert
of Copley News Service

WASHINGTON, D.C. - The Illinois attorney general filed suit Wednesday against Peoria philanthropists Gary and Carlotta Bielfeldt and their three adult children, seeking to recover more than $30 million of their family foundation's assets allegedly lost in risky investments.

The lawsuit, filed in Cook County Circuit Court, also seeks $9 million paid to Gary Bielfeldt and his son, David, from 1996 to 2002 for managing the Bielfeldt Foundation's assets. During that period, the foundation's assets shrank from $50.5 million to $12.8 million, the court filing stated.

The foundation board at the time was made up solely of five family members.

Bielfeldt attorney David Murray said he was "surprised and disappointed" to learn of the legal action.

Meanwhile, Gary Bielfeldt said late Wednesday he learned Tuesday the federal Commodity Futures Trading Commission had overturned an administrative law judge's ruling that Bielfeldt had violated trading laws. The charges stemmed from the contention that he was actually in control of his wife's trading decisions.

That ruling is a victory for Bielfeldt, vacating two $100,000 fines against him and his company.

"Although she is not a professional trader and may not have previously traded on the scale that led to her corn profits, she - like other traders in this case - had the ability to, and did, independently assess (Gary) Bielfeldt's advice and make her own decisions," the ruling states.

That reverses an earlier administrative law judge's "liability findings, vacate(s) the sanctions imposed and dismisses the complaint for a failure of proof," the CFTC said.

Gary Bielfeldt said the ruling leaves him "totally vindicated."

"We are honest people, no matter what others may be led to believe," he said.

His lawyer said he was surprised by the decision of the Illinois attorney general.

"We have been talking periodically and meeting and cooperating fully with the Attorney General's Office for two years. I really thought we had accomplished much of what the Attorney General's Office had been concerned about," Murray said.

"We have no choice but to defend it vigorously," Murray said. "I'm absolutely confident that there is no illegal or improper conduct, and I'm confident that the Bielfeldts will prevail."

A change of directors

Seeking to avoid such legal action, the Bielfeldt family in July gave up its majority control of the foundation by bringing in four well-known community leaders to replace four family members on the foundation's board of directors. They replaced Gary Bielfeldt and his children, David, Linda Greene Bielfeldt and Karen Bielfeldt Wales. Carlotta Bielfeldt remains on the foundation board but relinquished her title as president.

The new board president is Douglas S. Stewart, regional vice president of National City Bank.

A Copley News Service analysis of the foundation's tax records last fall found the Bielfeldt Foundation had given $26.2 million since its creation 19 years ago. During that time, it paid the Bielfeldt family $21.6 million, primarily for investment management.

Fiduciary duties

The Attorney General's Office alleges in its legal filing that Gary and David Bielfeldt violated their fiduciary duty to avoid self-dealing and conflicts of interest. The Attorney General's Office alleges the foundation paid Gary Bielfeldt $2.4 million in investment management fees and paid Gary and David Bielfeldt $6.6 million in trading commissions from 1996 to 2002 through their jointly owned trading firm, Bielfeldt & Co.

"Because more conservative investment strategies would have generated less or no business for the Bielfeldt & Company entities, defendants Gary K. Bielfeldt and David L. Bielfeldt faced a pecuniary incentive to commit a substantial amount of the foundation's assets to commodity futures trading transactions process(ed) through the Bielfeldt & Company Entities," the attorney general's legal filing stated.

Other family members breached their fiduciary duty under state law by "allowing charitable assets to be wasted" and by failing to prevent or prohibit Gary and David Bielfeldt from investing foundation assets in "high-risk, speculative commodity futures contracts," the filing states.

The lawsuit also seeks hundreds of thousands of dollars in civil penalties and punitive damages for violations of the Illinois Charitable Trust Act.