Scaife received nearly $450M from trust over last 20 years
When the late Richard Mellon Scaife needed extra money — sometimes half a million dollars, sometimes as much as $36 million — he tapped a trust fund his mother created in 1935, according to an account filed in Allegheny County Orphans Court on Friday.
Now that 102-page account, demanded by Mr. Scaife’s son and daughter in November, will be picked over and likely litigated between the survivors and the trustees.
In 20 years preceding Mr. Scaife’s July 4 death, the 1935 Trust paid nearly $450 million in cash and stock to the billionaire publisher, much of it used to support the newspaper chain anchored by the Tribune-Review.
The trust was created by Sarah
Mellon Scaife, the publisher’s mother. It was meticulously emptied as his health failed, with the last $6,768 in principal removed on June 23, and the final $2.86 in interest paid out July 3.
The account tells “exactly what everybody knew,” said E.J. Strassburger, attorney for one of the trustees, H. Yale Gutnick, who is chairman of the Tribune-Review newspaper’s board. “That all, the entire trust, was distributed to Mr. Scaife, and it may indicate a little more [money] than what people had thought. … It was in Mr. Scaife’s best interests and the trustees properly exercised their authority.”
That last point is likely to be disputed in a forthcoming audit process that will probably lead to a lawsuit.
“The essence of legacy wealth is to use it appropriately to pass it on from generation to generation. The emptying of this trust countermands that purpose,” said William Pietragallo, attorney for Jennie Scaife, the publisher’s daughter. “Squandering so much of it on his newspaper and media business with a principal objective of putting the PostGazette out of business doesn’t satisfy my definition of fair play.”
Ms. Scaife, 51, of Florida and her brother David Scaife, 49, of Shadyside were to receive any balance left in the fund upon their father’s death. They have said that they were led to believe it would have a high eight-figure balance, and are expected to seek hundreds of millions of dollars in reimbursements from the trustees, which might come out of their father’s estate.
The account shows distributions of the fund principal “to or for the best interest and welfare of” Mr. Scaife totaling $316 million in cash, plus stocks and notes with an original value of $53 million, but likely worth much more upon their transfer. Mr. Strassburger estimated the true value of the distributions from principal at more than $400 million.
Some of those distributions were to Mr. Scaife, and others to Westminster Holdings Inc., which later became Trib Total Media Inc.
The fund paid out an additional $36.3 million in required income distributions to Mr. Scaife. That pushes the total of payments to Mr. Scaife and his newspapers into the area of $450 million.
Mr. Strassburger said he did not know precisely how much of that went to Mr. Scaife’s newspapers.
“A lot of it went for capital items, purchasing media properties,” he said. “A large amount went to building the printing plant. ... Money was spent to acquire, to some extent subsidize the operations of media properties.”
The fund in 2003 extended a $36.6 million loan to Westminster Holdings, and the account shows $9.2 million in interest payments back from that company. That loan was transferred from the fund to Mr. Scaife in 2011. Mr. Strassburger said he did not have information on payments after that transfer.
Mr. Pietragallo countered that Mr. Gutnick knows “to the penny what went to the newspaper” because he runs the Tribune-Review. Mr. Pietragallo, who represented Mr. Scaife’s second wife in their divorce proceedings, has said that the late billionaire’s newspapers lost $700 million.
The three trustees were paid for their service. PNC Bank from 1994 through 2014 got $1.85 million, reflecting its role as trustee and portfolio manager. The trust paid James M. Walton a total of $50,000, and paid attorneys at Strassburger McKenna Gutnick & Gefsky — the firm that includes Mr. Gutnick — a total of $127,474, in fees and reimbursements for costs.
The fund over two decades paid the state $11.4 million in fiduciary income tax and the federal government $73 million.
On Friday the trustees paid a fee of more than $160,000 to the county to file the account. The fee was based on the account’s balance prior to its depletion.
Mr. Strassburger called the fee “outrageous. We didn’t want to cause a stink when we filed it, but we will be asking the court for some direction.”
Common Pleas Judge Kathleen A. Durkin set a deadline of June 1 for the filing of the account. Attorney Samuel Braver, representing PNC, beat that deadline by a month. The parties are due to report back to the judge June 16.
Attorneys for trustees Mr. Gutnick and Mr. Walton have said that the 1935 Trust was explicitly created for the publisher. They have pointed to a separate fund, the socalled Grandchildren’s Trust, which, they said, contained $560 million and pays the daughter and son $1 million per month, each.