LOOK WHO’S GETTING INTO HAWAII’S
ACT 221
Watch poor Hawaii taxpayers get Wiped-Out in Blue Crush !
Sightings from The Catbird Seat
~ o ~
August 13, 2007
ALOHA FROM HAWAII
Maui Energy Group
We are Proud to announce that Castle & Cooke will be our first Customer in Hawaii, based on Lanai with their new Company, Lanai Sustainability Research L.L.C. Castle & Cooke is owned by David Murdock who also owns 98% of the Island of Lanai in Hawaii.
Mr. Murdock is the largest Private Land Owner / Farmer in the World and owns land in 72 countries around the World. It is their goal to make the Island of Lanai Energy Independent by the Year 2015. They are building their new Solar Photovoltaic Farm which will be the Fourth Largest in the US and the Largest in Hawaii. This will give us the first truly 100% Carbon Free Footprint in Hawaii for Zero Emission Transportation.
We thank Hawaii Venture Capital Association for their support on Act 221 / 215, and their efforts with the Legislature to continue to support these very important Tax Credits for the continuance of High Technology Development in Hawaii....
We are 10+ Years ahead of Hydrogen Fuel Cell Cars! Ask President Bush...
Visit our web site for a Video of President Bush, Karl Rove, Secretary of Energy Samuel W. Bogman, our Phoenix Motor Car SUT on the South Lawn of The White House and the President's message about our new Electric Vehicles and the Importance for our Future National Security and Economic Independence....
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April 1, 2007
ACT 221 / 215...
This is the most Progressive and Generous Investment Tax Credit Law in the US.
The Hawaii State Legislature adopted ACT 221/215 as a means to encourage investment in high technology businesses, provides a 100% investment income tax credit to investors, and is deductible from the Hawaii taxpayers Net Income Tax Liability. This also applies to the licensing fees paid by the Banks and Insurance Companies. The maximum amount is $2 million annually, per investor, per QHTB. We expect to have four (4) QHTB's under management in the next 18 months.
Maui Energy Group L.L.C. qualifies under Non-Fossil Fuel Technologies and Services. (Non-fossil fuel energy-related technology)...
http://mauienergygroup.blogspot.com/
March 23, 2004
Audits find tech-tax abuse
The state tax director says up to 20 percent
of Act 221 claims reviewed are fraudulent
By Nelson Daranciang, Honolulu Star-Bulletin
Up to 20 percent of high-technology tax credits claims that have undergone state audit or review are fraudulent, state Tax Director Kurt Kawafuchi said yesterday.
The Tax Department has already consulted the state attorney general and expects to submit cases for civil or criminal legal action within a year, he said. But because tax information is confidential, only those cases that go to court will be made public....
Kawafuchi’s proclamation alarmed state lawmakers.
“If there’s abuse, we need to stop it immediately, and we need to crack down on it immediately,” said Rep. Brian Schatz (D, Tantalus-McCully), House Economic Development and Business Concerns Committee chairman.
Gov. Linda Lingle tried unsuccessfully last year to convince the state Legislature to repeal the law....
Kawafuchi said his estimate of Act 221 “abuse” is based on audits and reviews of claims made for 2001 and 2002.
Schatz questioned Kawafuchi and state Department of Business, Economic Development & Tourism Director Ted Liu why the administration never mentioned the possibly fraudulent claims earlier.
Liu said lawmakers never asked for that information....
Earlier this month, Kawafuchi said he was looking into whether a local insurance company turned a $2,000 investment into a $3.4 million claim for tax credits.
He said the state can reject claims for tax credits if the investment lacks business purpose and economic substance....
March 23, 2004
Up to 20% of Act 221
claims may be illegal
By Sean Hao, Honolulu Advertiser
An estimated 15 to 20 percent of all claims for the state’s Act 221 high-technology tax credits could violate criminal or civil law, and prosecutions of claimants could begin within a year, the state Department of Taxation said yesterday.
Lawmakers, who are considering extending the tax credit program for an additional five years, said they were surprised by the disclosure which came from state tax director Kurt Kawafuchi.
“You’ve just said something very alarming,” said state Rep. Brian Schatz, D-25the (Makiki, Tantalus), chairman of the House economic development committee. “It’s just astonishing that we’re at this stage of the legislative session and this is just coming out.”...
Kawafuchi said the types of questionable transactions involve:
> Drop-down subsidiaries, where companies move information technology operations to a separate business.
> Companies selling slightly altered off-the-shelf software and calling it high technology.
> Other deals that don’t result in actual investments or new jobs.
Kawafuchi said there had been no prosecution yet because “we want to be very careful and thorough and make sure it’s a solid case.”...
Among changes to Act 221 being discussed in the Legislature are limiting research credits to high-tech companies and providing guidance meant to curtail investment tax credit returns that in some cases have been higher than intended. There’s also debate over disclosing the identities of companies and certain investors that benefit from the program.
Those most opposed to changing Act 221 include the Hawaii Technology Trade Association and the Hawai`I Venture Capital Association. Bill Spencer, president of the HVCA, said despite Kawafuchi’s claims, there still are no known examples of abuse that would justify drastic changes.
“I just think they haven’t done their homework,” he said. “These estimates are at best ‘guestimates.’”
March 19, 2004
AIG Hawaii leverages Act 221
for new tech division
By Terrence Sing, Pacific Business News
AIG Hawaii President Robin Campaniano has taken the first steps toward bringing a piece of the parent company’s $600 million software-development business to Hawaii.
Campaniano hopes to capture about $80 million of AIG’s software-development business now spread among four offices in Asia and two on the mainland.
He’s relying on Act 221, the state’s technology tax law, to pull it off. AIG Hawaii has invested about $4 million in a newly formed tech-development center at its Restaurant Row headquarters. The tech tax law not only has saved the division’s existing staff of 25, whose jobs were set to be disbursed to the other tech centers, but also added 10 new positions since last year, Campaniano said....
AIG Hawaii created a limited liability corporation to be eligible for the tax credit. Insurance companies and banks have been labeled part of the problems surrounding Act 221 for taking advantage of the act by creating new divisions, claiming they were tech-related and then writing them off under Act 221 to avoid paying taxes.
Campaniano says AIG has avoided dubious investment schemes clearly meant to avoid paying taxes and instead is creating new jobs and investing in high-tech infrastructure.
“We are not looking for a tax writeoff,” he said. “This deal was to create jobs and create a tech industry. In my little way I can help push that cause.”
(A curious Catbird query: If you’re not looking for a tax writeoff, Robin, why are you taking advantage of Hawaii’s taxpayers under Act 221 ?)
~ ~ ~
For much more about AIG, GO TO > > > The Allied World Assurance Group; Kajima: Blood, Bribes & Brutality; The Un-American Insurance Group
February 22, 2004
Insurers among investors that
got Act 221 breaks
By Jim Dooley, Honolulu Advertiser
Eleven Hawai'i insurance companies, including one closely tied to the state's two largest public employee unions, avoided paying $19 million in state taxes in 2001 and 2002 by investing in high technology ventures, including the "Blue Crush" teen surf movie.
The state won't identify the firms or reveal full details of their investments because of Tax Department secrecy laws now being questioned by some in Gov. Linda Lingle's administration and the state Legislature.
But government records, court documents and a local insurance executive identify the Royal State Insurance group of firms as a central player in a hui that invested in the Blue Crush production in 2001, generating millions in controversial state tax credits.
Repeated attempts to reach Royal State chief executive Melvin Higa for comment were unsuccessful. Russell Okata, head of the 40,000-member Hawaii Government Employees Association and chairman of the board of directors of Royal State Corp., declined to comment other than to say through a spokesman that he "had nothing to do with any Royal State business decisions regarding investments."
Documents contained in a state court lawsuit over distribution of the "Blue Crush" tax credits provide glimpses into the deals worked out in government and business circles over a bonanza of tax breaks available to Hawai'i investors under the 2001 law commonly called Act 221.
These details raise further questions about the public benefit of the tax credits, which cost the state's general fund $21.9 million in 2001 and are expected to cost $48.4 million this fiscal year and $76.7 million in fiscal 2005, according to state estimates.
The law says every dollar invested in qualifying high technology ventures, including film and television productions, can be used to reduce state tax obligations by $1. The tax credits are spread over a five-year period and are capped at $2 million per investment.
Proponents of Act 221 argue that the credits are a valuable economic tool for promoting business growth and creating new jobs in a state overly dependent on tourism and military dollars. Act 221 supporters also argue that disclosure of who benefits from the credits would be detrimental to the program.
State Rep. Brian Schatz said exposing the identities of investors receiving Act 221 tax credits could discourage further investment.
"I just don't see the need to know the name. I need to know the numbers," he said. "I think there are some legitimate reasons that certain investors wouldn't want their names out there, and it's not simply a matter of them wanting to hide."
Critics say the credits are overly generous, have failed to produce tangible economic benefits for the state and have been shrouded in secrecy preventing public accountability.
State Sen. Colleen Hanabusa, D-21st (Nanakuli, Makaha), who opposed passage of Act 221, said she was "stunned and fascinated" by the identification of union-affiliated Royal State as a "Blue Crush" investor.
"That's the kind of information the public should have," she said.
"I believe if you receive a tax credit from the state of Hawai'i then Hawai'i taxpayers should know who you are."
Lowell Kalapa of the Hawaii Tax Foundation, said it was ironic that Royal State Insurance, with its connections to Hawai'i's public worker unions, is reducing its state taxes by investing in a venture like the "Blue Crush" film.
Public workers are paid from state tax collections.
"It's like these guys are sucking their own well dry," Kalapa said.
The identities of some of the "Blue Crush" investors are contained in an Act 221 tax credit lawsuit filed in 2002 by April Masini, a film and television industry figure active in Hollywood and Hawai'i, against the prominent Hawai'i law firm Cades Schutte Fleming & Wright and a partner in the firm, Vito Galati, who had helped draw in investors for "Blue Crush."
(The firm regularly provides legal representation to The Advertiser but was not involved in the preparation or review of this story.)
Masini claims that she was wrongfully denied "Blue Crush"-generated tax credits after she worked in 2001 to convince Universal Studios to film the movie in Hawai'i.
Masini said she worked with Gov. Ben Cayetano and his high technology adviser, Joseph Blanco, to obtain tax credit approvals for the project and searched for local investors willing to put money into the production.
The law firm and Galati deny any wrongdoing.
Masini said in her suit that she helped pitch the movie tax credit proposal to Hawai'i land-holding giant Damon Estate and two local banks with "high net worth clients" who would be interested in substantially reducing their state taxes.
In one proposal, heirs of the Damon Estate, which at the time owned more than 116,000 acres of property on O'ahu and the Big Island and 13 percent of First Hawaiian Bank, were to receive $11.2 million in tax credits after investing $8.5 million in the "Blue Crush" production, according to court records.
Making a profit in tax credits is one of the controversial aspects of Act 221. The law allows out-of-state investors, who don't need Hawai'i tax credits, to give, sell or otherwise transfer their credits to Hawai'i taxpayers.
The law also may have created an underground market in the secrecy-shrouded credits, according to paperwork filed in the Masini suit.
The proposal to Damon Estate contained a provision that Masini and a Mainland partner had the right to purchase tax credits from the estate "for resale to third parties."
Masini's lawsuit said the estate and banks eventually turned down the "Blue Crush" proposal and the ultimate investors were "insurance companies" brought in by Galati, the Cades law firm partner.
The insurance companies are not identified in the court case because of state tax laws prohibiting public release of "taxpayer information," according to paperwork filed by Masini's lawyer, Philip Brown.
However, the Masini suit does list a number of local insurance companies and executives as witnesses to be called — if and when the case goes to trial. A trial date has been tentatively set for next year.
Companies identified
Among the witnesses listed by both the plaintiff and defendants in the suit are executives of four Royal State-affiliated companies, including the Performing Arts Investors and Royal Management that were formed in mid-December 2001 when the Blue Crush investment was being finalized.
According to state business records, HGEA's Okata was chairman of the board of Royal State at the time the Blue Crush investments were made.
Royal State is listed as the parent company of Royal State Investment Corp., which in turn is listed as the agent for Performing Arts Investors and Royal Management.
Also on the Royal State board with Okata at the time of the "Blue Crush" investment was Gary Rodrigues, then head of the 12,000-member United Public Workers Union, which represents mostly blue-collar state and county employees.
Rodrigues was sentenced last year to more than five years in federal prison in a union fraud and embezzlement case that involved Royal State and a related firm called Voluntary Employees Benefit Association of Hawaii.
Both Rodrigues and HGEA's Okata were on the board of trustees of VEBAH.
Rodrigues is no longer affiliated with UPW. Acting union administrator Liz Ho could not be reached for comment.
Another local insurance company executive listed as a witness in the case is Colbert Matsumoto, chief executive of Island Insurance Co. Ltd.
Matsumoto wouldn't discuss many details of his company's investments, but acknowledged that Island Insurance has made "several investments" in high technology ventures, including the "Blue Crush" production.
Matsumoto said "an investment entity" was formed to receive money from various insurance companies for the "Blue Crush" venture. Asked if the investment entity was Performing Arts Investors, the limited liability company operating from Royal State Corp.'s Beretania Street offices, Matsumoto said: "That sounds right."
Other executives of insurance companies listed as witnesses in the Masini suit did not respond to repeated requests for comment on "Blue Crush" investments.
The companies include Zephyr Insurance, supplier of much of the hurricane insurance coverage written in Hawai'i, Pacific Guardian Life Insurance, and DTRIC Insurance.
Royal State owns a partial interest in the DTRIC insurance business in Hawai'i, according to state business records.
First Insurance Co. of Hawaii was invited to participate in the "Blue Crush" venture but declined, said company spokesman Steve Tabussi.
"We had a look at the proposal," Tabussi said. "It didn't fit our investment needs."
According to figures compiled by state Insurance Commissioner J.P Schmidt, some local insurance companies quickly took advantage of Act 221 tax credits.
A chart prepared by Schmidt for The Advertiser shows nine insurance companies claimed $6 million in Act 221 tax credits in 2001, the first year the credits were available. The following year, 11 companies reduced their state taxes by $13 million using the credits, a 117 percent increase.
Schmidt said he couldn't reveal the names of the companies because of Tax Department confidentiality laws. But the numbers make clear that some insurance companies made multiple Act 221 investments or acquired extra credits from other sources in 2001-2002.
Under an annual percentage formula set in Act 221, the maximum allowable tax credit per investment each year is $700,000. But three companies claimed between $890,000 and $1.3 million in credits for the 2001 tax year, showing that they invested in more than one project or bought or otherwise acquired additional credits from other sources.
In 2002, two insurers reduced their state tax bills by more than $2 million each and another three companies avoided more than $1 million in state taxes apiece through Act 221 investments.
Changes to law sought
The state Tax Review Commission, which reviews state tax policies every five years, has called for changes to Act 221.
In a report last year, the commission said: "Every business receiving $2 million in high-tech investment (credits) should report back to the Legislature to justify the investment costs upon which the credit is based, account for all the credits taken, and demonstrate that the cost-benefit has been achieved."
Kalapa of the Hawaii Tax Foundation said Act 221 credits have left the public with little means of judging their effectiveness.
"We're all left to wonder if jobs are being created. We don't know who's getting the credits so there's no real way to measure the economic benefits," he said.
State Tax Director Kurt Kawafuchi said his department is still studying the economic effects of Act 221 and audits of companies that claimed the tax credits in 2001 to 2002 may be under way.
But the law says that Act 221's provisions must be "liberally construed" by the tax department. Even if audits determine that tax credits were improperly received by Act 221 investors, the law says only 10 percent of previously awarded credits can be "recaptured" by the state.
Information about any recaptures would be confidential, according to Kawafuchi.
Bills to tighten Act 221 eligibility criteria and extend the program another five years beyond its present 2005 expiration date are pending at the Legislature. Provisions that would publicly identify tax-credit recipients have been dropped from the measures.
Ted Liu, director of the state Department of Business, Economic Development and Tourism favors disclosure. "Sunshine is the best disinfectant," Liu said.
Tax Director Kawafuchi, however, said he sees good arguments on both sides of the secrecy issue and is looking for a "middle ground" solution.
Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.
© COPYRIGHT 2004 The Honolulu Advertiser, a division of Gannett Co
July 14, 2004
Lingle Oks Act 221 tax credit
extension, criticizes lawmakers
By Dan Martin, Star-Bulletin
Gov. Linda Lingle signed a bill yesterday that extends and tightens Hawaii’s controversial high-technology tax credits for five years and establishes a state private investment fund to provide venture capital for cash-hungry local tech companies.
The extension of the credits, known as Act 221, has raised hopes for a wave of fresh funding for Hawaii technology companies now that uncertainty over the future of the credits has been resolved.
“That extension of (Act) 221 was really important. It removed a big question mark and will probably spur a lot of venture capital off the fence,” said Bill Spencer, president of the Hawaii Venture Capital Association.
Act 221 was revised to tighten the criteria for qualifying for the credits after it emerged last year that some companies with flimsy technology premises may have abused the spirit of the act, costing the state millions in tax revenue. The tax credits were intended to help high-tech firms lure investment and create jobs.
But Lingle said the bill could cause Hawaii to lose still more technology companies because it delays the implementation of the state private investment fund by a year.
“Instead of just talking about creating quality, high-paying jobs, we need to take bold action,” Lingle said. “This Legislature’s delay in implementation may result in successful Hawaii companies moving to the mainland to obtain the financing they need.”
The Democrat-controlled Legislature declined to appropriate funding for the fund’s implementation, which means the Republican governor will have to go back to lawmakers during the next session to work out establishment of the fund.
Rep. Brian Schatz (D, Tantalus-Makiki) said the delay was necessary to allow the state to figure out the final shape of the fund.
“This is one of the most complicated policy issues I’ve ever seen and it’s not something that anybody involved is prepared to rush through. We all need more time to do our due diligence,” he said.
A study released last month by Enterprise Honolulu said Hawaii companies need about $233 million over the next five years.
With the investment fund, the state would borrow tens of millions of dollars, which would be placed with venture capital funds. Those funds would be invested to help kick-start promising start-up companies or help established firms expand.
“There are a number of models that work well and many that do not. We need to look at what is the right model, how it should be governed, and the criterion for investments,” said Schatz.
He said one remaining question mark is how the state Taxation Department’s certification process will work. The revised legislation requires Act 221 claimants first to obtain certification from the state tax director that their claim is legitimate. To do so, they will have to supply the tax department with detailed information on their business.
The tax department has said it was working on certification guidelines.
www.starbulletin.com/2004/07/14/business/story2.html
January 22, 2005
Unity House case detailed
By Jim Dooley, Honolulu Advertiser
A wealth of new information about how Tony Rutledge Sr. operated Unity House Inc. was unsealed in federal court yesterday, including grand jury testimony that the tax-exempt Unity House “sold” Hawaii tax credits to wealthy local investors and allegations that Rutledge used the organization’s money to gain “political influence.”
The information contained in a sworn statement from an Internal Revenue Service agent and a preliminary report on Unity House finance from the court-appointed receiver now running the $42 million nonprofit labor organization, was discussed during a hearing on a motion by Rutledge’s attorneys to declare the government’s December seizure of Unity House illegal.
Chief U.S. District Judge David Ezra denied the motion and issued an injunction allowing the government’s takeover of Unity House to continue until criminal fraud and conspiracy charges against Rutledge and his son, Aaron, are resolved. Trial in the case is set to begin May 10....
New details about Unity House’s activities were contained in a sworn “declaration” from IRS agent Gregory Miki that formed the basis for the government’s Dec. 14 seizure. The declaration had been sealed from public view but was released yesterday, with sections blacked out because of an ongoing criminal investigation of Unity House, according to U.S. Department of Justice attorney Edward “Ted” Groves.
According to Miki and the appointed receiver, Anthony Pounders, Unity House invested $1 million and Rutledge invested $200,000 of his family’s money in Hoana Medical, a local company developing state-of-the-art medical sensory equipment. Hoana Medical investors qualified for state tax credits available to “high-tech” business ventures under Act 221, a controversial law passed in 2001.
The generous tax credits - each dollar invested in a qualifying high-tech venture allows an investor to reduce personal or corporate Hawaii taxes by one dollar over a five-year period - are a valuable tool for creating business growth and new jobs in Hawaii, proponents argue.
Critics have questions the true economic value of the tax credits, in part because the identities of individuals receiving them are shrouded in secrecy, making the benefits of the program to the state difficult to measure.
And provisions of Act 221 that allow well-to-do investors to sell, barter or otherwise exchange tax credits have created an underground market in the tax credits, according to a 2002 Circuit Court lawsuit.
Miki’s statement said Rudy Tam, a Unity House investment consultant, testified before the federal grand jury that Unity House “sold the tax credits” it received from the Hoana Medical investment to other, unspecified Hawaii taxpayers.
Kurt Kawsfuchi, state tax department director, also testified before the federal grand jury, saying that “Unity House is a tax-exempt charitable organization not entitled to the Act 221 tax credit and thus could not sell it to wealthy investors,” Miki’s declaration said.
Kawafuchi declined comment yesterday, saying that “information about a specific taxpayer is confidential.”
Tam could not be reached for comment. His attorney, Eric Seitz, said Tam has served as a Unity House investment adviser and testified before the federal grand jury about his work for the organization and Tony Rutledge....
Tam, who is on the board of directors of Hoana Medical, has been “tied to several failed business investments made by Unity House,” Miki said in his declaration.
Tam does not have a personal bank account because of unpaid federal tax liens and child-support obligations, Miki said in his sworn statement.
Patrick Sullivan, head of Hoana Medical, could not be reached for comment yesterday. Hoana official Ian Kitajima said he was not privy to the details of the Unity House and Rutledge investments or Tam’s involvements in them....
Miki’s sworn statement also said the grand jury investigation has included testimony about political activities of Unity House when it was controlled by Rutledge. “The unchecked use of Unity House contracts and monies have resulted in political influence that has opened doors from which Rutledge has benefited personally,” the statement said.
Those activities included “contributions to individuals such as Robert Awana (Gov. Linda Lingle’s chief of staff), Romeo Mindo (a former state representative who was a Unity House employee) and (state Sen.) Colleen Hanabusa.”
Awana received a “generous consulting contract from Unity House to survey the members” from 1999 to 2000, according to Miki.
“The survey included questions to the members on whom they would vote for in the upcoming mayoral election,” Miki said.
After Lingle was elected governor in 2002, Tony Rutledge “had eleven meetings with the Chief of Staff for the Governor of Hawaii,” Miki said in his sworn statement....
Hanabusa, D-21st (Nanakuli, Makaha), said yesterday that she is Awana’s attorney and that he “testified freely before the grand jury and was told from the beginning of the investigation that he was not a target of the grand jury.”...
Hanabusa said she did not know why she was named by Miki as a recipient of “contributions” from Unity House, pointing out that her political campaign is one among many that have received donations from the organization.
According to the criminal indictment of the Rutledges, Mindo introduced legislation in 2003 that allowed Unity House to transform itself from a “membership-based” organization to a “nonmembership-based” one that was directly controlled by Tony Rutledge. Mindo received an unsecured, $40,000 Unity House loan January 2004.
Seitz, who is also Mindo’s lawyer, said the loan was for home repairs and was unrelated to Mindo’s sponsorship of the Unity House legislation.
Lingle signed the bill into law in May 2003. Awana told The Advertiser last month that Unity House employee Michael Tanaka called him about the Mindo bill after it had been approved by the Legislature....
Awana said he did not speak to Lingle about the bill or tell her about Unity House’s interest in it.
Lingle herself worked for Unity House founder Arthur Rutledge in the mid-1970s and was named by the senior Rutledge to the board of directors of the Hawaii Pacific Cinema Development Foundation in 1981, resigning after she was elected to the Maui County Council.
The new criminal charges against Tony Rutledge allege that he improperly diverted $50,000 from the Cinema Foundation for a movie project in which he had a personal financial interest.
Awana said last month neither his past work for Unity nor Lingle’s more remote connection to the nonprofit affected their consideration of the worthiness of the Mindo bill.
March 25, 2005
Local 5 Sues Unity House
By Jim Dooley, Honolulu Advertiser
The Hawai’i hotel-restaurant workers union has filed a civil racketeering lawsuit against Unity House Inc., charging that former president Anthony Rutledge Sr. and other officers used Gov. Linda Lingle’s chief of staff Robert Awana, former state Rep. Romeo Mindo and others to divert millions of dollars of Unity House money for the personal benefit of Rutledge, his family members and associates.
The lawsuit, filed in federal court last weekend, does not name Awana as a defendant but calls him a “co-conspirator and/or wrongdoer” in an alleged scheme to defraud the nonprofit labor organization of assets.
Awana could not be reached for comment yesterday. His attorney, state Sen. Colleen Hanabusa, D-21st (Nanakuli, Makaha), yesterday said, “I don’t know anything about the suit. I can’t comment.” Hanabusa said in January that Awana testified before a federal grand jury investigating Unity House but was told he was not a target of the investigation.
Mindo’s attorney Eric Seitz said he hadn’t seen the suit and had no comment on it. He has previously said Mindo, a former Unity House employee, committed no wrongdoing.
The racketeering lawsuit was filed Sunday by the union and Eric Gill, head of the Hotel Employees and Restaurant Employees Union Local 5 and a longtime opponent of Tony Rutledge. Fourteen other officials and members of Local 5 are plaintiffs in the suit seeking unspecified monetary damages from the senior Rutledge and other defendants.
The lawsuit repeats many allegations in a criminal fraud case against Tony Rutledge and his son Aaron, a former Unity House executive. That case is scheduled to go to trial in federal court in May. Some of the allegations contained in the suit are also drawn from records introduced in court after federal agents seized control of Unity House Dec. 14.
IRS agent Gregory Miki said in a sworn statement justifying the Unity House seizure that, “The unchecked use of Unity House contracts and monies have resulted in political influence that has opened doors from which (Tony) Rutledge has benefited personally.”
One example cited by Miki was a “generous consulting contract” that Unity House gave Awana in 1999-2000 to survey union members. The Local 5 lawsuit said the value of the contract was $250,000 and the survey “included questions on whom they would vote for in the upcoming mayoral and other elections.”
The suit also repeated an allegation from Miki that Rutledge met with Awana 11 times after Awana became Lingle’s chief of staff in 2002.
Jeff Rawitz, defense attorney for Tony Rutledge, declined comment on the lawsuit other than to note that it was filed for Local 5 by T. Anthony Gill, brother of Eric Gill.
“That has the appearance of a conflict of interest because the brother who filed the lawsuit stands to make money from it regardless of the merits of the case,” Rawitz said.
T. Anthony Gill declined to respond to Rawitz’s statement.
Brian DeLima, attorney for Aaron Rutledge, said he had not seen the suit and could not comment on its contents....
Prominent Honolulu criminal defense attorney Michael Green, a former Unity House director, is also named as a defendant in the lawsuit. His office said yesterday Green was out of state and unavailable for comment.
David Louie, an attorney who represents another defendant, former Unity House director Arlene Hae, was unavailable for comment yesterday on the lawsuit.
Hae this month filed a legal protest against the government’s “usurpation of control” of Unity House, saying the takeover “impairs and impedes” the ability of Hae and other officers and directors to protect the rights and assets of Unity House.
In response, Anthony Pounders, the receiver appointed by federal court to run Unity House while the criminal case against the Rutledges is pending, said: “Even if some members of the prior management were not directly involved in any corporate mismanagement or malfeasance, I have found no evidence of any attempts to expose, investigate or otherwise stop such mismanagement or malfeasance.”
Pounders said the net worth of Unity House declined from $49 million at the end of 2001 to $31 million today, owing largely to bad investments.
He also said Unity House last year was billed $793,000 in legal expenses to defend the Rutledges in the federal criminal investigations.
Unity House has paid $50,000 a year for insurance coverages of its officers and directors but “failed to make a claim” for insurance coverage* of the legal bills, Pounders said.
“Instead, Unity House used its own money to pay Anthony Rutledge Sr.’s attorneys’ fees,” said Pounders.
Rutledge lawyer Rawitz yesterday declined comment on Pounders’ statements...
* (Catbird Note: Hmm.... An organization not filing claims when they have insurance? Attorneys Eric Seitz and Michael Green? Smell familiar? Go sniff out Claims By Harmon, Confessions of a Whistleblower, and Dirty Money, Dirty Politics & Bishop Estate)
~ ~ ~
For more on Governor Linda Lingle, Colleen Hanabusa, Robert Awana, and Eric Seitz, GO TO > > > Predators in Paradise; The Grand (and dirty) Ko Olina; David C. Farmer, Trustee vs. Harmon
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October 23, 2002
Attorney sued over movie financing deals
By Tim Ryan, Star-Bulletin
In a lawsuit revolving around financial incentives for film and television productions to work in Hawaii, April Masini is suing a local tax attorney and his law firm for malpractice and fraud.
Masini, owner of Hawaii-based Masini Television and Film Enterprises and Masini Enterprises in Los Angeles, filed a lawsuit in Circuit Court charging attorney Vito Galati and Honolulu firm Cades Schutte Fleming & Wright with breach of fiduciary duty, gross negligence, intentional interference of contractual relations, misrepresentation, fraud and unjust enrichment. Masini’s attorney is Philip R. Brown.
The suit alleges Masini had retained Galati for assistance in creating a business to secure film and television production work in Hawaii, with the lure being Act 221, a state law that provides tax incentives for certain high-tech investment, including film and TV production.
According to the suit, Galati would use his tax expertise to explain to Hollywood productions how Act 221 is structured and how to qualify while Masini would market the statute’s benefits to networks, distributors, studios, and producers in Hollywood.
Galati began representing Masini in Hawaii as her attorney beginning in fall 2001, the suit says.
The suit says one of the main reasons Masini retained Galati was to obtain “a comfort letter” from state Tax Director Marie Okamura assuring investors that participating studios or production companies were qualified for the incentives.
The suit alleges that once Galati received the letter he never forwarded it to Masini, not only thwarting her marketing efforts in Los Angeles but using it for his firm’s gain. Masini allowed Galati to approach several potential investors, including Bank of Hawaii and several local insurance companies, on her behalf because even as late as February this year she believed that the attorney was working for her, the suit says.
Galati in numerous e-mails to Masini acknowledges their partnership though apparently no written agreement exists, the suit says.
Masini and Los Angeles attorneys Adam Fields and John La Violette convinced Universal Pictures to use Act 221 for its “Blue Crush” film production, which Galati was expected to structure, the suit says.
When a deal with Bank of Hawaii to invest in the film fell through, Masini and Fields turned their attention to Damon Estate participation, but that also failed....
When Galati created the final “Blue Crush” transaction, Masini was no longer a party but an “agent” – though Galati’s role had “greatly increased,” the suit claims.
“Cades moved Masini out of the ‘Blue Crush’ deal to gain an increased role and compensation for itself and its other clients,” the suit says.
In January, Galati allegedly sent Masini a new agreement that drastically altered her and Fields’ fee for the “Blue Crush” efforts and effectively put her in competition with Galati’s other clients for selling the tax credit structure and receiving the benefit of the sale.
“Galati had completely abandoned Masini but continued to use (her) contacts ... to establish his position in the industry at Masini’s expense,” the suit says. Since partnering with Masini, Galati has been retained by other productions seeking Act 221 incentives.
Galati was not available for comment. In a written statement, the law firm said the lawsuit is “completely without merit” and they “intend to vigorously defend ourselves.”...
www.starbulletin.com/2002/10/23/business/story6.html
November, 2002
Tanonaka picked to head PBEC
Dalton Tanonaka has been named as the new president of the Pacific Basin Economic Council (PBEC). PBEC represents more than 1000 international companies across 20 nations who have a total work force of 10-million people and revenues exceeding $4 trillion.
“Dalton’s experience and skills are exactly what we need to move PBEC’s agenda forward,” said PBEC Chairman S.R. Cho. “His credibility and ideas will help us reemphasize our role as the business voice of the region.”
Tanonaka worked at CNN International where he served as a main news anchor and recently left that position to run unsuccessfully for Lieutenant Governor. He has also worked as the City and County of Honolulu’s Economic Director.
Some Tanonaka’s goals include generating more interest from Far East Countries to do business here in the state, positioning Hawaii as the Pacific’s economic hub and convincing local business and government leaders of the importance of keeping PBEC based in Honolulu....
For more on Jeremy Harris and Dalton Tanonaka, GO TO > > > Predators in Paradise ...and www.pritchettcartoons.com/expert.htm
For more on PBEC, GO TO > > > Broken Trust; The Indonesian Connection; Paradise Paved; Vultures of the Sandwich Isles; Yakuza Doodle Dandies ... and www.keithpr.com/pacificall
For more on Cades Schutte ... , GO TO > > > Buzzards of Paradise; Claims By Harmon; Dirty Money, Dirty Politics & Bishop Estate
March 20, 2004
Hawaii Business Leaders Seek
Changes To Act 221
By Sean Hao, Honolulu Advertiser
The state’s high-technology tax credit – which generated $112 million in investment in its first two years without an equal impact on the local technology industry – needs to be tightened, business leaders said.
State lawmakers are considering a five-year extension of the controversial Act 221 tax credit, which was set to expire next year. The recent disclosure that the tax credit led to $112 million in investment in 2001 and 2002 has left many business leaders wondering where that money went, given the small size of the state’s technology sector.
Many now believe that at most $50 million actually went to companies such Hoku Scientific, Hoana Medical, Firetide and other high-tech startups intended to benefit from the program.
If all $112 million was pumped into high-tech companies, “I would think it would be a lot more visible,” said Mike Fitzgerald, president and chief executive of Enterprise Honolulu. “It just can’t be accounted for.”
Proponents of Act 221 argue the credits promote business growth and create new jobs in a state dependent on tourism and the military. Critics contend the credits are overly generous, have failed to produce tangible economic benefits for the state and have been shrouded in secrecy that prevents public accountability....
Act 221 cost the state’s general fund nearly $60 million in its first two years. The cost to taxpayers is expected to reach $48.4 million this fiscal year and $76.7 million in fiscal 2004, according to state estimates.
Where much of the investments generated by those incentives went is unclear, though it’s likely at least a portion went to companies that took advantage of the act by shifting certain technology-related work into subsidiaries that could qualify for the credits. Though legal under