GUARDING THE GUARDIANS

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Updated:

About the series

The name "Lilly" evokes all kinds of images in Indianapolis. The international pharmaceutical company. And the endowment that helped build the city is the largest in the country.

But there's another Lilly story you probably don't know that has nothing to do with those well-known institutions. It's about Ruth Lilly, the sole surviving great-grandchild of the company founder - one of the world's richest women whose own philanthropy has left its mark. And it's about others controlling her fortune.

The Eyewitness News Investigators spent six months talking to sources and examining the extensive documents in Lilly's court-ordered guardianship. They found a story about questionable spending by her guardians, a story that reaches into the city's corridors of power - politicians, doctors, judges, a major bank, a prominent law firm.

The stories were reported by Amanda Rosseter and Jeremy Rogalski, photographed and edited by Bill Ditton, and produced by Kathleen Johnston and Gerry Lanosga. The series originally aired Nov. 23-25, 1998.

Two days after this report began airing, Probate Judge Charles Deiter appointed local attorney Greg Fehribach as guardian ad litem to independently review Ruth Lilly's guardianship. His 16-month review resulted in a public acknowledgement of lax oversight by the bank - and reductions in bank and legal fees totaling more than $600,000.

Part One
Part Two
Part Three
Updates

Part One

All you have to do to understand her tremendous impact is take a look around - at museums, hospitals and schools. Ruth Lilly's donations to central Indiana institutions have exceeded ninety-five million dollars.

"Ruth Lilly's interest in Indianapolis has resulted in a number of very large gifts that have been the signature gifts to many of our city's important cultural and educational institutions," says Mayor Stephen Goldsmith.

Yet there's another side to this highly-regarded but little-known billionaire. Court records show she's been under psychiatric care for decades and lives a tightly-controlled life. Seventeen years ago, while Ruth Lilly was hospitalized, her late brother, J.K. Lilly III, obtained a court-ordered guardianship over her money.

Merchants Bank was appointed guardian. Now called National City Bank, it was entrusted with protecting Ruth Lilly's fortune, because the judge ruled she can't do it herself.

But are the guardians fulfilling their obligation? Eyewitness News spent six months talking to numerous sources and reviewing the extensive court records in the case. We asked experts to look at them as well.

Patrick Murphy, the Cook County (Ill.) Public Guardian, is a nationally recognized authority on guardianships and one of the experts we consulted.

"There's an awful lot of slack being given to an awful lot of people here that I don't think should be given," Murphy says.

"She's got $900 million but conceivably, if her illness is as great as it appears, she's one of the most vulnerable people in the state of Indiana and you've got to protect her. You've got to protect her, because if we don't protect her, hey, we ain't protecting the guy down the block."

Age, Illness, and Infirmity

The probate court agreed Ruth Lilly needs protection, declaring her incapable of managing her financial affairs. Her doctors say she's incapable because of age, illness and infirmity. And those three words have become a refrain for her lawyers and bankers who help her spend her money.

Some of the spending is astonishing. Such as hundreds of thousands of dollars in political contributions and millions on lavish trips for Ruth Lilly and a large entourage.

But Ruth Lilly has never gone to the City-County Building to tell the judge in her case that this is what she wants. Not once in 17 years.

Lilly's doctors routinely provide affidavits saying her health won't allow her to appear in court.
Independent experts say Ruth Lilly's silence raises a concern that others may be taking advantage of her.

"We have the expenditure of enormous amounts of money on items for which it appears the court has not taken a full review," says David English, a law professor at Santa Clara (Calif.) University.

Fees Soaring

For instance, the court records show bank and legal fees have been rising rapidly - legal fees by more than 75 percent and bank fees by more than 87 percent over just two years. Total fees under the guardianship are more than $7.6 million.

"The fees appear high," says Bill McDonald, a finance professor at the University of Notre Dame. "There may be reasons for this, but they're not apparent. The people I contact in the industry - to kind of get a sense of this is the amount we're talking about, this is the part that's being managed, these are the annual fees - all said they appeared high."

McDonald and others say while National City Bank appears to be doing a good job with Ruth Lilly's investments, the vast majority of her portfolio is made up of long-held Lilly company stock. That means the bank is actively managing only $55 million - about six percent of her $1 billion fortune.

For its fee, the bank last year charged nearly $900,000. And the court approved it.
"It looks like that they've accepted a large amount of what they've seen on face value," Andrew Dover says of the probate court.

Dover is an Ohio-based investment consultant. He says the court needs to pay closer attention to some of the issues the case raises.

"Those are issues that could be addressed pretty easily by a judge asking the questions," he says. "Provide evidence."

That evidence is needed, according to the experts, because extraordinary accounts like Ruth Lilly's require extraordinary oversight.

"If I were judge for a day, I would contact Ruth Lilly," McDonald says.

Ruth Lilly's Silence

Eyewitness News tried to contact Ruth Lilly but was told she only takes calls from those she knows. Her representatives initially said they didn't even want to ask her for fear of upsetting her. They later said she didn't want to talk to the station.

We tried to talk to Ruth Lilly's personal attorney, Tom Ewbank of Krieg DeVault Alexander and Capehart. He declined to be interviewed.

"Mrs. Lilly prefers that I not," he said.

Officials at National City Bank aren't talking, either. In a brief statement, they said Lilly consents to their role in protecting her interests and welfare. And Probate Court Judge Charles Deiter also has chosen to be silent on these issues. He told us it wouldn't be appropriate for him to comment.

Off-camera, Ewbank claimed Ruth Lilly herself asked for the guardianship - despite court records showing her brother obtained it while she was hospitalized.
Ruth Lilly's guardians and some family members maintain she is happy and approves everything done in her name. But if that's the case, why have a guardianship at all?
"That wasn't my decision," Ewbank said.

Sources who have had close contact with Ruth Lilly tell us she is only nominally aware of her financial circumstances and her awareness comes and goes. If she is aware of what's happening, she hasn't told the judge.

Experts say that's a red flag.

"In a case like this," says Murphy, "the judge should be seeing that woman regularly, particularly when so much money seems to be going to relatively frivolous pursuits."

Part Two

Beach resorts from New England to California. Beverly Hills. Cape Cod. London. Paris. They're playgrounds for the wealthy. And among the tourists in recent years has been Indianapolis native Ruth Lilly, one of the world's richest women.

That's not unusual for a person of her means. But it is for a woman who has lived much of her life in seclusion, under constant medical care, and under a court-appointed guardianship. And Lilly, her doctors have repeatedly told the court for 17 years, is incapable of managing her affairs because of age, illness and infirmity.

"She's not capable nor does she wish to handle her own affairs," said Patricia Fleckenstein at a recent hearing before Judge Charles Deiter.

Fleckenstein is an officer with National City Bank, Ruth Lilly's court-appointed guardian.
And Tom Ewbank of Krieg DeVault Alexander & Capehart is her personal lawyer, also appointed by the court.

"She is in need of assistance and wants assistance in the management of her property," he said of Lilly at the same hearing.

So those officials are helping Ruth Lilly spend her money. And some of the amounts they're spending lately - itemized in court filings - are startling:

$342,000 on a trip to Cape Cod.

$376,000 in California.

$588,000 in London and Paris.

All told, they've spent more than $1.6 million dollars on just six trips since 1996. That includes sizable amounts spent on "site inspection" trips that sometimes included staff members' relatives. The guardians even spent $6,900 on a French tutor to prepare the staff for Paris - Lilly herself already knew French.

"There's some limit"

Such spending patterns bother guardianship experts like David English, a law professor at Santa Clara (Calif.) University.

"She's going to spend more money than most of us would spend, but on the other hand, there's some limit," English said. "Eighty people strikes me as being beyond that limit."
Eighty is about the number of people Eyewitness News saw boarding a charter plane for Ruth Lilly's latest trip - to Rome in May. There were family members, medical staff, maids, cooks, Ewbank and Fleckenstein - even their relatives.

That trip was the only time Lilly's guardians asked for the court's permission to travel. The expenses have not yet been filed, but we're told the costs came close to $2 million. And the jet-setting isn't over. Eyewitness News has learned there's another trip planned - to Hawaii in January - and that 80 people are scheduled to go along.

Of course, there's nothing wrong with Ruth Lilly spending money on a lavish trip and taking whomever she wants. But whether she consents to such spending is the crux of the matter. Court records indicate Lilly has been under psychiatric care for decades. And sources who've had close contact with her say she's only minimally involved in decisions and doesn't even know many of those who go on the trips.

In pictures and videotape from her trips, Lilly frequently appears detached from her surroundings.

Lilly's absence from court hearings

But one place she has never made an appearance is in the court that oversees her case - just eight miles from her Indianapolis home. That makes no sense to Cook County (Ill.) Public Guardian Patrick Murphy, another recognized authority on guardianships we consulted about this case.

"If I'm a judge," Murphy said, "I'd say, 'Wait a second, I want to talk to that woman. You bring her here. Because you're talking about spending $600,000 and sending an entourage to France or to England?' Give me a break. I wouldn't let them go to Gary."
English agreed.

"How can you as a judge decide that what you're doing is best for this individual if you've never had a chance to observe them, you've never had a chance to meet them?" he said.
Lilly's guardians petition the court each year for permission to make charitable gifts for her. Her doctors regularly file affidavits to explain her absence. In one such affidavit, filed May 13, psychiatrist Vincent Alig said "it would not be in Ruth Lilly's interest healthwise to be present in court."

But just two weeks later, we videotaped Lilly preparing to board the flight to Italy. And the judge approved that trip because of another doctor's note that said she was physically and mentally capable to travel. We wanted to ask Lilly: Why the turnabout?

But Ewbank said she didn't want to talk to us. For that matter, he said, she didn't want anyone speaking for her.

"I told you, I've been asked by Mrs. Lilly not to discuss anything personal," he said.
Alig, Lilly's longtime psychiatrist, is said by sources to be instrumental in the decisions about travel. And his niece, Cindy Wacker, works on Ruth Lilly's account at Ross & Babcock, Lilly's travel agency. But Alig didn't have any comment.

"I don't know anything about anything," he said.

Changes in Lilly's life

All of the lavish trips began about the time of significant change in Ruth Lilly's life. Among them was a new personal attorney - Ewbank. For years, he worked for the bank as her guardian, approving her spending. Now, as her attorney, he co-signs her checks and advises her how to spend the money.

Experts we consulted say his change of hats gives the appearance of a conflict. But the court authorized it.

"Is she competent or is she not?" said Murphy. "If she's competent, you don't appoint a lawyer for her to make personal decisions. She goes out and hires her own lawyer. There's so many things here that make no sense in this case."

Ruth Lilly can't simply go out and hire someone, because every check she writes must be co-signed by Ewbank. Her representatives and some family members - she has six nieces and nephews around the country - maintain she is in complete control of her affairs. As for the trips, they say they've helped make Ruth Lilly happier than ever. And she is making others happy, too, as evidenced by a home video shot in Paris and narrated by a friend who went along:

"A memorable visit to the city of lights. A beautiful gift from Ruth Lilly. Au revoir, Paris."

Part Three

Ruth Lilly's name graces plaques and buildings all over Indianapolis - a tribute to the $95 million she has given to numerous causes. She's the sole surviving great grandchild of the founder of Eli Lilly & Co. Yet even in Indianapolis, few people know of her. Although she's one of the wealthiest women in the world with a fortune of nearly $1 billion, her name is conspicuously missing from well-known listings of America's richest, such as the Forbes 400.
"I know Ruth Lilly as a philanthropist and as a great advocate of the city," said Mayor Stephen Goldsmith.

But Republican politicians like Goldsmith also know Ruth Lilly for another type of giving - to their campaign coffers.

"This was a very prominent lady who has supported people like Dick Lugar and Steve Goldsmith and I'm proud to be in their company," said Marion County Prosecutor Scott Newman.

There's nothing unusual about a wealthy individual supporting political candidates. But Ruth Lilly's estate has been under a guardianship since 1981, when doctors said she was too ill to handle her affairs. Sources and court records indicate Ruth Lilly suffers from physical and psychiatric illnesses that require round-the-clock care. And by order of the court, National City Bank is in charge of her money. Under the guardianship, she is allowed to write checks only from a limited account. But even then her court-appointed attorney, Tom Ewbank, has to co-sign all her checks - including those for political contributions.

"Are these real contributions?"

Numerous candidates and committees have received those co-signed checks: Goldsmith. And Newman. Sheriff Jack Cottey. Secretary of State Sue Ann Gilroy. U.S. Sen. Richard Lugar. Retiring U.S. Sen. Dan Coats. U.S. Rep. Dan Burton. Dan Quayle. Ronald Reagan. And, over and over again, the national Republican party.

The total - nearly a quarter-million dollars since 1981. That's the same year the court placed Ruth Lilly's estate under a guardianship. Over the next four years, $59,000 was given to national political committees in her name - at the same time she was a patient living at Methodist Hospital.

Ruth Lilly's attorney, Tom Ewbank, personally gave smaller donations to some of the same candidates. He even gave to Judge Charles Deiter, a Democrat who oversees Lilly's case.
Guardianship and campaign finance experts we spoke to said the circumstances surrounding Lilly's giving are troubling. Bill Hogan is with the Center for Public Integrity, a non-partisan watchdog group based in Washington, D.C.

He questioned whether Ruth Lilly's contributions are genuine.

"Are these real contributions?" Hogan said. "That's the basic question. Are they contributions being made by the lawyer? Are they contributions being made by the person whose name shows up on the campaign finance reports?"

Rarely meets politicians

That's hard to tell, because Ruth Lilly has never appeared in court to confirm her approval. In fact, county records show she's voted only twice in recent years. And she rarely meets the politicians her money is backing.

"I have not met her," said Prosecutor Newman. "I've offered to do so, but I guess she just is not that interested in meeting politicians. I can't figure out why, but she has not been."
Most of the politicians we spoke to, in fact, said they either weren't aware of the guardianship or weren't bothered by it. Dan Burton's office told us he stopped actively soliciting Lilly in 1989 after he learned of the guardianship.

Experts say politicians ought to go a step farther - and give the money back. Patrick Murphy is the Cook Cook County (Ill.) Public Guardian and a recognized authority on guardianships.
"I don't understand it, I really don't," he said of Ruth Lilly's case.

"It's like the Chinese giving money to the Democrats. I tell you, there's something about politicians. Why would they take the money?"

Politicians say it's because Ruth Lilly wants them to. Newman received $28,000 through her attorneys - most recently Tom Ewbank of Krieg DeVault Alexander and Capehart.
"They represent to me that she knows what's going on in terms of what candidates she supports and what she likes and what she doesn't like and that they're trying to carry out that intent," Newman said.

Not the amount, but the manner

Mayor Goldsmith is one of the few politicians who has been to Ruth Lilly's home and spent time with her.

"I have a good relationship with her and I'm happy that she considers Indianapolis to be a great place," Goldsmith said. "I'm actually quite appreciative that she is such a strong fan of what we've done."

The mayor called his contributions from Ruth Lilly minor - $60,000 since 1991. But experts say it's not the amount of the contributions that's a concern, but how they were made.

And in Goldsmith's case, court records document several instances where Ewbank called the mayor's office to discuss contributions with a staff member while she was on duty. In two cases, Ewbank delivered the contributions to the staffer in the mayor's office.

Political watchdogs say that could be illegal.

"People don't want the private business transacted on public property and they don't want campaign business transacted by public officials while they're working on the taxpayers' dime," said Hogan, of the Center for Public Integrity.

Goldsmith said Ewbank's contacts with his staff were incidental and the contributions were above-board.

"I don't even see it as a close issue," he said.

Lilly's silence

Eyewitness News wanted to find out what Ruth Lilly's thoughts are on all this. But her staff wouldn't let us talk to her. And Ewbank wouldn't talk either, saying Ruth Lilly prefers that he not.

The only way to lay these issues to rest is for Ruth Lilly to appear in court. But while her doctors say trips around the world are good for her, they say she can't make the eight-mile trip to court because of her health.

That means Judge Deiter, who oversees the guardianship, has never seen Ruth Lilly. Deiter said he couldn't ethically talk about the case. But some observers of the court system said as long as there are big banks and prominent law firms involved, close scrutiny of cases like this isn't likely.

So the spending continues.

"Even in a town like Chicago," said Murphy, "they couldn't get away with it here. I mean, they simply couldn't get away with it."

Updates

Reported by Jeremy Rogalski, produced by Kathleen Johnston and Gerry Lanosga.
Air date: November 29, 1999.

A billion dollar fortune, and free rein to spend it on political contributions and lavish trips around the world. But who was guarding the guardians of pharmaceutical heiress Ruth Lilly? That was one of the questions the Eyewitness News Investigators raised in a special report last year. Now, there are some answers, in a changing of the guard. Investigator Jeremy Rogalski has the story about the extraordinary developments in the case of one of the world's richest women.

There was the jet-setting – million dollar trips around the world with entourages of as many as 80 people. And hundreds of thousands of dollars in political contributions. All paid for under the billion-dollar guardianship of the ailing Ruth Lilly, and all spent with little, if any scrutiny. Not by the judge, who oversaw the guardianship, and not by the guardian, National City Bank, either.

But the court appointed Greg Fehribach to independently review the case after an Eyewitness News Investigation revealed the free-wheeling spending by those entrusted to protect Ruth Lilly's best interests. Sources told Eyewitness News Lilly is only nominally aware of her circumstances. And she's never gone to court to tell Judge Charles Deiter she approves how others spend her money.

Now, based on Fehribach's recommendation, Deiter has ordered sweeping changes in this case. It comes in the form of a new procedure manual, a comprehensive guide that spells out major safeguards in how Ruth Lilly's guardians can manage her money.

The manual calls for several newly created positions, including a financial manager who will look over every dime spent, from Ruth Lilly's credit card accounts to a full accounting of overtime paid to Lilly's nurses and staff. And the trips around the world – to places like Rome, Paris and Hawaii – will now get even more scrutiny, from the amount spent to the guests allowed on the plane.

Under the procedure manual, Lilly’s six nieces and nephews are taking a much more active role in her life. They approved of the new arrangement through their lawyer.

Another major change involves political contributions. They're history. Since 1981, Republican politicians and the GOP itself received nearly a quarter-million dollars from Ruth Lilly. Most of those contributions and the travel came after the court declared her incapable of managing her affairs because of age, illness, and infirmity. That happened 18 years ago, when her severe psychiatric and medical ailments prompted her late brother to seek a guardianship.

Ruth Lilly's doctors and personal attorney, Tom Ewbank, maintained all along that she approved of everything they did. But the changes outlined in the court documents clearly suggest her money wasn't handled appropriately. Ewbank, for instance, now is stripped of much of his power. He was forced to relinquish Lilly's personal checkbook, and he can no longer make any travel decisions or coordinate major charitable gifts.

National City Bank also may pay a price for its handling of Ruth Lilly's fortune. The bank has asked for $750,000 in fees for its work last year. But Eyewitness News has learned Judge Deiter may reduce that amount significantly. And that could mean the review of Ruth Lilly's guardianship is far from over.

The hearing on the bank’s fees is scheduled for Dec. 22.

 

Update

Reported by Jeremy Rogalski, produced by Kathleen Johnston and Gerry Lanosga.
Air date: March 30 and 31, 2000.

INDIANAPOLIS, IN March 30 - An extraordinary document was filed in court late Thursday - extraordinary because it involves one of the richest women in the world and it amounts to an admission that a powerful bank failed to fully protect her interests.

National City Bank says it could have, and should have, done a better job in overseeing the spending of pharmaceutical heiress Ruth Lilly's vast fortune.

That's according to the statement filed in court regarding the results of a 16-month long inquiry by guardian ad litem Greg Fehribach.

The bank admits it should have more carefully monitored around-the-world trips, especially to places like Rome and Hawaii where entourages of up to 80 people went along and spent millions of Ruth Lilly's money.

Sources say the bank acknowledges making mistakes in allowing so many people to travel at Ruth Lilly's expense.

The major points of concern were luxurious trips by some of Lilly's doctors, staff members and their families prior to when Ruth Lilly traveled and numerous side trips for some guests on which the ailing 84-year-old herself didn't go.

For that lax management, National City Bank has agreed to take a financial hit - a half million dollars in reduced guardianship fees.

The bank says it regrets its lack of diligence. And apparently it's not the only one.
Sources say Lilly's personal attorney at Krieg Devault Alexander & Capehart agreed to cut his fees by more than $140,000.

This all comes on the heels of other recent changes, like a ban on political contributions and strict new guidelines on handling Lilly's money.

It's all expected to culminate Friday in probate court.

 

INDIANAPOLIS, IN March 31-- A half-million dollars. That's how much billionaire Ruth Lilly's guardian, National City Bank, will lose. Since 1981, the bank has managed Lilly's affairs. But in court Friday, a top bank official acknowledged mistakes.

The Eyewitness News Investigators uncovered the questionable spending 16 months ago. Too many trips to far-away places with too many people along for the free ride. It all added up to excessive spending that did not benefit the ailing 84-year-old pharmaceutical heiress Ruth Lilly.

That's what Lilly's guardian, National City bank said in court Friday, saying it regrets not doing a better job.

And Ruth Lilly's family agreed. "I think it was clear to us that there were financial controls that weren't there that needed to be, and we realize that they should have there, but weren't," said nephew Ted Lilly.

Especially when it came to trips like one to Rome. Eyewitness News watched some 80 people board the plane - doctors and their spouses, Ruth Lilly's personal lawyer and his wife and various other staff members and their families.

When Eyewitness News broke the story, the bank and Ruth Lilly's attorney told us everything they did was in her best interest. But that wasn't what the judge heard Friday.

National City Vice President Mary Marsh testified: "Only those that were absolutely necessary for her care probably should have been the ones on that trip."

And the number of unnecessary guests, including the spouse of a banker, also took expensive sightseeing trips, not just in Rome, but Hawaii, too.

Lilly herself could not go on the side trips because of her frail health, but wound up paying the bill.

Because of the lax oversight, National City Bank agreed to take a half-million dollar hit in reduced guardianship fees.

"We think $500,000 is a very significant number, that it clearly is a message of good faith on our part," Marsh said.

And Lilly's attorney, Tom Ewbank, agreed to cut his fees by $140,000. He says he is "pleased to have it all concluded."

The hearing marked the end of one man's job. The court appointed Greg Fehribach to review the guardianship after our investigation. He helped implement a manual of strict new guidelines on how to handle Ruth Lilly's fortune.

It prohibits political contributions and provides for Ruth Lilly's nieces and nephews to take over where Fehribach leaves off.

"I think you've go to have rules and regulations by which to conduct yourself," Fehribach said. "I think that what we've learned here is that it doesn't matter who, what, when or where you are, those rules and regulations are important."