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Knight Ridder/Tribune Business News
Dec. 15, 2002 - A.N. Pritzker knew he had made a mistake.
As he sat in the witness stand in Cook County Circuit Court, the patriarch of Chicago's rich and powerful Pritzker family acknowledged that he had used his children's trust fund money in a way that violated a trust agreement he himself had set up.
But Pritzker realized his error only after an Internal Revenue Service agent had flagged it. At that point, Pritzker said, he pulled out the original trust agreement and re-read it.
"And then I found out what a boner I had pulled," he testified.
Twenty-seven years later, an almost identical issue has divided the Pritzker clan and threatens to break apart one of Chicago's largest private fortunes, estimated at $15 billion. Liesel Pritzker, 18, the youngest granddaughter of A.N. Pritzker and a Hollywood actress, alleges in a lawsuit that her trust funds were looted by family members, leaving her $1 billion short.
The Pritzker family says it is following a longstanding practice of treating descendents according to their age. Because Liesel and her brother, Matthew, are younger than A.N. Pritzker's other grandchildren, they are being treated like great-grandchildren.
But estate experts say it doesn't work that way. Trusts are governed by legal documents. And as the 1975 Pritzker trust case shows, a judge must approve any modifications.
A.N. Pritzker's trusts were established in 1961 to benefit his family, including any grandchildren born before 1986. Matthew and Liesel were born in 1982 and 1984, respectively.
"I'm not aware of any grounds for treating grandchildren as great-grandchildren because they were younger than other grandchildren," said James Lindgren, a professor at Northwestern University Law School who specializes in trusts and estates. "This is a fantastic story. And if true, the Pritzkers have very serious legal problems."
A spokesman for Thomas, Penny and Nicholas Pritzker, the triumvirate that runs the Pritzker's business empire, declined to comment last week on the lawsuit, as did a spokeswoman for some of the Pritzker grandchildren. Robert Pritzker, the father of Liesel and Matthew, did not return phone calls seeking comment.
The Pritzker, best known for its Hyatt hotel chain, dates to 1881, when Russian immigrant Nicholas Pritzker arrived in Chicago. He taught himself to read by translating the Chicago Tribune, earned his law degree at age 30 and launched a family law firm that eventually included his three sons.
But the family fortune really took off with his middle son, A.N. Pritzker, who began investing in real estate and small companies. In 1961, he set up about 20 trust funds with an initial deposit of $15,000. Five years later, that investment was worth $1.4 million. Five years after that, it was worth $7.2 million.
In 1975, A.N. Pritzker and some of his sons went to court to amend the trusts to allow trustees to make charitable contributions. Seven years before, A.N. Pritzker had taken almost $5 million from the trusts and given it to the Pritzker Foundation, which then donated the assets to the University of Chicago.
But after the IRS raised questions about the donation, the Pritzkers had to convince a judge that modifying the trust agreement to allow that transaction and others was in the best interest of the Pritzker heirs.
A lawyer representing some of the heirs raised the possibility of the trusts being emptied by such contributions. While cross-examining A.N. Pritzker, the lawyer asked whether a trustee "could presumably give away the entire trust."
Pritzker was unwavering: "No."
He then explained that if a trustee gave away the entire trust, he would be "patently violating the intentions" of the trust creator--himself.
What was to stop a trustee from attempting to abuse his power, the lawyer asked?
"I am relying on his integrity," Pritzker responded.
In the end, the judge allowed the Pritzkers to do what they wanted. But now, Liesel Pritzker is alleging that her family has abused its powers by diverting money from her trusts.
In 1994, her father, Robert Pritzker, embarked "on a scheme to remove, strip, divert, freeze, or simply give away assets owned by various trusts created for the benefit of his young children," the suit says.
To do that, Robert Pritzker needed to be the trustee overseeing Liesel's and Matthew's funds. That happened when a nephew and the family attorney resigned as trustees--and appointed Robert.
Shortly thereafter, Robert transferred assets from one set of his children's trusts, including about 10 percent of Hyatt Corp., to the family's charitable Pritzker Foundation, the suit says. The foundation then sold the stake back to Hyatt for $200 million, keeping the money.
The children's trusts were emptied and terminated a few months after Robert lost a battle seeking to prevent Liesel from starring in the movie, "The Little Princess," a remake of the 1939 Shirley Temple classic, say sources close to Liesel.
In other cases, according to Liesel's suit, Robert gave away or sold assets from more of his children's trusts to trusts benefiting Liesel's and Matthew's cousins and half-siblings.
Robert and others "operated secure in the knowledge that the Byzantine network of trusts and other entities created to hold the family's wealth and holdings made it unlikely that the scheme ever would be discovered," the suit says.
But the empty trusts came to light this year when Matthew began hearing whispers among his cousins that he had gotten the short end of the stick, sources close to Liesel said.
His mother, Irene Pritzker, who was divorced from Robert in 1991, called Thomas Pritzker to find out what was up. She was told that the family had just concluded a big settlement with the grandchildren and that Matthew and Liesel needed to sign off on it, the sources said.
In March, Pritzker family lawyers began turning over boxes of information about the trusts to attorneys at McDermott, Will & Emery, who were representing Liesel. Before then, the children hadn't known the trusts existed.
Liesel Pritzker, a student at Columbia University in New York, may be less powerful than her aunts and uncles. But her lawsuit threatens to disrupt a secret plan reached last year among the clan to end the long-running tradition of keeping the Pritzker fortune intact.
Instead, the plan envisions cashing out the $15 billion in Pritzker assets and divvying them up among the 11 grandchildren of A.N. Pritzker. Each would receive about $1.3 billion.
But the plan doesn't include Matthew and Liesel. Her suit asks a judge to restore the assets removed from her trusts.
The story of the "Little Princess," the film that brought Liesel attention as an actress, is strangely similar to some of the charges in her lawsuit. The movie "centers on a rich but unsnobbish little girl who falls from power and grace but maintains her hope and courage, and triumphs over misfortune," according to a review by Tribune film critic Michael Wilmington.
Liesel, who moved to Kenilworth after her mother remarried and graduated from New Trier High School in 2002, is also described by those who know her as likable and down to earth.
Jeremy Cohen, artistic director of Chicago's Naked Eye Theatre Co., directed Liesel in two local plays in 1999 and 2001. She gave no indication that she was a Hollywood success or a member of one of America's richest families, Cohen said, and would phone to apologize if she was even slightly late for rehearsal.
"She is just a very grounded, well-assured young woman," Cohen said.
Liesel's career took a giant leap after she appeared in the 1997 Hollywood hit "Air Force One" with Harrison Ford under the stage name Liesel Matthews. But in interviews, Liesel said she wanted to return to high school in the Chicago area.
At New Trier in Winnetka, Liesel blended in with the rest of the students, say those who knew her. She participated in student government, took advanced dance classes and directed a satirical revue. One summer, she worked as a waitress at a North Shore deli.
In her senior year, the yearbook listed her as "Most likely to win an Oscar." But Liesel's childhood was anything but idyllic.
Her divorced parents filed numerous legal actions over everything from Liesel's pet ferret to whether she could perform in the "Little Princess." Eventually, her father agreed to let her perform in exchange for the commitment that Liesel would attend his wedding and spend three weeks with him.
But Liesel and her father never became close, sources close to the family say.
Those who know Robert, however, find it hard to believe that he would do anything to hurt Liesel or Matthew.
"In all our dealings with him, I found Bob Pritzker to be a person of integrity," said divorce lawyer David Grund, who represented Irene Pritzker in her divorce from Robert and later custody squabbles. "That's why I'm shocked at this accusation. He tried to be imminently fair."
By Susan Chandler and John Keilman
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(c) 2002, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.