Tulsa judge orders Chase to repay $18 million to Skelly heir
BY ZIVA BRANSTETTER World Enterprise Editor
Thursday, October 11, 2012
10/11/12 at 7:14 AM
Read the court document: Read the judge’s ruling ordering Chase Bank to repay more than $18 million to a trust benefiting heirs of W.G. Skelly.
A Tulsa County judge has ordered J.P. Morgan Chase Bank to repay $18 million to a trust benefiting the granddaughter of oil baron William G. Skelly after finding that Chase reaped up to $2 million in fees from complicated investments it sold her.
District Judge Linda Morrissey's ruling Tuesday concluded that Chase's actions were "grossly negligent and reckless." The bank's employees "disregarded the clear and unequivocal expression by Mr. and Mrs. Skelly, who placed their confidence in a corporate trustee," Morrissey's ruling states.
The judge said $18 million is the value of more than 200,000 shares of ExxonMobil Corp. stock sold by the trust at the bank's urging. The ruling also authorized punitive damages against Chase, to be determined in a hearing Dec. 11, records show.
Doug Morris, a J.P. Morgan spokesman, said: "We disagree with the court's decision and will take all appropriate measures to respond, including appealing the decision."
The ruling orders Chase to pay $18 million to the Carolyn S. Burford trust, of which it was the co-trustee until 2006. The sole living beneficiary of the trust is Ann Fletcher, 74, granddaughter of William and Gertrude Skelly.
Fletcher's husband died in 1997, and the trust purchased a Southampton, N.Y., condominium for her, the ruling states. She requires "live-in help to handle the household affairs, including paying bills and handling communications," it states.
Fletcher has been diagnosed with acute stress syndrome and depression and has "limited comprehension," the ruling states.
William Skelly founded Skelly Oil Co., and his wife had ties to Mobil Oil. The Skellys are considered among Tulsa's most influential families and donated to numerous causes in the city's early life. The University of Tulsa's Skelly Field and Skelly Drive are named after the family.
William Skelly died in 1957; Gertrude Skelly died in 1959.
The Skellys had established the trust in 1955 to benefit their daughter, Carolyn Skelly Burford, and granddaughter Fletcher, then Ann Burford. It was funded with shares of stock from Skelly Oil Co. and Socony Mobil Oil Co.
The trust contained a provision stating that the Skellys wanted the trust to retain the stock from their oil companies because of their "high regard" for the stocks.
"The grantors ... specifically recommend that, except for unusual circumstances, the Trustee retain all such stocks throughout the term of the trust and regardless of whether or not such retention may appear to offend against what might ordinarily be considered a sound trust investment practice and the unusual principles of investment diversification," the trust provision states.
Upon Fletcher's death, half of the trust is to be distributed to her children - Carolyn Briggs and Marianne Borgono - and the other half to the Oklahoma Annual Conference of the United Methodist Church, the ruling states.
Through various corporate mergers, the trust eventually owned more than 290,000 shares of ExxonMobil Corp. stock.
Chase Bank was the corporate trustee, and when the individual trustee, Rufus Griscom, resigned in 1999, he recommended that Fletcher's daughter succeed him. However "the bank and Fletcher appointed Fletcher" as the new co-trustee of her own trust, the ruling states.
Employees who advised the trust were Jeff Morrow, an attorney, and Timothy Gold, a securities broker, the ruling states. The two developed a social relationship with Fletcher, visiting her in her Southampton home.
"Morrow routinely indulged Fletcher's requests for money," the ruling states.
Fletcher's annual income distribution from the trust was increased from $300,000 to $450,000 or $500,000, the ruling states. From 2000 through 2004, more money was given to Fletcher than the trust generated, resulting in overdrafts.
"The bank did not verify Fletcher's need for additional income," Morrissey's ruling states.
In 2000, the bank approached Fletcher about purchasing complicated investments known as "variable prepaid forward" contracts. By 2003, the bank had pledged all of the trust's shares of ExxonMobil stock through 11 variable prepaid forward contracts.
Expert testimony showed that the bank earned up to $2 million in profit from the contracts while the trust's principal declined $1.8 million. The bank paid its employees incentives to earn revenue, creating a conflict of interest, the ruling states.
Morrissey's ruling states that the bank did not inform the Methodist Church, Briggs or Borgono of the stock sales.
"The misconduct by the Bank is serious and shows a disregard for customers of the bank. ... The misconduct continued for years and was concealed from both the income and remainder beneficiaries until Griscom investigated," the ruling states.
Attorneys for Fletcher and other parties to the suit could not be reached for comment Wednesday.
Original Print Headline: Court says $18 million due trust of heiress
Ziva Branstetter 918-581-8306
W.G. Skelly: The oil baron, well-known to Tulsans for the family's philanthropy, put money in trust for his heirs
Judge Linda Morrisey: She ruled that Chase's actions were "grossly negligent and reckless."