Jun. 12, 2005 - When it comes to private families, they don't come much more private than the Pritzkers.

Members of Chicago's wealthy Pritzker clan hold their vast $15 billion empire in trust funds, many of them overseas. They employ lawyers who fight to keep family legal matters inside sealed courtrooms away from the public. And they shun almost all requests for interviews.

So when two young Pritzker heirs filed suit alleging that some family members had looted their trust funds of $1 billion, the family shuddered. The suit was settled this year, allowing the family to proceed with a secret agreement to divvy up the $15 billion fortune that includes the Hyatt hotel chain and interests as different as cruise lines and tobacco.

But reaching that agreement proved more complicated for the family than was previously known. Even now, some family members remain unhappy in spite of inheritances that will exceed $1 billion each. And questions linger about whether the family agreement will remain intact over the long haul.

Clad in secrecy like a suit of armor, Pritzker family members now have divergent interests and are no longer a cohesive group. Some of them are critical of how the empire has been run.

At the center is Thomas Pritzker, 55, who assumed control of the family businesses after his revered father, Jay Pritzker, stepped down in 1995.

Soft-spoken and with an understated demeanor, Tom, at least publicly, doesn't fit the stereotypical picture of the head of a sprawling financial empire. Yet he wields formidable power and influence in the business world, far beyond Chicago.

Born into wealth, Tom never shared his father's gregarious nature and intuitive approach to business, say those who know him well. If there wasn't a family business for him to lead, Tom might have practiced law or become a full-time scholar of Himalayan culture, a longtime passion.

"There was no one with the education, experience and desire to do what Tom was doing, what Tom had to do," said Ronald Galowich, a Chicago attorney who managed Pritzker real estate in the 1980s and remains friends with various family members. "In his early years, I'm not sure it was the thing he would have wanted to do for a lifetime."

Yet when Jay was starting to slow down, he let his wishes be known in a 1995 memo to the family: Tom was designated as Jay's direct successor. Tom's second cousin Nick Pritzker and first cousin Penny Pritzker were singled out as his lieutenants.

"I expect our modus operandi will continue harmoniously through this next generation," Jay wrote.

He couldn't have been more wrong.

Within two years of Jay's death in 1999, the Pritzker heirs decided to depart from his stated wishes and break up the family fortune into 11 shares worth an estimated $1.4 billion each. For a year the plan remained secret.

Its existence was revealed in a way Jay never would have imagined. The daughter of Jay's brother Robert, Liesel Pritzker, filed a lawsuit in 2002 alleging that Tom and Bob had emptied her trust funds of nearly $1 billion. Her brother, Matthew, later joined the suit.

The dispute with the two Pritzkers was quietly settled in January, with Liesel and Matthew relinquishing their claim on family assets in exchange for $500 million each. That allowed the 11 heirs, which include Nick Pritzker, to proceed with a family agreement to divide the Pritzker empire among themselves.

But new details of several convoluted transactions involving family assets offer an unprecedented glimpse into the feud that has riven one of Chicago's most respected families, known widely for their generous philanthropy and support for civic and artistic causes.

The Tribune spent months researching the transactions and interviewing individuals with intimate knowledge of the family's workings. Some of these sources spoke on the condition that they not be identified.

Some family members are still upset at discovering four years ago that two large Pritzker companies were placed in an offshore trust fund benefiting Tom and his immediate family. The transactions are laid out in a series of confidential documents.

Tom Pritzker declined to be interviewed for this article.

In a written statement, Tom and four other family members said: "We note that portions of your story relating to the Abigail Marshall Trust and the Elgin Grand Victoria Casino (which are the only topics that were presented to us by the Tribune) are from anonymous sources who refuse to be identified by name. We further note that these sources omit critical facts that make their assertions malicious and misleading."

The statement was signed by Cindy Pritzker, Tom's mother; Gigi Pritzker, Tom's sister; Nick Pritzker, and Penny Pritzker.

Tom and other family members signed a confidentiality agreement barring them from discussing the details of the family's agreement.

Subsequent to the Pritzker statement, the Tribune raised other issues. Tom and the same four other family members declined to comment further.

The sensitivity over the trust transfers can be better understood in the context of how the family has operated for almost a century, keeping its money together and discouraging individual displays of wealth.

It was a tradition that Tom intended to continue, but filling his father's shoes turned out to be no easy task.

Jay, an attorney like his father, ran the Pritzker empire with panache. He parlayed a 1957 purchase of a hotel near the Los Angeles airport into an international chain of Hyatt hotels. The upscale airport hotel was born.

After Jay's mother nagged him to find a business for his younger engineer brother to run, Jay bought Colson Corp., a troubled manufacturer of wheelchairs and bicycles. Bob Pritzker took over Colson and turned it into a moneymaker.

Through dozens of such acquisitions, Jay and Bob built the Marmon Group over a period of 50 years into a Chicago-based conglomerate with more than $5 billion in revenue.

Nothing, it seemed, was out of Jay's reach. In the 1980s, the family bought Braniff Airlines and was a bidder in the storied takeover battle for RJR Nabisco. Jay and Bob won the respect of such legendary businessmen as Warren Buffett and Maurice Greenberg, then chief executive of AIG, the giant insurance company.

Jay was brilliant, by all accounts, a consummate dealmaker who strongly believed in the Pritzker work ethic--that everyone should contribute to the family's wealth and not expect to be handed money earned by others.

Says a longtime family adviser: "Jay was the most remarkable person who ever lived. He could herd cats. Nobody else could do that."

Tom was still deciding what he wanted to do with his life when his father asked him to take on a big job in 1980. Hyatt needed a cleanup man after Jay's brother-in-law and Hyatt President Hugo Friend Jr. resigned after allegedly using a half-million dollars in company funds for personal expenses. At age 29, Tom took the reins.

It was Tom's first big test at a time when Jay needed help. In 1972, Donald Pritzker, Jay's little brother and the force behind the expansion of Hyatt hotels, died of a heart attack at 39. Around Christmas that year, Jay's oldest child, Nancy, committed suicide. She was 24. Not long after, Jay suffered the first of several heart attacks.

Before he signed on, Tom took the opportunity to tell his dad what he thought about how the family business had been operated, according to a source knowledgeable about the family's history.

Tom felt there were too many relatives running things and not enough professional managers, the source said. Those family members who devoted themselves to the family business deserved a bigger share of the wealth, Tom argued, more than those who pursued artistic interests or opted not to work at all.

That was a departure from the family's long-standing one-for-all approach. The principals of the Pritzker Organization concentrated on building collective wealth and were expected to take out only what they needed for themselves and their families.

Tom's methodical, private approach to things suited him well in business, and he grew into his role as Jay's successor. Tom, an attorney like his father and grandfather, is now a masterful businessman in his own right, his supporters say.

A sign of his success is the new Pritzker headquarters, the gleaming glass Hyatt Center at 71 S. Wacker Drive designed by well-known architect Harry Cobb of Pei Cobb Freed & Partners. From his office, Tom oversees a business empire that is one of Chicago's largest corporations.

"He is an extraordinarily capable business leader," said Laurence Geller, chief executive of Strategic Hotel Capital Inc., which owns seven hotels managed by Hyatt. "When you grow up at the knee of one of the greatest businessmen of a generation, you have fantastic training."

In the summer of 2000, Tom's two brothers and a handful of cousins sent him a letter asking Tom to rethink the cohesive structure of the family's holdings.

There are almost a dozen heirs with divergent interests, the letter noted. (For instance, James Pritzker runs the Pritzker Military Library in Chicago and supports conservative causes, while his sister, Linda Pritzker, is a Jungian therapist who lives in Montana and contributes to Buddhist projects.)

Because the Pritzkers were no longer a cohesive group, the family business needed the kind of transparency a public corporation might have, they wrote.

Even though breaking up the fortune was the opposite of what Jay wanted, the letter kicked off a negotiation process. A group of cousins brought in their lawyers and financial advisers to pore over the Pritzker books and assess the state of the family's holdings.

In the spring of 2001, the accountants unearthed a bombshell: The family no longer controlled Western General Insurance, a Bermuda-based insurance company created by Tom's uncle, Bob Pritzker, or Triton Holdings Ltd., one of the world's largest container shipping firms, according to documents.

Those assets, valued at $525 million, were held by the Abigail Marshall Trust. The offshore trust was created in 1979 for Abigail Marshall, a British national who became Tom Pritzker's mother-in-law when he wed her daughter, Margot, two years earlier. At the time Tom was taking on greater responsibility at Hyatt.

Initially the Abigail Marshall Trust was capitalized with $25,000, according to documents. But its assets ballooned when the trust acquired a 75 percent stake in the two Pritzker companies, according to several sources familiar with the transaction.

On the first day of November 2001, Tom's mother-in-law used special powers under the trust agreement to transfer the company stakes into the Marshall Family Trust, according to documents.

The beneficiaries of the Marshall Family Trust were Tom, Margot and their children. Several sources close to the family say that the shift in assets was made at Tom's behest.

The outside accountants also found that Tom, Nick and Penny had been awarded large equity stakes, known in Pritzker parlance as "promotes," on deals financed with family money, starting shortly before Tom took charge at Hyatt, according to documents.

Through a series of such deals, Tom, Nick and Penny took in more than $600 million, much of it after 1995 when Jay stepped down, the sources say.

The way some of the 11 heirs saw it, the trust transfer of $525 million, together with the promotes, meant that more than $1 billion that should have belonged to the family was now in the hands of the trio.

Sources close to Tom, Nick and Penny say they were entitled to the promotes for devoting their careers to the family business. They cite Jay's 1995 memo, which states, "Special recognition and financial participation should be given to those who assist in administering the family's affairs and in enhancing the family wealth, a very difficult and thankless task."

"The bottom line is that Tom has created many billions of dollars of value for his siblings and cousins," said Mel Klein, a longtime business partner and friend of the Pritzker family. "Nick and Penny have contributed substantially as well."

No one disputes that Jay himself handed out finders' fees and equity kickers that typically were in the mid-single-digit percentage range. But some of the promotes taken by the triumvirate were many times greater than the rewards Jay bestowed.

In the case of the Grand Victoria Casino in Elgin, a series of promotes resulted in Tom, Nick and other Hyatt executives, including Penny, together owning more than 65 percent of the family's equity stake, sources familiar with the transaction say.

Other Pritzker heirs owned as little as 1.5 percent of the family's 50 percent share of the casino. Within the Pritzker Organization, the Elgin arrangement was referred to as a "turbo" promote.

"No one had a problem with promotes, but these were unreasonable promotes," said a source close to the family. "They were way, way too big."

What further rankles some family members, sources close to the family say, is the casino investment was made with loans from the family's holdings that were paid back at modest interest rates.

Despite the divisive issues, the family reached a compromise in late 2001. Tom, Nick and Penny would keep the promotes, but Tom agreed to a plan that would redistribute the value of the companies in the Marshall Family Trust. The family members who had been upset with Tom agreed not to take the issue to court. The deal allowed the family to move forward with a plan to divvy up its assets.

After the dispute was settled, the family adopted a formal governance structure for the Pritzker Organization, requiring Tom to hold annual meetings of family shareholders and issue regular financial reports. Under the plan, Tom has until 2011 to divest the family's assets. After that, decisions will be made by majority vote.

"There's much more transparency," said one source.

The family also set up an arbitration process to handle future disputes among heirs.

The Pritzker arbiter is a high-powered figure: Michael Sovern, former president of Columbia University and chairman of Sotheby's Holdings, the auction house.

Even so, the Pritzker pact may not be ironclad. It is signed by the 11 heirs, but their children, many of whom will be coming of age in the next few years, could decide the pact is not in their best interests and file suit, trust experts say.

So far, most family members appear to be pleased with Tom's recent steps, including the addition of a midpriced hotel brand to the Hyatt stable and the separation of credit agency TransUnion from the Marmon Group.

Much more remains to be done. The family controls more than 100 businesses as varied as aviation and water purification systems.

One transaction with a big payoff would be an initial public offering of Global Hyatt Corp. Tom has said an IPO is one option under consideration.

Wall Street certainly would have an appetite for a Hyatt offering, hotel analysts say, and that type of auction would be the most lucrative for the heirs.

If Hyatt does go public, some corporate governance experts say the family may need to disclose some details of the disputes over the handling of family finances.

As the Pritzkers move forward with their plan to go their separate ways, they need to find a way to work well together or risk losing some of the flexibility and entrepreneurial edge that helped them build one of the world's largest private fortunes, business experts say.

"If they don't put it together, every deal has wasted time, wasted effort, fewer degrees of flexibility and more haggling," said Joe Astrachan, director of the Cox Family Enterprise Center at Kennesaw State University. "That will translate itself into real dollars."

Others say that the Pritzkers' long-standing reputation for integrity and business acumen will draw plenty of investors.

"They are in a position where people will line up to do business with them," said Thomas M. Begel, chairman of TMB Industries, a leveraged buyout group that has done deals with the Pritzkers in the past. "They are great people to work with."

But one thing the Pritzkers likely would agree on is that the last few years in the spotlight have been difficult for all of them.

"The Pritzkers have had a pristine and exceptionally respected reputation in Chicago and throughout the nation and the world," said Craig Aronoff, co-founder and principal of the Family Business Consulting Group. "All that's gone on has presented the family in a different light, one that is not as flattering."

By Susan Chandler and Kathy Bergen

4 GENERATIONS OF PRITZKERS

The Pritzkers, Chicago's wealthiest family, built a humble law practice into a multifaceted empire that encompasses businesses as varied as hotels and manufacturing operations around the world. There are more Pritzkers on the Forbes list of billionaires than there are Gettys or Rockefellers.

--Nicholas (1871-1957)

Jewish immigrant from Russia who arrived in Chicago at age 10.

Taught himself English by reading the Chicago Tribune.

Opened his law practice in 1902.

--Harry (1893-1957)

Lawyer

--Abram Nicholas (1896-1986)

Studied law at Harvard and joined his father's firm, Pritzker & Pritzker. Moved the family into real estate investing.

--Jack (1904-79)

Lawyer

(Jack family line)

--Nicholas (1945- )

Led the development side of Hyatt and the family's push into gambling. Major supporter of environmental causes. Lives in Chicago.

(Abram Nicholas family line)

--Jay (1922-99)

Finished high school at 14 and attended Northwestern University for undergraduate and law degrees. Legendary dealmaker who acquired manufacturing companies that became the Marmon Group. Bought an airport hotel in 1957, the beginning of the Hyatt chain.

--Robert (1926-)

An engineer who specialized in turning around underperforming companies.

Built the Marmon Group into a $5 billion conglomerate before his exit in 2002. His second marriage produced two children, Matthew and Liesel, who later sued him over almost emptying their trust funds. Lives in Chicago.

--Donald (1932-72)

Led the early expansion of Hyatt. Died at age 39 of a heart attack.

(Robert family line)

--James (1950- )

Retired from the Illinois National Guard and runs the Pritzker

Military Library. Supports conservative causes and research in Antarctica. Lives in Chicago.

--Linda (1953- )

Jungian therapist and political activist. Contributes to Buddhist causes. Lives in Montana.

--Karen (1958- )

Big supporter of education causes, including literacy in schools.

Sponsors two Web sites, MyHero.com and ReadToGrow.com, which provide books to children. Lives in Connecticut.

--Matthew (1982- )

Joined his sister, Liesel, in suing their father, Bob, and cousin Tom for allegedly looting their trust funds of more than $1 billion during post-divorce spats between Bob and their mother.

--Liesel (1984- )

College student who first sued Bob and Tom over the handling of her trust fund. She and Matthew dropped their claims in January for almost $500 million apiece.

(Jay family line)

--Nancy (1948-72 )

Committed suicide at age 24.

--Thomas (1950- )

Heads the $15 billion Pritzker empire. Lives in Chicago.

--John (1953- )

Runs Geolo, a private equity fund that invests in entertainment, hospitality and retailing. Came up through the Hyatt system. Lives in San Francisco.

--Daniel (1959- )

Songwriter and member of Sonia Dada, rock-soul band. Lives in California.

--Gigi (1962- )

Co-owns a film production company and produced the movie "The Wedding Singer." Lives in Chicago.

(Donald family line)

--Penny (1959- )

First female family member to take a leadership position in the business. CEO of Classic Residence by Hyatt, luxury senior housing, and TransUnion, the credit-reporting firm. Lives in Chicago.

--Anthony (1961- )

Heads a hightech and manufacturing private equity firm with brother J.B. Lives in Los Angeles.

--Jay Robert "J.B." (1965- )

Ran unsuccessfully as a Democrat in a 1998 Illinois congressional primary. Heads private equity firm Pritzker Group LLC with Anthony. Lives in Evanston.

Sources: Tribune reporting and news reports

A GLOBAL BUSINESS EMPIRE

Here's a sampling of some of the Pritzker family's holdings:

--Global Hyatt: Chain consists of more than 200 hotels and resorts worldwide, including a handful of casinos. Park Hyatt is its most upscale brand. Recently acquired AmeriSuites, a midpriced chain with more than 140 hotels. Estimated annual revenue of close to $5 billion.

--Marmon Group: Chicago manufacturing conglomerate of more than 100 companies, with interests in industrial products, transportation services and water treatment. Revenue exceeded $6 billion in 2004.

--Royal Caribbean: One of the world's largest cruise ship companies. Along with another family, Pritzkers own 16.5 percent.

--TransUnion: One of the nation's three largest credit bureaus, which reports payment histories for millions of consumers.

--Conwood Co.: Chewing tobacco-maker whose snuff brands include Kodiak and Union Workman. Won $1 billion antitrust ruling in 2002.

--Triton Holdings: Operates one of the world's largest fleets of marine cargo containers. Also leases passenger and freight aircraft.

Sources: Company reports and regulatory filings

TURBULENT TIMES

--January 1979: Abigail Marshall Trust is funded with $25,000. Thomas Pritzker's mother-in-law is listed as beneficiary, and potential heirs are Marshall's four daughters, including Tom's wife, Margot Pritzker. Subsequently, ownership stakes in two Pritzker companies--Triton Holdings and Western General Insurance--are transferred to the Abigail Marshall Trust.

--June 1995: Jay Pritzker designates Tom as head of the family business, to be assisted by cousins Penny Pritzker and Nick Pritzker. Jay dies in 1999.

--Summer 2000: Dissident family members send letter to Tom saying it is time to rethink the cohesive structure of the Pritzker holdings.

--Spring 2001: Through forensic accounting of the Pritzker empire, family members discover they no longer own majority stakes in Western General and Triton, valued at $525 million at the end of 2000.

--Nov. 1, 2001: Abigail Marshall transfers assets from her trust to a new trust, the Marshall Family Trust, with the exception of some real estate and 3.5 million in British pounds, which she retains. The beneficiaries of the new trust are Tom, Margot and their children.

--December 2001: Tom agrees to redistribute the value of Western General and Triton stakes to other Pritzker heirs.

--December 2002: Liesel Pritzker sues Tom and her father, Robert Pritzker, alleging they looted her trust funds of almost $1 billion.

--January 2005: Liesel and her brother, Matthew, settle with the family for $500 million each, drop their suit and relinquish their claims on family assets.

Source: Chicago Tribune, other news reports

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