Dirty Money, Dirty Politics and Bishop Estate
Stealing the Legacy of an Hawaiian Princess
Sightings from The Catbird Seat
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PART II - The Stealing Continues....
Where we left off in Part I ...
In 1997, responding to a surging tsunami of criticism from the faculty, students and alumni of the Kamehameha Schools, and from concerned citizens of all ethnic backgrounds in Hawaii, Governor Ben Cayetano took an unprecedented action and directed the state's attorney general, Margery Bronster, to investigate the practices of the Estate's five highly paid trustees.
But the attorney general was not the only one investigating the estate. The IRS had already been auditing the records of the estate for several months -- empowered by the "interim sanctions" regulations which had been passed by Congress in early 1996. At the same time, the court-appointed "master" who is charged by the probate court with oversight of the operations of the estate, was digging deeper into the activities of the trustees than a long line of previous masters.
Suddenly the trustee's were, for the first time in the schools' 115-year history, under siege from all sides.
The full and sordid story of the looting of the estate is too long to relate here. To give you an idea of the magnitude of the financial losses, however, the Master's Report on the 109th Annual Account of the Trustees revealed that the Estate's investment portfolio suffered substantial losses in 1994, the year under review. The records relating to the various investments showed that combined losses and loss reserves of $264,090,257 were recognized in fiscal year 1994 alone.
The short story is that, after long and hard-fought court battles, the five former trustees were forced to resign, and five interim trustees were selected to take their places until a new trustee selection process was created and implemented. The removal of the five former trustees was one of the non-negotiable conditions of the IRS to prevent the loss of the estate's tax-exempt status.
The removal of the incumbent trustees was good news, hailed by many as the beginning of the healing process....
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So, is this the happy ending to the story of the last Hawaiian princess -- the ending where all her children live happily ever after? Unfortunately, that may not be the case.
There is still a secretive, hidden, dark side to this saga.
Many may not realize that the removal of the five trustees was accomplished only because the higher-ups -- the power elite and the super-rich -- decided that the secret activities at the estate had been exposed to such a degree that they could no longer sweep them under the political rug. The trustees had to be sacrificed to save the estate. Not to save the estate for the children, mind you, but to preserve it for the same politicians and power brokers who have controlled and looted its vast fortunes over the past decades.
Many of the key players in the conspiracy are still in place.
Only time will tell if these powerful birds of prey can succeed in sinking their talons even deeper into the corpus of the estate. Let us all pray that persons of honor and integrity are selected as future trustees and that Princess Pauahi's legacy is restored to her deserving children.
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SO ... GIVEN:
That the FORMER TRUSTEES have been removed and their dirty laundry hung out in public;
That the INTERIM TRUSTEES were aware that the key conspirators extended beyond the trustees they replaced;
That the NEW TRUSTEES know the depth of the corruption, and have had ample opportunity to clean it up
...the $8 billion question remains:
IS THE TRUST STILL BROKEN?
- - -
THE ANSWER IS: DEFINITELY ...
YES!
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May 9, 2000
An Editorial from The Honolulu Star-Bulletin
House-cleaning is due at Kamehameha Schools
> The issue: "Broken Trust" author Randall Roth urges the interim trustees of the Kamehameha Schools to clean house of employees who operated with the former trustees.
> Our view: The interim trustees cannot ignore the need for accountability.
DESPITE the recent "60 Minutes" report on network television describing the ouster of the former Bishop Estate trustees, this struggle isn't finished. A pointed reminder of unfinished business was published in the Saturday Star-Bulletin in the form of a letter by Randall Roth, the principal author of the 1997 "Broken Trust" article that was a key factor in the battle.
Roth, who is a University of Hawaii professor of law and an authority on trust law, noted that one year after the removal of the former trustees, the estate, now called the Kamehameha Schools, has yet to "clean house." Roth charged that "individuals who for years were at the epicenter of abuse are still on the payroll, well placed, some even promoted."
The letter noted that several of the questionable holdovers are lawyers. It pointed out that under Hawaii law, lawyers for a trust are obligated to report trustee misconduct to the probate court. "It seems obvious," Roth said with a hint of sarcasm, "that no such report was ever made by a Bishop Estate lawyer."
In addition, he said, other key positions were held by people who were willing to use estate funds improperly, and they are also still there.
The letter amounted to a rebuke of the interim trustees. Roth warned that the trustees "have a legal duty to hold accountable any and all who have harmed the trust. If the interim trustees fail to do so, they themselves will be in serious breach of trust under the law."
The professor quotes the interim trustees as saying they want to focus on the future, not retribution. He asserts that the issue is not retribution but accountability.
It is also hard to believe that employees who cooperated with the former trustees in their abuses should be considered suitable for carrying out the policies of the new board.
One dismissal of an estate official has resulted in the filing of a lawsuit. Randall Chang, a former asset manager, alleges in his suit that interim trustee Robert Kihune and interim chief operating officer Nathan Aipa violated his civil rights through racial discrimination and retaliation. The suit could have a bearing on future decisions by the trustees regarding holdover employees.
The interim trustees may have decided to defer personnel changes in the trust pending their appointment of a chief executive officer. Now that Hamilton McCubbin has been installed as CEO, perhaps the time for the trustees and their CEO to clean house, as Roth put it, has come.
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MORE INDICATIONS OF A STILL-DIRTY HOUSE?
According to the Oct 20, 2000 issue of Pacific Business News, one of Hawaii's largest construction projects is currently a parking deck at Kamehameha Schools' Windward Mall.
The architectural firm for the project is shown as Kajioka, Yamachi Architects. . . .
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From Equity No. 2048 - Petition of the Atty General on Behalf of the Trust Beneficiaries to Remove and Surcharge Trustees (Sep 99): . . .
Illegal Payments for Politicians.
The Trust has participated in a scheme of illegal campaign contributions benefitting Marshall Ige and Milton Holt. ... The Trust, a public charitable trust, has incurred and not reported lobbying expenses. ...
Marshall Ige is a friend of Henry Peters and served as his Vice Speaker of the House. After Ige was defeated for re-election to the Hawaii House of Representatives in the 1994 primary election, he owed $18,262.71 to a vendor of campaign goods and services (the Vendor).
The Vendor had also provided campaign goods and services to Milton Holt. Holt worked at the Trust in the government relations division, which reported to Peters.
The Vendor contacted Holt for help in collecting the unpaid $18,262.71 from Ige. Shortly thereafter, a Trust employee called the Vendor and instructed him to bill Ige's campaign debt to the firm of Kajioka, Okada, Yamachi Architects, Inc. (Kajioka), a recipient of non-bid contracts from the Trust.
The Vendor followed this instruction and sent a false invoice to Kajioka in the amount of the campaign debt for goods and services never provided to Kajioka.
Kajioka paid the false invoice and thus paid the full amount of Ige's campaign debt to the Vendor.
Ige was elected to the Hawaii Senate in 1996.
After Holt was defeated for re-election to the Hawaii Senate in the 1996 primary election, he owed the Vendor approximately $12,334.44 for campaign goods and services. A Trust employee instructed the Vendor to divide the balance of Holt's campaign debt into three equal parts and send an invoice for one-third of the balance to each of three non-bid contractors of the Trust: Kajioka; Ronald N.S. Ho & Associates, Inc. (Ho); and Sato and Associates, Inc. (Sato).
The Vendor followed the Trust's instruction, and sent false invoices to the non-bid contractors for goods and services that were never provided to them.
Each of the three non-bid contractors paid the false invoice by sending the Vendor a check for $4,111.48 to pay off Holt's campaign debts.
Yukio Takemoto is the principal executive of the budget and review group of the Trust and reports directly to Peters.
After the 1996 primary election, Holt owed Starr Seigle McCombs (SSM), his media and advertising consultants, $18,690.72 that SSM had paid the Vendor on behalf of Holt.
Takemoto asked another non-bid contractor of the Trust, Akinaka & Associate, Ltd. (Akinaka), to help with Holt's unpaid campaign expenses. When Akinaka agreed to help, Takemoto said that Kajioka would be in touch. Kajioka left a message for Akinaka that the Vendor would send an invoice.
Shortly thereafter, a Trust employee instructed the Vendor to send four invoices (each for $4,672.68, or one-fourth of the campaign debt of $18,690.72) to each of Kajioka; Ho; Akinaka; and Okita, Kunimitsu and Associates (Okita).
The Vendor followed this instruction and sent false invoices to the four non-bid contractors for goods and services that were never provided to them. Each of the four non-bid contractors paid the false invoice from the Vendor, and the Vendor then paid in full Holt's campaign debt to SSM.
All the firms that participated in the instruction of the Trust in making illegal campaign contributions by sending or paying bogus invoices were receiving, have received, and continue to receive lucrative non-bid contracts from the Trust.
Holt used a credit card issued to the Trust to charge lunches and dinners for himself and members of the Hawaii Legislature at various Honolulu restaurants.
The Trust paid these charges with Trust assets. ... The charges to entertain legislators were lobbying expenses of the Trust that have not been disclosed to the State Ethics Commission and have not been disclosed in and IRS Form 990 submitted by the Trust.
All or some of the Trustees know of the Trust's participation in the illegal campaign contribution scheme to benefit Ige and Holt and of the Trust's lobbying activities.
All or some of the Trustees violated their duty to administer the Trust in compliance with all applicable law, and their duty to protect the Trust's tax-exempt status....
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May 23, 2002
CEO's daughter gets job
at Kamehameha
Hamilton McCubbin played
no role in the hiring, the trust says
By Rick Daysog, Honolulu Star-Bulletin
The Kamehameha Schools has hired the daughter of Chief Executive Officer Hamilton McCubbin to a part-time position in a potential conflict of interest.
In a 38-page report recently sent to the Internal Revenue Service, the estate's internal auditor Arthur Andersen LLP said that the trust hired "an immediate family member of a top (Kamehameha Schools) executive" to a temporary job, starting March 26.
Arthur Andersen's report -- which also was given to the estate's five trustees, the Attorney General's Office and the trust's court-appointed master Ben Matsubara -- did not identify the executive and his relative. But the trust confirmed that McCubbin's daughter, who is a doctoral candidate at a mainland college, was hired at the estate as a research assistant for the summer.
McCubbin did not return calls, but the trust said he was not involved in his daughter's hiring and had no influence in the process.
The estate, in a statement approved by trustees, also said the position was advertised internally and externally. The position ends June 30.
Arthur Andersen said the division that hired McCubbin's daughter reports to the chief executive officer, but the accounting firm described the hiring as an "isolated personnel matter" that was conducted through the normal employment process.
The trust's in-house lawyers concluded that matter did not violate the estate's conflict-of-interest policies, Arthur Andersen said.
The trust said McCubbin's annual conflict-of-interest disclosure form was filed in February and predated his daughter's hiring.
Subsequently, McCubbin has amended his disclosure form to list her employment.
Arthur Andersen indicated that McCubbin filed his amended disclosure form after the issue was first raised in April by the internal auditing team. The executive did not immediately update his disclosure form "due to an oversight," Arthur Andersen said.
Peter Hanashiro, an Arthur Andersen partner, declined comment when asked why the firm did not identify McCubbin in the report. Deputy Attorney General Hugh Jones also declined comment.
Arthur Andersen has served as the estate's internal auditor since February 2000. For the fiscal year ending June 30, 2001, the estate paid the accounting firm $2.1 million.
The report, known as the Closing Agreement Compliance Monitoring Report, was required under the February 2000 closing agreement between the IRS and the Kamehameha Schools.
In the closing agreement, the IRS reaffirmed the estate's tax-exempt status after the $6 billion charitable trust agreed to implement major management reforms and remove former board members Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender.
The IRS and the Attorney General's Office alleged that the former trustees engaged in numerous conflicts of interest and self-dealing.
The reforms included a strict conflict-of-interest policy.
The Star-Bulletin obtained a copy of Arthur Andersen's report from the Attorney General's Office after filing a formal request under the state's open-records law.
The Star-Bulletin initially asked the estate for a copy of the compliance monitoring report, but trust officials denied the request. The estate said such reports typically cover internal and operational matters that are "often of a sensitive nature."
The bulk of Arthur Andersen's report described how trust officials have complied with the terms of the IRS closing agreement.
The report also described a management dispute involving the head of Kukui Inc., a for-profit trust unit which owns McKenzie Methane Corp., a Houston-based natural gas producer.
In a Feb. 27 letter to senior trust executives, Kukui President Dennis Fern alleged that Wendell Brooks, the former head of the estate's nonprofit Bishop Holdings Corp., abused his power and intimidated Kukui's management.
Fern, the estate's former internal auditor, complained that several activities involving Kukui and Bishop Holdings were not conducted at arm's length and were driven by the estate's asset allocation strategies, Arthur Andersen said.
Bishop Holding is the parent of Kukui's sole shareholder.
The estate said it hired an outside law firm to review Fern's allegations.
The law firm found that the trust did not violate any of its internal policies and that there were sufficient checks and balances to avert potential abuses of power.
Fern, the estate's former internal auditor, could not be reached.
Brooks declined comment....
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May 16, 2002
Kamehameha uses Enron
firm in audit
By Jim Dooley, Honolulu Advertiser
The beleaguered accounting firm Arthur Andersen, on trial in Houston for obstructing justice in the federal investigation of Enron Corp.'s collapse, was paid $2.1 million last year to help audit Hawaii's largest nonprofit organization, the $6 billion Kamehameha Schools, according to the organization's tax return, made public yesterday.
Eric Yeaman, chief financial officer of Kamehameha Schools, was an Arthur Andersen employee, working as "internal auditor" of the schools, when the Kamehameha trustees decided to hire him for the CFO post in July 2000.
Arthur Andersen has continued to serve as internal auditor and provides other services to Kamehameha Schools. The company will receive a slightly lower sum this year than the $2.1 million it was paid last year, according to Yeaman and to the tax return.
Yeaman said he has a conflict of interest in dealing with Arthur Andersen and "leaves the room" when there is any discussion at Kamehameha Schools about a business transaction with the accounting firm.
Hamilton McCubbin, chief executive officer of the schools, said the Honolulu office of Arthur Andersen has demonstrated "outstanding integrity" in its dealings with Kamehameha Schools.
The internal auditing contract with Arthur Andersen expires this summer, and the schools plan to hire their own internal auditing staff rather than rely on an outside company for the work, McCubbin said.
But an outside firm will be needed to help in that transition and to provide independent expertise when needed by the internal auditing staff, McCubbin said.
Arthur Andersen will be free to bid for that work, he said....
. . . Continued at Eric Yeaman
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May 16, 2002
Kamehameha top pay went
to lawyer in 2001
Nathan Aipa earned more than the trust's CEO, IRS data show
By Rick Daysog, Honolulu Star-Bulletin
The Kamehameha Schools paid its former top lawyer $413,630 during its last fiscal year, making him the estate's highest-paid employee, according to records filed with the Internal Revenue Service.
Attorney Nathan Aipa's 2001 compensation was nearly $100,000 higher than the $321,026 paid to estate Chief Executive Officer Hamilton McCubbin and was more than double the $170,636 paid to the trust's current chief legal officer, Colleen Wong, for the year ending June 30, 2001.
It is also double the $195,000 that the $6 billion charitable trust paid Aipa during its previous fiscal year.
Aipa, who left the estate last year and is now in private practice, said his compensation included his base salary as well as a severance package. Trust officials declined comment, saying it was a personnel matter.
Aipa, who served as the estate's first chief operating officer before stepping down, has been criticized for his role in the estate's three-year legal battles with the state, the IRS and members of the local Hawaiian community.
Robert Richards, a special master appointed by the probate court, faulted Aipa's handling of the trust's outside law firms, which represented interests of the estate's former trustees at the expense of the estate.
Aipa is just one of several former and current employees who received big payouts in 2001. According to the estate's Form 990 filing with the IRS:
>> Former Chief Investment Officer Wendell Brooks earned $300,000.
>> Ex-Chief Administrator Rodney Park received $260,023.
>> Gilbert Ishikawa, the estate's former tax director, was paid $271,610.
>> Eric Yeaman, the estate's current chief financial officer, earned $224,532.
>> Michael Chun, Kamehameha Schools' president, earned $188,718.
Current estate trustees Doug Ing, Diane Plotts and Nainoa Thompson, who joined the board on Jan. 1, 2001, earned $51,000 each, while trustees Robert Kihune and Constance Lau received $122,000 and $100,500, respectively. Former interim trustees Ronald Libkuman, the Rev. David Coon and Francis Keala each received $49,500.
Lau and Kihune also served as interim trustees.
Prior to their removals in 1999, former trustees Richard "Dickie" Wong, Lokelani Lindsey, Henry Peters, Oswald Stender and Gerard Jervis each earned as much as $1 million a year.
The estate's annual Form 990 filing also provided a broad look of the estate's investment and educational operations.
The nonprofit Kamehameha Schools posted total revenues of about $303.6 million during the 12 months ending June 30, while the Kamehameha Activities Association, a tax-exempt support organization, recorded total revenues of about $1.3 billion thanks to the recent sale of stock in Goldman Sachs Inc.
On a consolidated basis, the two organizations grossed about $1 billion during its 2001 fiscal year, up from $936.3 million in the year-earlier period.
The trust said it spent about $192 million for educational programs and school construction last year and is poised to spend an extra $200 million this year.
The estate said it paid the local architecture firm Group 70 International $2.82 million largely for work related to its Maui and Big Island campuses, which are under construction.
The trust also paid $2.1 million to the accounting firm of Arthur Andersen LLP and $1.85 million to the Washington, D.C., law firm of Miller & Chevalier to resolve various tax issues with the IRS.
The Kamehameha Activities Association also paid Miller & Chevalier $488,091 during the 2001 fiscal year.
See also: Nathan Aipa
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April 5, 2002
Kamehameha Schools agrees to
$72 Million tax settlement
Honolulu Advertiser Staff
Kamehameha Schools and its subsidiaries will pay $72.5 million to resolve tax issues with the IRS dating back to 1998, the schools announced late today.
The settlement brings to a close a series of high-profile tax disputes stemming from the Kamehameha Schools operations and that of is subsidiaries, including discrepancies in reporting.
"These should be the final agreements we will need to make with the IRS to bring closure to all of the tax issues raised regarding the Trust's management in the late 1990s," said Hamilton McCubbin, the schools' chief executive officer.
Under the settlement, the schools' Kamehameha Activities Association will pay about $17 million plus interest to correct tax return information and the schools' for-profit subsidiaries will pay about $55.5 million plus interest to settle "all other tax matters," the schools said in a statement.
The settlement also calls for the Kamehameha Activities Association to merge with the Ke Ali'i Pauahi Foundation. Both nonprofit subsidiaries were established to support the schools' educational mission under the will of Bernice Pauahi Bishop.
The settlement will take effect once the merger is completed....
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February 28, 2002
Catfish project
nets big fine
Kamehameha Schools is cited for neglecting to file water reports
By Rod Thompson, Honolulu Star-Bulletin
HONOKAA, Hawaii – Kamehameha Schools was fined $453,000 yesterday by the state Commission on Water Resource Management for its failure to provide a series of reports on a proposed Big Island catfish aquaculture project.
The fine is the largest ever imposed by the water commission, said commission member Herbert "Monty" Richards.
The project was to be carried out at the Lalakea Ditch irrigation system near Waipio Valley by lessee Lawrence Balberde of Hilo. But landowner Kamehameha Schools was responsible for documenting the project.
Kamehameha gave little heed to the commission, Richards said. "They blew us off for a long time," he said.
The project was opposed by the Earthjustice Legal Defense Fund, which said that Kamehameha was illegally wasting the water by taking it from certain streams, failing to properly document its use in catfish ponds and then "dumping" it in another stream.
In the absence of any documents from Kamehameha, the commission agreed with Earthjustice that Kamehameha was wasting up to 2.5 million gallons per day, Richards said. The fine represents up to $1,000 a day for a series of violations going back to Dec. 1, 2000, he said.
The commission gave Kamehameha 60 days to propose stream and watershed studies it may perform instead of paying the fine, he said.
Kamehameha spokesman Neil Hannahs said the commission really wants the information from those studies, not the fines. Since Kamehameha has planned or is already doing some of the studies, the effect of the fine could be greatly lessened, he said.
Hannahs said Kamehameha made a good-faith effort to get various state agencies to provide documentation that the commission required last year, but the agencies were slow to provide it or did not do it at all.
The Lalakea ditch and reservoir were built in 1900 to irrigate sugar, legally taking water from Lalakea Stream and others. Kamehameha bought the ditch along with thousands of acres from the defunct Hamakua Sugar Co. in 1994.
In 1989, before the purchase, the sugar company illegally diverted Hakalaoa Stream flowing into Waipio Valley to protect a damaged tunnel of the separate Hamakua Ditch.
The tunnel is now being repaired. Once that is done, Lalakea and Hakalaoa waters will be returned to their original streams into Waipio Valley, and the Lalakea ditch and reservoir will be dismantled.
Balberde will lose $200,000 of "sweat and money" invested, he said. "It proves it's hard to do business in Hawaii," he said.
Kamehameha will attempt to find a new location for his catfish project, Hannahs said.
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February 23, 2002
Court vindicates ex-trustees
A ruling admonishes the state in favor of
Henry Peters and Richard Wong
By Rick Daysog, Honolulu Star-Bulletin
Saying the state's prosecution represented a "serious threat to the integrity of the judicial process," the Hawaii Supreme Court upheld the dismissal of theft charges against former Kamehameha Schools trustees Henry Peters and Richard "Dickie" Wong.
In a strongly worded 39-page ruling yesterday, the high court said the Attorney General's Office denied Peters' and Wong's rights to due process by introducing tainted grand jury testimony.
The state also acted improperly by halting testimony from a local developer that would have exonerated Peters and Wong's former brother-in-law, local developer Jeffrey Stone, according to the ruling.
"The state's actions cannot but have improperly influenced the grand jury and prevented it from operating with fairness and impartiality," the court said. "The state's interest in prosecuting these cases is, at this point, clearly outweighed by the lack of fundamental fairness that would ensue were we to allow these prosecutions to continue."
Eric Seitz, Wong's attorney, called the ruling a "ringing denunciation" of the Attorney General's Office.
"I've won a number of prosecutorial misconduct cases in my day, but I haven't seen one as strong as this," Seitz said.
Senior Deputy Attorney General Lawrence Goya said he was disappointed by the ruling and did not agree with the court's reasoning. He declined to discuss specifics.
Both Peters and Wong were indicted in 1998 by Oahu grand juries over their alleged roles in the Kamehameha Schools' sale of its fee interest in the Kalele Kai condominium complex in Hawaii Kai to a Stone-led company.
The indictments alleged that Peters and Wong received kickbacks in exchange for favorable treatment on Kalele Kai. Stone was indicted by the same grand juries on commercial bribery charges.
All three have denied wrongdoing, saying the Kamehameha Schools, then known as Bishop Estate, earned millions when it sold the fee interest to Kalele Kai.
Yesterday's ruling upholds Circuit Judge Michael Town's dismissals of indictments against Peters, Wong and Stone.
Town found that the state violated Stone's right to attorney-client privilege when it allowed Stone's former attorney, Richard Frunzi, to speak to the grand jury about matters involving his former client.
At the time, Frunzi was serving time in a federal jail after pleading guilty to money laundering.
Town also dismissed the theft charges against Peters after the state introduced improper testimony from the estate's former general counsel, Nathan Aipa.
In 1999, Peters, Wong, Gerard Jervis, Oswald Stender and Lokelani Lindsey resigned from their $1 million-a-year jobs as Kamehameha Schools trustees after the Internal Revenue Service threatened to revoke the $6 billion charitable trust's tax-exempt status.
Yesterday's ruling was made by Circuit Judges George Masuoka, Ronald Ibarra, Dan Kochi, Shackley Raffetto and Gary Chang.
The judges were serving as substitutes for the five Supreme Court justices, who recused themselves from all cases involving the Kamehameha Schools. Until recently, the high court selected the trustees of the Kamehameha Schools.
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January 18, 2002
Kamehameha to drop Junior ROTC
By Walter Wright, Advertiser Staff Writer
Kamehameha Schools will close its Army Junior ROTC program June 30 to protect the schools' Hawaiian-preference admissions policy from legal challenge.
It is the latest federally supported program the schools' trustees have relinquished to avoid challenges to their requirement that school applicants have Hawaiian blood.
Schools spokesman Kekoa Paulsen said the decision was "made after extensive deliberation, in alignment with the trustees' policy to uphold and protect...the trustees' admission policy."
Kamehameha alumni contacted yesterday said they were saddened by the JROTC decision, but resigned to it.
"A lot of people in Kalihi kept time by those ROTC bugles," alumnus Roy Benham lamented.
The decision comes at a time when programs limited to persons of Hawaiian ancestry have drawn increased interest from the courts, especially after the U. S. Supreme Court agreed in 2000 with Big Island rancher Harold "Freddy" Rice's complaint that elections for the Office of Hawaiian Affairs should be open to all Hawai'i voters, not just Hawaiians.
Schools chief Hamilton McCubbin announced the JROTC decision at a campus meeting last week after trustees explored a last-ditch effort to save the program by paying for it entirely with the schools' own money.
ROTC stands for Reserve Officer Training Corps at the college level. The junior program operates at the high school level.
Paulsen said the schools "had explored other options," including a federal National Defense Cadet Corps, but found it would have "the same exposure to potential liability."
"It's not clear right now what will happen in this area of our curriculum," he said.
He said the closing of the JROTC program is a continuation of the trustees' decision "to move away from federally subsidized programs at Kamehameha Schools. ROTC was one of the last to be addressed."
Trustees have already given up federal money for lunch programs, scholarships, college counseling sessions and a drug awareness and education program. The schools had been receiving between $2.2 million and $2.5 million a year from federal sources, Paulsen said. Many of the programs will continue without the federal dollars, he said.
U.S. Sen. Daniel Inouye in September asked Army chief of staff Gen. Eric Shintaki to consider allowing Kamehameha to continue in the JROTC program but assume all costs. "The United States Army has been an integral part of the (Kamehameha Schools) campus since 1888," he said.
JROTC graduates from Kamehameha "have distinguished themselves through the military, sacrificed their lives in every war, and risen to key leadership positions in every branch of service," Inouye noted.
But the office of the JROTC directorate in Fort Monroe, Va., said yesterday that military lawyers believe that the law does not allow the Army to enter into any contract with an organization that discriminates on the basis of race, whether money is involved or not.
The program started at Kamehameha Schools in 1916. Today, it has 450 cadets and six instructors and is mandatory for boys in the 9th and 10th grades.
The end of JROTC was a shock to many.
"It's totally surprising," said Pohai Ryan, an O'ahu alumni chapter board member. "It would be sad to dismantle a program which has a long history at Kamehameha and has produced a lot of generals, including trustees chairman Adm. (Robert) Kihune, and retired National Guard Gen. Ed Richardson.
"But if it means preserving the institution that is founded and built for the benefit of Hawaiian children, then so be it."
Benham, past president of the schools' Oahu regional alumni association chapter, said the program still has great value for building character and leadership skills, "but there isn't much we can do."
Critics of the school "are going to go after the schools' preference for Native Hawaiians," he said.
One such critic, Kane'ohe resident Kenneth Conklin, said yesterday he was "pleased that the federal government is finally coming to its senses and is no longer going to tolerate racial segregation in the armed forces, even to the extent of Junior ROTC."
Conklin was a non-Hawaiian candidate for the OHA board after the Rice decision, but was not elected.
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February 10, 2002
Letters to the Editor, Honolulu Advertiser:
No exceptions from discrimination laws
The Office of Hawaiian Affairs used to deny that it discriminates. Now it demands a special exemption from the procurement code so it can continue to discriminate.
Procurement regulations forbid discriminating based on race or ancestry or family relationships. If OHA has to play by the rules, it refuses to issue any grants.
Kamehameha Schools used to deny that they discriminate. Now they say that because the federal government insists on a nondiscriminatory J-ROTC program in a nondiscriminatory school, they will shut down their J-ROTC program. If they have to play fair, they won't play at all.
Sen. Dan Akaka used to deny that his famous bill would discriminate by creating a racially exclusive government for Native Hawaiians. Now his latest version would create a special exemption from federal ethics laws to authorize Hawaiian employees of his new federal office to discriminate in favor of themselves and their relatives. If they had to act ethically, they couldn't do their jobs.
These programs cannot advance their discriminatory purposes if they cannot discriminate. But they should not be granted exceptions to the laws forbidding discrimination based on race and ancestry.
Discrimination is illegal because it is immoral ---- without exceptions.
- Patrick W. Hanifin
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April 3, 2001
School was told to take students
Requests from special people got some children admitted
over others, the admissions chief says
By Rick Daysog, Star-Bulletin
The child scored well on parts of his entrance exams but bombed on others. Teachers who evaluated his application for Kamehameha Schools' kindergarten program recommended against admitting the child and were angered when he was accepted ahead of six students who scored higher.
In sworn testimony, the estate's admissions director, Wayne Chang, said that former trustee Lokelani Lindsey ordered him to admit the child only after she received a request from then-state Supreme Court Associate Justice Robert Klein.
"The person who asked is a very important person for this child, and it's something that we as an institution like to do," Chang recalled Lindsey as saying.
The Klein incident was hardly the exception. In a 314-page, sealed deposition recently obtained by the Star-Bulletin, Chang provided an extraordinary look at how the former trustees and top executives at the $6 billion charity played politics with school admissions.
Chang -- in a Aug. 11, 1998, deposition taken in preparation for the trial to oust Lindsey -- said ex-board members Lindsey, Gerard Jervis and Henry Peters and senior school officials pulled strings for friends and relatives of several politically connected isle families, including:
>> A distant relative of ex-Gov. John Waihee.
>> A relative of Big Island rancher Larry Mehau.
>> Former state Sen. Milton Holt's sons.
The former trustees denied that they influenced the admission process.
However, investigations by the Internal Revenue Service, the Attorney General's Office and the estate's internal auditors concluded that trust officials improperly influenced the Kamehameha Schools' admissions and financial aid awards.
The Kamehameha Schools admissions department regularly monitored the select students that applied for admission upon request from the former trustees. Here, admissions director Wayne Chang left this message with ex-trustee Richard "Dickie" Wong, notifying him that the student scored well on her entrance tests but did not fare well on other aspects of the application process. She was placed on the waiting list.
But the details of the state, federal and trust investigations remain hidden behind protective orders issued by state judges.
Trustee Robert Kihune and the estate's chief executive officer, Hamilton McCubbin, have confirmed that problems existed in the admissions department in an interview with the Star-Bulletin last year, but they declined to discuss specifics.
According to Kihune, the instances were not widespread, and the trust's current management has implemented several reforms, including a new anti-tampering policy, to address the problem.
Few incidents raise more questions than the Klein case.
According to the testimony of Chang, who declined comment for this article, he told Lindsey several times that the child should not be admitted. The student, he said, had done well on his written exam but was "belligerent" in the classroom. But Lindsey overruled him, saying it was "requested by Justice Klein," Chang said.
Klein -- who is not related to the boy -- was one of the five Supreme Court justices who selected Lindsey, Wong and Jervis to the Kamehameha Schools board.
While the high court no longer picks Kamehameha Schools trustees and has recused itself from hearing cases involving the trust, the Klein incident posed a serious ethical question for both organizations.
Lindsey declined comment, but Klein confirmed that he spoke with the former trustee after the child's mother, a longtime friend, asked him to put in a good word. Klein said he saw no conflict in the request and added that school administrators were welcome to ignore his recommendation.
"The fact of the matter is, judges recommend children and people for jobs (and schools) all the time, whether it's Punahou Schools or Kamehameha Schools," said Klein, who is now in private practice. "That's what judges do. That's what people do in this community. If you know somebody, you give them a recommendation."
Trustees often received requests for favorable treatment. In this telephone message, Gary Rodrigues, state director of the United Public Workers Union, asked trustee Wong, an ex-UPW official, to pull strings for his secretary's son. The student had made the waiting list but eventually chose to attend another school.
According to Chang, Lindsey was not the only former board member who pressured him to accept students from politically connected isle families.
Former trustee Henry Peters, for instance, directed him to admit Holt's sons, while Jervis interceded on behalf of a fourth-grade student who was distantly related to Waihee, Chang said.
Chang said the Holt boys had good test scores and were on the waiting list but were admitted ahead of students who had higher scores.
The boys have since done well at Kamehameha Schools, Chang said.
Holt did not return calls, but Peters said he never interfered with school admissions.
In Jervis' case, Chang said he spoke with Jervis about Waihee's relative several times between 1995 and 1996.
Waihee and Jervis are longtime friends and associates.
Chang said that Jervis initially asked him to monitor the boy's progress through the admission process and later requested an update on the student's status.
But sometime after March 1996, Jervis called him again to ask whether the child would get in. Chang then told Jervis that the student did well on his entrance exams but did not make the list of top students in his district.
At that point Jervis ordered him to admit the student, telling him that "we need to have this boy in Kamehameha," Chang said.
Chang said he later told Jervis that he would "do what is needed for the child to get in," and later told the school's admission committee that they would have to admit another student who "was not in direct line with one they might have chosen."
Jervis declined comment, and Waihee said he never asked Jervis to intercede on behalf of a relative.
Within the Hawaiian community, admission to Kamehameha Schools carries special meaning: Students not only receive a top-notch education at little cost, but they are exposed to the cultural values and the historical legacy of the school's founder, Princess Bernice Pauahi Bishop.
Until recently, the school accepted about 450 students a year from between kindergarten and the 12th grade.
About 4,500 students applied, which means the school accepts only one out of every 10 prospects.
According to Chang, problems began to surface after 1991 when school administrators implemented a policy that allowed the favoritism to exist. Under a directive from Chang's then-immediate supervisor, Rowena Blaisdell, evaluations by the admissions committee became recommendations, or guidelines for entry, Chang said.
Previously, the committee, which is made up of Kamehameha Schools teachers and counselors, had the final say, he said.
The move effectively took the admission decisions from career educators and placed it in the hands of the estate's politically connected trustees and top administrators.
Rockne Freitas, who later replaced Blaisdell as Chang's immediate supervisor, interceded on behalf of a relative of Big Island businessman Larry Mehau, Chang said.
The student had high entrance scores; however, there were several students who had scored above her, Chang said.
Freitas, who is now the acting director of the trust's Ke Alii Pauahi Scholarship Fund, denied ordering Chang to admit a student.
Freitas did recall inquiring about the status of a student's admission but said he could not remember the student's name or family connections. He said he asked Chang whether it was proper to inquire about the student's status and was told it was not.
"When he said no, I backed off," Freitas said.
Mehau, a backer of former Govs. John Burns and George Ariyoshi, is a friend of Freitas and former trustee Wong. According to a series of telephone messages in early 1999, Mehau and Wong met with several state senators, who voted against Margery Bronster's reconfirmation as attorney general.
The much-criticized vote came as Bronster was conducting civil and criminal investigations of the former trustees. Mehau could not be reached for comment.
Chang also testified that school President Michael Chun directed him to accept students on three or four occasions.
While Chang said he could not remember whether the students were connected to prominent local families or to trust staffers, he recalled that he did not object because the students were academically qualified to attend Kamehameha Schools.
Still, they were moved ahead of applicants who had higher scores....
* * *
May 17, 2001
Estate's revenues hit record
$996 million in 2000
The sale of Goldman Sachs stock figures largely in the
18.7 percent rise for Kamehameha Schools
By Rick Daysog, Star-Bulletin
The Kamehameha Schools posted record revenues last year due in large part to the sale of its stock in Goldman Sachs Group Inc.
The charitable trust said its total revenue for the year ended June 30, 2000, was $995.9 million, an 18.7 percent rise from the year-earlier's $839 million.
The $5.7 billion estate - founded in 1884 to educate children of Hawaiian ancestry - said that its subsidiaries and outside investments netted $567.9 million last year, including the Goldman Sachs sales. Last year, the trust sold 11 million shares, worth about $1 billion.
Its real estate arm, Bishop Holdings Corp., produced $38.7 million, while its Southern Nevada Income Properties subsidiary netted $24.3 million.
In a tax filing with the Internal Revenue Service, the trust reported that it spent $132.7 million on its educational program and construction, down 7.2 percent from 1999's $143 million.
The difference in educational spending was largely due to more construction and land purchases made during the estate's 1999 fiscal year....
The tax filing also provided a detailed description of the salaries paid to trustees, staffers and expenditures made to its outside contractors.
Former interim trustees David Coon, Francis Keala, Ronald Libkuman and Constance Lau each earned $192,500 during the 2000 fiscal year while retired Admiral Robert Kihune, the board's chairman, was paid $203,500.
In January, the interim board was replaced by a permanent board, which included Lau, Kihune, attorney Douglas Ing, local business executive Diane Plotts and Hawaiian navigator Nainoa Thompson.
Hamilton McCubbin, who became the trust's first chief executive officer in February 2000, was paid $122,031 for the February 2000 to June 2000 period. McCubbin's contract called for a salary of about $300,000 for the 2000 calendar year.
School President Michael Chun earned $213,578 during the 2000 fiscal year while Nathan Aipa, the estate's former acting chief operating officer, earned $195,451. Aipa currently serves as special projects officer.
As for the trust's outside contractors, the Washington D.C. law firm of Miller & Chevalier was paid $3.4 million for work relating an IRS audit and the removal of the former trustee last year while the accounting firm of KPMG Consulting LLC billed the trust $1.3 million.
Cades Schutte Fleming & Wright billed the trust $1.3 million while Watanabe Ing & Kawashima was paid $1.2 million....
* * *
March 28, 2001
Kamehameha Schools May Force Out
Longtime Tenants
Residents on fixed incomes are unable to pay rents
jumping almost 750 percent.
Honolulu Star-Bulletin
Honolulu resident Robert Akutagawa hoped his one-bedroom unit in Coolidge Apartments would be a financial cushion in his retirement.
But Akutagawa said he and many other residents of the 20-unit Moiliili complex recently signed away ownership in the cooperative apartments after landowner Kamehameha Schools threatened to seek back rent on land leases plus interest totaling $85,000 each.
"We don't own the units anymore. They say you guys are just tenants now," said Akutagawa, 85, a retired school maintenance supervisor.
"These guys are mean. They don't have no mercy for guys like us." . . .
The two-story apartment at Moiliili was built in 1957 on land leased from Bishop Estate, now known as Kamehameha Schools.
While the actual land lease continues through 2011, renegotiations for lease rent were to have taken place in 1991.
Residents say the estate asked them to pay $522 a month per unit compared to the $73 a month each owner was paying. They told Bishop Estate they couldn't afford the amount, and renegotiations never went further.
Owners say the asking price for the lease rent on the 17,693 square-foot parcel in 1991, at the peak of Japanese speculation in Hawaii, was extraordinarily high and unreasonable.
They said Bishop Estate was unwilling to negotiate lower lease rents, and owners continued to pay under the old lease rent formula of about $73 a month.
The situation changed last December, when Bishop Estate threatened to take each owner to court to pay back lease rent plus interest totaling $1.7 million - based on the difference between the old lease rent and the estate's asking price.
The trust says it's willing to forgive the $85,000 if the owners turn over the apartments by April 1.
Bishop Estate officials are asking each apartment owner to also pay $1,200 in legal fees to process the transaction and put up the first and last month's rent if they intend to remain in the unit. . . .
Eight of the 20 units are owner-occupied, most residents older than 60 years of age and many living on fixed incomes. . . .
"It's really sad," said Katie Thompson, a registered nurse and a tenant.
"Basically, they're confiscating the houses and they're making like they're nice guys by letting them off the debt."
"I don't know where to go. Most of the people here are old. Everybody's scared," said Samantha Truong, 57, who lives with her 63-year-old husband, Kong, a taxicab driver.
"We feel this is very unfair to put the one million on top of our heads."
Akutagawa said he bought the apartment for $25,000 after his retirement in 1968.
He said he and his wife live modestly and couldn't afford to pay the back lease rent of $85,000.
* * *
May 16, 2001
Kamehameha Schools Holds
$3 Billion In Assets
Goldman Sachs Investment Under Scrutiny
HONOLULU - The Kamehameha Schools has more than $3 billion in assets, according the estate's tax returns released on Wednesday.
The return covered the fiscal year from July 1999 to June 2000.
Kamehameha Schools had revenues of $936 million during that time period. A big portion of that, $162 million, came from the sale of stock in the investment firm Goldman Sachs. The stock was purchased by the former trustees who were ousted by a judge.
The stock purchase is under investigation by the IRS and could cost the schools money. The estate's annual report states that "an adverse (IRS) outcome could materially impact ... the schools."
Kamehameha Schools noted $158 million in expenses for the fiscal year. The return shows that $7 million went to legal expenses. The school had to pay for lawyers during probes by the IRS and the state attorney general.
Notable Numbers:
Michael Chun, Oahu campus president: $213,578
Robert Kihune, Board chairman: $203,500
Nathan Aipa, former Chief Administrative Officer: $195,451.
Other board members: $192,500
Rodney Park, principal administrative officer: $175,374
Yukio Takemoto, principal budgetary officer: $167,506
Rockne Freitas, V.P./Director of Operations: $156,753
Dwight Kealoha, Chief Administrative Officer: $152,649
Hamilton McCubbin, CEO: $122,031
Wendell Brooks, Chief Investment Officer: $121,021
Colleen Wong, Chief Legal Officer: $108,189
Under the current arrangement, the board members receive about $100,000 per year.
Copyright 2001 by TheHawaiiChannel.com
* * *
US DOE Office of Civil Rights Receives
Discrimination Complaint
Against Kamehameha Schools
On Monday, May 21, 2001, Kamehameha Schools received notification of a complaint of discrimination that has been filed with the U.S. Department of Education's Office of Civil Rights (OCR), Western Region.
The complaint alleges that KS discriminates against non-Hawaiians on the basis of race in our admissions policy, specifically under Title VI, which prohibits discrimination on the basis of race, color and national origin in programs and activities receiving Federal financial assistance from the U.S. DOE. KS legal counsel, in consultation with external legal counsel, is addressing this issue. We will keep you informed as this matter progresses.
Kamehameha Schools
On September 8, 2001 the Honolulu Star-Bulletin reported that Kamehameha School has decided to give up $3 Million in current funding, and all future funding, from the U.S. Department of Education.
Although it is withdrawing itself from such grant programs, the school will nevertheless work with other racially-restricted local institutions to steer federal grants to them, and to provide them with expertise in seeking and utilizing such grants.
Clearly, Kamehameha School decided it does not want to subject itself to scrutiny regarding its racially discriminatory admissions policy. It probably fears that such scrutiny by the Department of Education Office of Civil Rights might cause the IRS to re-evaluate the school's tax-exempt policy; or might even result in the admissions policy being declared illegal.
The school will now work behind the scenes, while hiding from direct scrutiny....
* * *
AND THE CHEAT GOES ON...
October 5, 2001
State Hires Managers for
Venture Financing
The Honolulu Advertiser
Two former Kamehameha Schools Bishop Estate portfolio managers are now in charge of millions of dollars in state investments in local venture-capital funds.
Bruce Nakaoka and Eric Martinson have signed a contract to manage venture financing for the Hawaii Strategic Development Corp., which has committed $13.5 million to venture firms investing in Hawaii start-up companies.
Nakaoka, 44, and Martinson, 38, managed Kamehameha Schools' real estate and financial portfolios in the mid-1990s. They hope to use their professional contacts to raise tens of millions in additional venture financing for Hawaii companies in need of capital.
Their firm, MN Capital, will manage a "fund of funds," which would place investors' money in about a half-dozen Hawaii-focused venture funds. This would give venture investors a more diverse portfolio - and hopefully attract larger-scale investors than the individual funds could handle on their own, Martinson said. . . .
Several observers said Martinson and Nakaoka add another piece to the professional infrastructure that is slowly building around Hawaii's small high-tech scene. In recent years, increasing numbers of lawyers, accountants, investors and professional groups have attempted to support entrepreneurial start-up companies.
Start-ups and supporters alike have been deterred, however, not only by a shortage of good deal prospects, but by a lack of venture capital - speculative money that finances promising companies in expectation of high returns. . . .
The state has financed companies in Hawaii for years, but Martinson and Nakaoka bring a new level of sophistication, said John Chock, who runs the Hawaii Strategic Development Corp for the state.
Martinson, a Kamehameha Schools employee from 1984 to 1996, at one point managed the nonprofit estate's substantial financial holdings, with included a multibillion-dollar interest in Goldman Sachs. . . .
Nakaoka worked for Kamehameha Schools from 1987 to 1996, and in 1990 became manager of the estate's domestic and international real estate portfolio, which included the largest private land holdings in Hawaii. . . .
The pair started MN Capital in 1997 as an investment and real estate consulting firm.
State venture financing dates back to the mid-1980s, when the Department of Business, Economic Development and Tourism formed the Hawaii Strategic Development Corp. The corporation has tried to increase the amount of venture capital available to Hawaii technology companies.
HSDC did so by funneling money to local venture capitalists, who invested the money in start-up firms.
Among those financed by state money was Digital Island, a company that went public in 1999 and soared on the stock market. The state's return on its Digital Island investment exceeded $50 million at one point, though by the time it "cashed out" that return had dropped to several million dollars.
Meanwhile, private venture capital financing has jumped from virtually zero to tens of millions of dollars for small local tech firms - plus the occasional big deal.
Pihana Pacific, a Honolulu-headquartered data center company, raised more than $230 million in venture funds last fall.
* * *
The Catbird Chronicles:
THE ‘NEW’ KAMEHAMEHA SCHOOLS
1997 - 2003
1997 - On Jun 27, State Probate Court Judge Colleen Hirai opens a fact-finding investigation to gather details of alleged mismanagement of the schools. Retired Circuit Court Judge Patrick Yim is appointed sole fact finder.
1997 - On Aug 9, the Honolulu Star-Bulletin publishes a highly-critical essay by five prominent community leaders entitled Broken Trust.
1997 - On Aug 12, spurred by a growing whirlwind of criticism of the estate's trustees, Gov. Ben Cayatano gives Atty Gen Margery Bronster the go-ahead for an investigation of the estate.
1997 - On Aug 13, the new chief executive and six other officials of Columbia/HCA are accused of illegal insider trading in a lawsuit filed by N.Y. State Comptroller Carl McCall, which accuses newly named chairman Thomas Frist of selling 3.7 million shares of Columbia stock in 1996 and 1997 for $138 million. McCall filed the suit on behalf of the New York State Retirement Fund, which owns 2.4 million shares of Columbia stock.
1997 - On Nov 17, Columbia/HCA's board approves an internal operating reorganization plan with Goldman Sachs' guidance. Bishop Estate becomes a major investor in Columbia/HCA.
1997 - On Dec 12, Judge Patrick Yim releases a report which singles out Trustee Lokelani Lindsey for the major damages inflicted on the schools.
1997 - On Dec 20, four out of five Hawaii Supreme Court justices remove themselves from the century-old process of appointing trustees to the Bishop Estate.
1998 - On Jan 29, it was made public that former State Sen. Milton Holt ran up $21,000 on Bishop Estate credit cards at local strip clubs, restaurants and Las Vegas casinos between 1993 and 1997, according to documents subpoenaed by the state attorney general. Many of Holt's "guests" at the clubs turn out to be state politicians. The state files a motion seeking sanctions against Bishop Estate, saying it withheld subpoenaed information such as Holt's credit card records.
1998 - In Sept, Atty Gen Bronster says, "I believe certain trustees received kickbacks worth hundreds of thousands of dollars," and files a petition in probate court targeting the removal of three of the estate's five trustees, saying they enriched themselves at the expense of the trust's beneficiaries. Among other things, Bronster alleged: Trustees Peters and Wong received kickbacks from a Hawaii Kai land deal involving Wong's brother-in-law, Jeff Stone; Lindsey mismanaged Kamehameha Schools and used trust employees to run personal errands and help renovate her home; local attorney Al Jeremiah Jr., was paid $35,000 to conduct menial and clerical labor in helping to inventory a collection of Hawaiiana purchased by the estate; Office of Hawaiian Affairs trustee and Peters' associate, Clayton Hee, was hired by the estate's subsidiary as a cultural affairs researcher; State Rep. Terrance Tom, a former colleague of Peters' in the Legislature, has been paid a monthly retainer of $4,000 for negligible legal services; a company headed by Larry Mehau, a friend of Wong and Lindsey, is being paid $40,000 a month under a non-bid "contract" to provide security services at the school's main gate; Peter's former employer, Dura Constructors, received more than $2.7 million in nonbid contracts from 1995. Bronster's petition also alleges illegal campaign contributions and political payoffs to State Sen. Marshall Ige and to former Senate Vice President, Milton Holt.
1998 - On Oct 1, federal prosecutors indict former state Sen. Milton Holt over campaign spending abuses.
1998 - On Oct 20, Bishop Estate transferred its $500 million investment in Goldman Sachs to a separate nonprofit corporation. In a court filing, the estate said it moved its investments in Goldman Sachs, Columbia/HCA, and WCI Limited Partnership to an entity called Kamehameha Activities Association. Previously, the investments were held by the estate's for-profit subsidiary, Pauahi Holdings Corp, and income from the investments was subject to federal, state and county taxes.
1998 - Nov 25, Trustee Peters and Trustee Wong's brother-in-law, Jeff Stone, are indicted for alleged kick-backs in real estate deals. In Jan, 1996, developer Jeff Stone paid $192,000 to Peters for a condominium, and the indictment charges that Peters "violated his fiduciary to the Bishop Estate by accepting a bonus or commission for himself from Stone for acts he had done as a trustee. Attorney Gen Margery Bronster alleges that in return, Stone and partner National Housing Corp. received a "sweetheart deal" in 1995 when they acquired the fee interest to the 229-unit Hawaii condo project known as Kalele Kai.
1999 - Jan 25, Peters temporarily steps down as chairman of PBOC Holdings, Inc. (formerly SoCal holdings, Inc.), parent of the People's Bank of California. Under federal banking laws, Peters must relinquish his duties if charged with a crime.
1999 - Feb 4, Judge temporarily removes all five trustees from IRS audit. Feb 17, a panel of five is selected to replace the trustees on an interim basis.
1999 - Mar 2, Trustee Gerard Jervis, 50, and a 39-year old attorney employed by a Bishop Estate subsidiary, were kicked out of the Hawaii Prince Hotel by a security guard who caught them in a compromising position in a men's restroom. The next day, the female attorney was found dead, an apparent suicide. The next week, Trustee Jervis is rushed to the hospital after a drug overdose suicide attempt.
1999 - Apr 14, Trustee Richard Wong and his wife indicted in kick-back scheme with Wong's brother-in-law Jeff Stone.
1999 - Apr 29, Senate votes to oust Atty Gen Margery Bronster, and Budget Dir Earl Anzai. Governor Ben Cayatano then appoints Earl Anzai as Attorney General. Earl Anzai is the husband of Lyn Anzai, a former attorney with Bishop Estate.
1999 - May 6, Trustee Lokelani Lindsey removed.
1999 - May 7, Trustee Stender voluntarily steps down; the court temporarily removes remaining trustees.
1999 - Jul 24, Milton Holt, former state senator and Bishop Estate employee, goes to jail for violating his bail agreement after admitting he used crystal meth.
1999 - Aug 24, Holt plea bargains: guilty to one count of mail fraud.
1999 - Aug 20, Trustee Gerard Jervis resigns.
2000 - Jan 4, former Trustee Oswald Stender files a lawsuit against the Attorney General's Office, saying it breached its duty to protect the interests of the charitable trust by not investigating "financial and education affairs" he warned them about between 1992 and 1997.
2000 - Jan 7, a state judge appoints a blue-ribbon committee to nominate future trustees.
2000 - Feb 18, Sally Apgar reports in the Honolulu Advertiser that confidential memos disclosed the ousted trustees enlisted the aid of Sens. Dan Inouye and Daniel Akaka in 1995 to influence fellow members of Congress to vote against the "interim sanctions" bill that threatened the trustees' $1 million-a-year paychecks.
2000 - Apr 17, the Attorney General's Office subpoena's the records of PricewaterhouseCoopers, specifying the written policies of the firm concerning co-investing with or entering business transactions with clients; and co-investments and other business transactions of Mark McConaghy or other firm members with Kamehameha Schools Bishop Estate.
2000 - April 22, newspapers report that former employee Randall Chang has filed a wrongful termination lawsuit against KSBE alleging race discrimination.
2000 - May 6, Randall Roth, a University of Hawaii Law School professor and co-author of Broken Trust, sends a letter to the editors in which he states: "When the former Bishop Estate trustees were removed, their replacements were expected to clean house. But one year later, individuals who for years were at the epicenter of abuse are still on the payroll, well placed, some even promoted. ... And the trustees have a legal duty to hold accountable any and all who have harmed the trust. If the interim trustees fail to do so, they themselves will be in serious breach of trust under the law."
2000 - May 19. The interim trustees state they are releasing several of their independent attorneys, based on a special master's scathing report that criticized more than $5.2 million worth of legal billings to outside attorney and accountants between Aug 1998 and May 1999.
2000 - May 23. Chief Operating Officer, Nathan Aipa, who served as general counsel under the ousted trustees, began an administrative leave with pay ($196,000 a year) pending a review of work he performed as chief legal adviser to the charitable educational trust.
2000 - May 31. Hawaii's attorney general files court papers asking Probate Judge Kevin Chang for a one-year postponement for the trial on the state's surcharge suit against former trustees Henry Peters, Richard Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey. The trial had been scheduled to begin Sept 18, but Jones said the interim trustees have "refused to cooperate" with the state's numerous discovery requests, delaying the production of some documents by a much as a year. The state has sued the ex-board members for investment losses (potentially exceeding $200 million) that the trust incurred during their tenures. The Court denies the request for extension, and the case goes to mediation.
2000 - Nov 3. Probate Judge Kevin Chang appoints five permanent trustees of the Kamehameha Schools: J. Douglas Ing, Nainoa Thompson, Diane Plotts, Constance Lau and Robert Kihune.
2000 - Nov 20. 2000 - December. Circuit Judge Michael Town dismisses perjury charges ‘without prejudice’ against Richard ‘Dickie’ Wong on legal technicalities. The charges stemmed from testimony Wong gave to a grand jury about a 1995 Hawaii Kai land deal between Bishop Estate and National Housing Corp, a partnership that involved Wong’s former brother-in-law, local developer Jeffrey Stone.
2000 - Nov 21. Lawrence Landry, the former CFO of MacArthur Foundation, and partner with Bishop Estate in Crossroads Group, revealed to investigators in the Paul Silvester scandals that Bishop Estate was the biggest backer of Westport Advisors, Ltd, now a focus of the investigation because of questionable "finder's fees" and illegal kick-backs.
2001 - Jan 3. Atty Gen Earl Anzai (who replaced previous Atty Gen Margery Bronster when the senate refused to renew her appointment, and the husband of ex-Bishop Estate attorney, Lyn Anzai, who handled mergers and acquisitions for the estate during the period when they acquired McKenzie Methane, Robert Trent Jones Golf Club, and other questionable investments) presents enlarged replica of a check for $14.1 million to Hamilton McCubbin, Kamehameha Schools’ CEO. The check is part of a $20.1 million payment from the estate’s insurer, Federal Insurance Co, to settle the state’s suit against the estate’s former trustees: Henry Peters, Richard “Dickie” Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey. The ex-trustees’ legal fees will eat up about $5 million of the settlement, and the rest will go to the state.
2001 - Jan 3. President Bill Clinton renominates Honolulu attorney James Duffy for a seat on the 9th U.S. Circuit Court of Appeals. Sen. Dan Inouye, D-HI, submitted Duffy’s name to Clinton for consideration. Duffy was first nominated in June, 2000. Duffy was a past Master for Kamehameha Schools (for one of the periods during which many of the alleged improper activities of the former trustees took place) and was appointed by Judge Kevin Chang as an arbitrator in the insurance settlement between the state and the former trustees.
2001 - Jan 3. The Honolulu Star-Bulletin reports that the five former trustees of the Kamehameha Schools have each paid the IRS “several thousand” dollars to settle the federal agency’s claims that the former board members received excessive compensation. The former trustees did not disclose the amount that they had paid, but sources familiar with the IRS investigation said that the agency had recently assessed each trustee with an excise tax of about $40,000. The deal with the IRS is part of the recently concluded $20.1 million settlement between the attorney general’s office and the former board. The salaries of the former trustees ran around $1,000,000 (each) in recent years. The IRS’ 3-year audit found that the former trustees, who resigned last year, should have been paid no more than $160,000 a year from 1990 to 1996.
(Let’s see...fuzzy math...$1,000,000 minus $160,000 equals about $840,000 overpayment a year times 6 years equals about $5,040,000 in excess payments for each trustee...and divide $40,000 by $5,040,000 and that comes to about 3/4ths of 1%, give or take a dollar or two...yeah, that seems fair.)
2001 - Jan 18. State investigators arrest former state Sen. Marshall Ige after the atty general’s office filed new criminal charges against the former Windward Oahu legislator for theft, tax evasion, extortion and money laundering. If convicted, Ige could face up to 10 years in prison for the first-degree theft charge and up to five years for the money laundering, tax evasion and extortion charges. Ige also was charged with a second-degree theft charge, which is punishable by a five-year sentence. The new complaint is in addition to campaign finance-related charges faced by Ige. Ige has completed not guilty to the campaign finance charges and his case is scheduled to go to trial next month.
2001 - Jan 24. Kamehameha Schools says its senior management has undergone major changes. Rodney Park, former head of the Administration Group, left Dec. 31 after his $160,000-a-year position was eliminated. Nathan Aipa recently lost his title as the acting chief operating officer but remains at the estate in a lesser capacity. Aipa, the trust’s highest paid employee at $190,000 a year had been on paid leave since last May but returned to work earlier this month. Yukio Takemoto, former state budget director who previously headed the trust’s Office of Budget and Review, was reassigned several months ago to a new position as Director of the Facilities Development and Support Division.
2001 - April 19. Richard “Dickie” Wong is re-indicted by a grand jury on perjury charges arising out of Wong’s testimony regarding a Hawaii Kai land deal between Bishop Estate and National Housing Corp, a partnership that involved Wong’s former brother-in-law, local developer Jeffrey Stone.
2001 - Sept 8. Kamehameha Schools announces that they will “voluntarily” give up almost $3 million in federal funding used to provide scholarships and other programs to its native Hawaiian beneficiaries. The estate says it plans to help community organizations that serve Hawaiians “compete to take over the federally funded programs.” While estate officials say that supporting these agencies is the primary motivation for giving up the federal grants, possible challenges to the school’s Hawaiians-only admission policy also factored into the decision. Spokesman Kekoa Paulsen said one of the U.S. Dept of Education programs has complained about the race-based admissions policy, but Kamehameha was not given details of the complaint. Paulsen said that while Kamehameha cannot designate which agencies will assume the grants, the school will lend its expertise to help them compete for the grants. He says the school has already informed the U.S. Dept of Education of its plans and is working with federal agencies and Hawaii’s congressional delegation to facilitate the transition.
(Translation from Politicaleze: Rather than fighting a losing battle to continue receiving federal grants directly for our racially segregated school, we intend to lobby our cronies in Congress to give the money to other local agencies that we basically control, and these agencies can then funnel a good portion of the money back to us for operating the programs. Nothin’ really change. Smart, eh, bruddah?)
2001 - Oct 5. The State of Hawaii hires two former Kamehameha Schools Bishop Estate portfolio managers to take charge of millions of dollars in state investments in local venture-capital funds. Bruce Nakaoka and Eric Martinson have signed a contact to manage local venture financing for the Hawaii Strategic Development Corp, which has committed $13.5 million to venture firms investing in Hawaii start-up companies. Nakaoka and Martinson managed Kamehameha Schools’ real estate and financial investments in the mid-1990s. For people with short memories, this was the time that Kamehameha Schools LOST hundreds of millions of dollars in questionable and high-risk investments which briefly came to light during the Attorney General’s investigation of the estate. (Of course, the investigation documents were sealed by the court immediately after a negotiated settlement.)
2001 - Dec 31. The Honolulu Advertiser revealed that the politically-connected Sandwich Isles’ Communications is eligible for a $400 million federal loan to develop an optical fiber network for Hawaiian Homelands. Officers for Sandwich Isles include Gil Tam and Robert Kihune. (See Vultures of the Sandwich Isles)
2002 - Dec 25. The estate’s first CFO, Eric Yeaman, resigns.
~ o ~
Chronology Continued in Part III
~ o ~
April 17, 2000
PROBE OUTLINES TRUST’S POLITICKING
by Rick Daysog, Honolulu Star-Bulletin
Unreported contributions, lobbying expenses and attempts at shaping state legislation are alleged.
Kamehameha Schools operated a massive political machine that directed tens of thousands of dollars to the campaign coffers of isle legislators, drafted legislation and floor speeches for key state lawmakers, and entertained scores of state and county officials at isle restaurants, an investigation by the state attorney general shows.
In a 20-page report obtained by the Honolulu Star-Bulletin, the attorney general's office said the $6 billion charitable trust maintained an in-house network that may have distributed thousands of campaign fund-raiser tickets from isle politicians to various trust employees, trustees and outside vendors.
The state investigation also found that trust employees between 1992 and 1997 hosted more than 700 meetings with state and city officials at local restaurants at a cost of more than $34,000.
Former state House Speaker Joe Souki (D, Maalaea) was treated to more than 65 meals by estate personnel, while current Speaker Calvin Say (D, Palolo Valley) enjoyed 38 meals at the trust's expense, the report said.
"The organization has attempted to orchestrate the democratic process, from beginning to end, to its favor," Deputy Attorney General Kurt Spohn said in the report.
The questionable political activities, which allegedly occurred under the stewardship of the embattled former board of trustees, could have jeopardized the estate's tax-exempt status. Federal law bars charities from playing any role in a political election and places strict limits on lobbying. State campaign finance laws also bar organizations such as Kamehameha Schools from making unreported contributions.
Last week, criminal investigators with the attorney general's office turned over their report on the trust's political activities to the state Campaign Spending Commission, which will likely hold administrative hearings in the next few months.
Bob Watada, executive director of the Campaign Spending Commission, declined comment, saying he is still reviewing the documents. The attorney general's office had no response.
A spokesman for Kamehameha Schools, formerly known as the Bishop Estate, said the estate's interim board of trustees -- which took over management of the trust last May -- has cooperated with the state's investigation and has dismantled the trust's government relations division. He declined further comment. . . .
Much of the attorney general's report dealt with previously disclosed allegations that trust employees directed the estate's architecture and engineering firms to pay $18,262.17 of campaign debts owed by state Sen. Marshall Ige, a longtime ally of Peters, and $12,334.44 owed by former state Sen. Milton Holt, a former trust employee.
Holt pleaded guilty to a federal mail fraud charge relating to his campaign debts, and Ige is scheduled to go to trial in September on misdemeanor charges.
However, the attorney general's report also included new details concerning attempts to cozy up to isle legislators. One exhibit provided an itemized list of Visa card expenditures at local restaurants by Holt and fellow trust employees Alika Thompson and Namlyn Snow, who headed the Kamehameha Schools government relations division.
'Those guys are buried'.
None of the meetings were listed as lobbying expenses by the trust with the state Ethics Commission, in what could be a violation of state law.
In addition to meals for Souki and Say, the expenditures included:
> 28 breakfast meetings with former Rep. Merwyn Jones.
> 23 meetings with City Councilwoman Rene Mansho.
> 21 meals with former Big Island Rep. Harvey Tajiri.
> 17 meetings with former House Judiciary Chairman Terrance Tom.
> 16 lunch and dinner meetings with state Sen. Bobby Bunda.
Tom and Bunda (D, Wahiawa) said they could not recall such meetings, and Mansho and Say could not be reached for comment....
Souki also acknowledged meeting with Thompson for breakfast at the Columbia Inn occasionally. But he disputed the attorney general's report that he met the trust's lobbyists a total of 65 times between 1992 and 1997.
Souki said he could not recall any discussions about trust business during the meetings. Souki -- who was heavily criticized for earning a $132,000 commission on a Kamehameha Schools-related land deal on Maui -- also took issue with the local media for its continued coverage of the estate's former trustees.
"You guys have done enough already," said Souki.
"Those guys are buried. It's all over. They're done. Let them live their lives."
Fund-raising pervasive
The attorney general's report also cited recent testimony about Kamehameha Schools' role in shaping legislation. State investigators said Kamehameha Schools at one time employed 10 legislative teams to cover the estate's interests in the state Capitol. Some of their activities included:
> Drafting bills, amendments and committee reports for lawmakers.
> Writing floor speeches for key legislators.
> Planning, coordinating and implementing demonstrations, rallies and legislative receptions.
> Providing crews for sign-holdings, door-to-door canvassing and coffee hours.
> Paying for supplies and refreshments for special political activities and legislative strategy sessions.
> Networking with private civic clubs and trade organizations that share similar interests in Hawaiian and property rights issues.
> Writing and submitting letters to the editors in Honolulu's daily newspapers.
The fund-raising efforts also were pervasive, according to the attorney general's report. State investigators described one campaign finance scheme in which Snow collected thousands of tickets for a fund-raiser that were sent to trust employees.
Snow, who died in May 1999, would then parcel some of the tickets to trustees and outside contractors for payment, the investigators said. Such forms of bundling of fund-raiser tickets could be viewed as an unreported campaign contribution by the estate, which would be illegal.
One former government affairs worker said she felt pressured by her supervisors to take part in campaign events.
Lurline Diane Naone-Salvador said in a July 1999 deposition that her job required attending legislative hearings and political fund-raisers for Holt and City Council members Mansho and John DeSoto, even when she was sick or had a family event to attend.
Salvador said her husband once slammed a phone down on her boss, Snow, who demanded that Salvador hold signs for a political candidate on the day that Hurricane Iniki hit in 1992.
Neil Hannahs, longtime Bishop Estate land manager, said in a May 1999 deposition that lawmakers and their campaign managers often hit up trust officials when they went to the state Capitol on legislative matters.
"(My) experience is, every time you testify before a committee, inevitably that committee chair puts you in their campaign mailing list," Hannahs said.
"(And) when they have a campaign fund-raiser, they send you a couple of tickets ... or some will send you a book. Some will get aggressive and send you a whole bunch."
'Source of political plums'
Former Attorney General Margery Bronster said the estate's lobbying and campaign efforts go a long way in explaining her controversial confirmation defeat in the state Senate last year. The estate's former trustees remained well connected and continued to exercise their influence in the Capitol even after they left office, she said.
That view is boosted by statements made under oath by former Kamehameha Schools trustee Richard "Dickie" Wong that he and Big Island rancher Larry Mehau met with four freshmen senators to discuss Bronster's confirmation prior to the vote.
"The trustees were selected more on the basis of political connections and political payback than on merit," said Randall Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article which heavily criticized the former trustees of Kamehameha Schools.
"Consequently, it's hardly surprising that they treated Princess Pauahi's legacy like a source of political plums to be doled out to others."
* * *
Honolulu Star-Bulletin, May 18, 2000, by Rick Daysog: Report: Ex-Trustees tried to "destroy the opposition". A special master's report says they ran an expensive and well-orchestrated plan that targeted judges and others. . . .
Lawyers for the former Bishop Estate trustees took part in a costly "destroy the opposition" campaign that targeted state and federal judges, law enforcement agencies, the Honolulu Star-Bulletin and the trust's own beneficiaries, according to a court-appointed special master.
In a blistering, 67-page report ... attorney Robert Richards said the estate's former majority trustees Henry Peters, Richard "Dickie" Wong and Lokelani Lindsey wasted thousands of dollars of trust money in failed attempts to muzzle U.S. District Judge Samuel King's criticisms of the former trustees and to disqualify Probate Judge Kevin Chang from cases involving the estate....
"The conclusion of this master is that no stone would be left unturned by the trustees in attempting to silence their critics," Richards said.
"There was ... the adoption of a 'destroy the opposition' strategy. There was a constant effort made, nearly always unsuccessful, to take steps to silence or discredit what was perceived to be the 'opposition', whether that was an employee, a reporter, the attorney general, a judge or a master." . . .
The McCorriston firm billed the trust for $1.4 million in legal work in 1998-1999, and all of that is subject to a surcharge on the part of the former trustees.
Mike Heihre (formerly named Mike Hare), a Cades partner whom Richards described as the estate's "shadow general counsel," did not return calls. . . .Critics have long argued that the estate's steep legal bills were inappropriate for a charitable trust . . .
They also believe the trust hired its high-profile lawyers to stonewall the IRS and state investigations.
That sentiment is echoed in Richards' report, which recommended that the Probate Court surcharge the former board members for about $5 million in legal work done by its outside firms.
Much of the attorney's work, he said, was the result of the former trustees' alleged misconduct and was done to benefit the individual board members and not the trust. The special master also found that some of the work was so egregious that the law firms should refund part of their fees to the trust...
For instance, Richards recommended that Cades Schutte disgorge about $800,000 of the $1.3 million that it billed the trust between Aug 1998 and May 1999.
He also said that former Gov. John Waihee's firm, Verner Liipfert Bernhard McPherson & Hand, should be ordered the refund the estate $347,564 for work Richards said was of little benefit to the trust.
"When one reviews the legal invoices one is drawn to the inescapable conclusion that the trustees thought of the assets of the trust as their own. No real thought was given to the advisability of spending money on lawyers," Richards said....
In many cases, the retention of the law firms was approved by Nathan Aipa, the trust's then-general counsel. Aipa currently serves as chief operating officer.
"There were monumental efforts made to keep trustee conduct from coming to light or, if it did come to light, to rationalize it," Richards said.
"In fact, one can easily conclude, as this master has, that a strategy was adopted to obstruct the legal process, to delay where ever possible, to object where ever possible, to utilize so many lawyers and so many arguments that the opposition would be overwhelmed and would choose to give up. That did not prove true."
* * *
May 20, 2000
Kamehameha Cuts Law Firms Loose
A special master's report says much legal
work served board members' interests,
not the trust's.
By Rick Daysog, Honolulu Star-Bulletin
Kamehameha Schools has terminated several of its law firms, one day after a court-appointed special master issued a scathing report on their roles in the 3-year trust controversy.
In a brief statement yesterday, the estate's interim board and Chief Executive Officer Hamilton McCubbin said they would immediately discontinue the firms' services pending the completion of an internal investigation. . . .
The charitable trust did not identify which firms were terminated, but one, Cades Schutte Fleming & Wright, confirmed its suspension . . .
In a report filed in Circuit Court on Thursday, court-appointed special master Robert Richards said several of the estate's outside attorneys assisted in a "Herculean effort" to circumvent disclosure to the attorney general's investigation and took part in a "destroy the opposition" effort by former majority trustees Henry Peters, Richard "Dickie" Wong, and Lokelani Lindsey.
The Richards study, which examined legal work by 12 of the estate's outside firms in the 1998-1999 period, also recommended that the probate court surcharge the former trustees for nearly $5 million in fees, saying much of the law firms' work served the interests of the board members and not the trust.
Richards singled out Cades Schutte's work as "the most troubling" and urged the probate court to order the disgorgement of $880,000 of the $1.3 million that it earned between 1998 and 1999.
Richards said the firm spent considerable trust funds researching the free-speech limitations of senior U.S. District Judge Samuel King, an outspoken critic of the trust, and looked into possible remedies against Bobby Harmon, the former head of the estate's insurance subsidiary, in an apparent attempt to silence criticism....
Meanwhile, the attorney general's office applauded the estate's decision to suspend some of their outside firms in light of the disclosures in Richards' report.
"This is a prudent course of action," said Deputy Attorney General Hugh Jones....
For more, GO TO > > > RICO lawsuit: Harmon vs. Trustees of Bishop Estate, et al; The Morgan, Lewis & Bockius Report; Harmon’s Letters to the New Trustees
* * *
May 24, 2000
Kamehameha Schools' Chief Operating
Officer Takes Leave
By Sally Apgar, The Honolulu Advertiser
Kamehameha Schools' CEO, who served as general counsel under the ousted trustees, yesterday began an administrative leave with pay pending a review of work he performed as chief legal adviser to the charitable educational trust. . . .
Nathan Aipa met with the interim trustees on Monday to discuss questions raised in a scathing report filed last week that criticized more than $5.2 million worth of legal billings to outside attorneys and accountants incurred during the height of the separate investigations by the IRS and the attorney general between Aug 1998 and May 1999.
The outside work also was criticized as being duplicative.
After meeting with the interim trustees, Aipa, who is paid $196,000 a year, volunteered to leave pending the outcome of an internal investigation....
As general counsel, Aipa was ultimately in charge of all legal work done for the trust by inside and outside counsel....
He was appointed chief operating officer last July....
* * *
June 16, 2000
Kamehameha Schools' statement of losses
may provide grist for
a state suit against the ex-trustees
By Rick Daysog, Star-Bulletin
Despite unprecedented financial growth, the Kamehameha Schools recorded more than $335 million in losses and writeoffs during the past decade.
An internal trust document included in recent court filings reveals the $6 billion charitable trust declared more than $235 million in capitol losses and wrote off more than $100 million in bad investments since 1989.
The losses and write-offs -- more than three times the Kamehameha Schools' annual $100 million educational budget -- were covered by about $3 billion in revenues that the trust took in during the same 10-year period. But the troubled investments underscore criticisms that the estate's embattled former trustees mismanaged assets and took ill-advised bets on speculative ventures.
"The former trustees like to tell the public about their home runs but not their strikeouts," said Randy Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article that prompted the state to open its investigation of the former trustees.
"One gets the impression that the investments were made on an ad hoc basis without much attempt to diversify in meaningful ways."
A write-off means that the estate considers the complete investment a loss. A capital loss, on the other hand, represents that portion of an investment that is impaired.
The trust's statement of losses -- which covers the period between June 30, 1989 and Jan. 20, 2000 -- will likely serve as a key exhibit in Attorney General Earl Anzai's suit seeking multimillion-dollar surcharges against former trustees Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender.
The state's suit, which is scheduled to go to trial Sept. 18, alleges the ex-board members took excessive pay, mismanaged Kamehameha Schools' educational programs and incurred more than $200 million in investment losses during their tenures.
The former trustees have denied wrongdoing, citing the estate's recent string of record revenues. They point to the $552 million windfall from last year's initial public offering of Goldman Sachs Group, which pushed the trust's 1999 revenues to more than $800 million.
An estate spokesman had no comment. But the Kamehameha Schools' interim trustees are taking steps to clean up the trust's investment portfolio. They recently wrote off $50 million in bad investments and are implementing a new investment policy that focus on blue-chip investments.
The loss statement compiled by the interim board of trustees provides a broad and more detailed look into the estate's troubled holdings, many of which were initiated in the mid-1980s by former trustee Matsuo Takabuki.
The estate's largest write-off was for $50 million. It involved a 1987 investment in Cadillac Fairview Corp., a Toronto-based office and retail property developer.
The estate, following the advice of Chicago-based JMB Realty Corp., joined 38 institutional investors in the $2.6 billion leveraged buyout of Cadillac Fairview, but the investment went south after the mainland recession of the early 1990s forced the developer into bankruptcy protection.
In 1996, the Kamehameha Schools suffered a $40 million capital loss in McKenzie Methane Inc., a Houston-based natural gas producer. The loss came after McKenzie Methane was placed under federal bankruptcy protection.
McKenzie Methane has since emerged from bankruptcy and has been producing operating income for the estate.
The estate also recorded a $30 million loss in 1992 from its investment in Pembridge Associates, a mainland investment company that acquired a large England-based paper products and packaging materials conglomerate named DRG in a $900 million leveraged buyout in 1989.
The Kamehameha Schools partners in the deal included Frederick "Ted" Field, an heir to the Marshall Field department store fortune and an investor in McKenzie Methane, and North Carolina investor Clay Hamner.
Hamner figures in a number of money losing ventures for the estate, including Hanford's Inc., a North Carolina ornament maker founded by the family of former presidential candidate Elizabeth Hanford Dole, and DC Land Group, which developed the posh Robert Trent Jones golf course in Virginia.
During the year ending June 30, 1993, the Kamehameha Schools realized a $7.4 million loss in Hanford's and a $2 million loss from DC Land.
* * *
July 12, 2000
Kamehameha Schools Hires Financial Officer
By Rick Daysog, Honolulu Star-Bulletin
The Kamehameha Schools announced today that it has hired accountant Eric Yeaman as its first chief financial officer.
The $6 billion charitable trust said Yeaman, a senior manager in the accounting firm of Arthur Andersen LLP and a director of the estate’s internal audit office, will oversee budget functions, short-term investments, tax issues and financial planning.
Hamilton McCubbin, chief executive officer, said Yeaman will strengthen the trust’s management team as it expands its educational programs.
“Mr. Yeaman’s extensive knowledge of the Kamehameha financial and accounting system ... his proven integrity and sterling reputation as a leader and financial officer and his consultative management style make him the perfect fit with our ‘go forward’ plans for the future of Kamehameha Schools,” McCubbin said.
Yeaman’s appointment fills the last vacancy on the executive management team. The trust, which has been under court order to implement a CEO-based system of management, recently named local real estate executive Wendell Brooks as chief investment officer and attorney Colleen Wong as chief legal officer.
Retired Brig. Gen. Dwight Kealoha is serving as the trust’s acting chief operating officer, filling in for former general counsel Nathan Aipa. Aipa took a paid leave of absence in May after the trust initiated an internal investigation into trust’s outside law firms and accountants.
Yeaman, who assumes his new post Monday, was part of the Arthur Andersen team that conducted a court-mandated financial and management audit of the Kamehameha Schools that led to major reforms of the trust’s operations.
The 336-page audit found that the estate under former trustees Henry Peters, Richard “Dickie” Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey generated subpar investment returns and withheld more than $300 million of trust income from its primary mission of educating native Hawaiian children....
For more on Arthur Andersen and Wendell Brooks, GO TO > > > The Myth & The Methane
* * *
February 16, 2001
Bush May Stop VIP Cruises
The Honolulu Advertiser
The search for survivors and the quest for answers continued yesterday from Oahu to the Pentagon.
It prompted President Bush to suggest that the military review its practice of allowing civilians to ride aboard sophisticated warships like the submarine that sank a Japanese fishing vessel seven days ago. . . .
At the Pentagon, Pietropaoli confirmed earlier reports that retired Adm. Richard Macke of Honolulu had helped arrange for “individuals for the USS Missouri Battleship Memorial Association” to tour the sub while on its training maneuvers. He said 14 of the 16 guests were involved with the Missouri association.
Yesterday, retired Adm. Robert Kihune, vice chairman and president of the USS Missouri Memorial Association, said he had not seen the guest list and therefore did not know whether any of the association’s more than 3,000 members were involved....
See also: Robert Kihune
For more GO TO > > > The Sinking of the Ehime Maru
* * *
Bishop subsidiary
must submit
credit card records
By Rick Daysog, Star-Bulletin
Bishop Estate's for-profit subsidiary must hand over credit card records and other financial information to the state attorney general's office by Sept. 8.
Circuit Judge Kevin Chang yesterday denied a motion by Pauahi Management Co., formerly Royal Hawaiian Shopping Center Inc., to quash a state subpoena seeking records of credit card transactions and disbursements to Kamehameha Schools/Bishop Estate trustees and employees.
The records are to be delivered under a protective order to preserve their confidentiality.
The attorney general's office -- which is investigating allegations of financial wrongdoing by Bishop Estate trustees -- subpoenaed the company after receiving sworn testimony from two former Bishop Estate employees that trustee Henry Peters had personal use of a company credit card.
Hugh Jones, deputy attorney general, wants to know if other credit cards have been issued to employees or whether there have been improper disbursements by Pauahi or other Bishop Estate for-profit subsidiaries.
Peter Lee, Pauahi Management's attorney, said the company has no problem producing credit card records and other information if the state would agree to limit the scope of the subpoena, which Lee described as overly broad.
Lee said that parent Pauahi Holdings has not issued credit cards to Bishop Estate employees. Henry Peters, who is chairman of Pauahi Holdings, has been given a company credit card, but that card has been used for legitimate business expenses, the company has said. Since becoming a trustee, Peters has charged less than $1,000 on company credit cards.
The subpoena for credit card records is one of several involving Pauahi Management. The state recently subpoenaed Bank of Hawaii, which issued the cards to Pauahi Management.
State investigators also issued a subpoena for employment contracts, credit card records and other disbursements relating to Pauahi Management employees, family members and current or past Bishop Estate trustees.
Pauahi Management is contesting both subpoenas.
http://starbulletin.com/98/08/26/news/story3.html
NOW, IF YOU WANT TO TAKE A CLOSER LOOK AT SOME OF THE
CAREFULLY HIDDEN NESTS INHABITED BY BIRDS OF LIKE FEATHERS,
JUST TRAIN YOUR FIELD GLASSES DIRECTLY BELOW!
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Bedford Property Investors, Inc. - From a Bedford Properties press release: Bedford Property Investors, Inc. announced the appointment of Scott R. Whitney as Sr. V.P. and CFO. Whitney, 45, has been serving as Sr. VP/CFO of WCI Communities (a Bishop Estate investment) of Naples, Florida since 1995.
Before joining WCI Communities, Whitney was with Equity Group Investments, Inc. Prior to joining Equity Group Investments, Whitney worked with Balcor/American Express, Inc. as V.P. Banking and Sr. Controller.
* * *
From Midweek, 3/7/01, by Robert M. Rees: Years of pursuing the Bishop Estate trustees revealed more than the self-seeking greed and hubris of its five now-deposed incumbents....
Bina Chun, widely referred to as “the queen of the school,” (and wife of Kamehameha Schools’ president, Michael Chun) had her own rewards. In 1992, for example, Bedford Properties paid her a cool million just for negotiating the purchase price of the Kalele Kai condo project with the trustees. . . .
Benson Forests - Kamehameha Schools’ 390,000-acre timberland investment in Michigan.
The song and hula in Hawaii...
Trust sale of land in
Michigan planned
The Honolulu Advertiser
July 31, 2002 – Kamehameha Schools, Hawai'i's biggest private landowner, is planning to raise $150 million from the sale of Michigan timberland it acquired in 1994 from a failed venture.
The trust is soliciting proposals from investment banks and brokers to assist with the sale and expects to name an adviser by mid-August.
The land for sale, about 390,000 acres, is spread across 10 counties on Michigan's Upper Peninsula and provides timber for domestic suppliers and hunting and recreational areas for residents. Formerly owned by a mining company, the land includes several miles of shoreline along Lake Superior and more than 200 lakes.
"Based on our analysis of market conditions and Kamehameha's current asset allocation, management recommended this sale to the board of trustees and it was approved," said Kamehameha Schools Chief Executive Officer Hamilton McCubbin. "We will now move to have the property marketed through an investment banking firm and expect to conclude the sales process by early next year."
Kamehameha Schools had partnered with Benson Forests to develop a high-tech logging operation on the property using computers and satellite imagery to manage the timber harvests. The venture failed and when Benson abandoned the enterprise in 1994, the trust acquired the land.
Kamehameha Schools was created in 1884 through the will of Princess Bernice Pauahi Bishop, a descendant of King Kamehameha, to educate children of Hawaiian ancestry. The estate is one of the largest private trusts in the country with $4 billion in assets.
A spokesman for Kamehameha Schools said the estate is trying to reduce its exposure to Mainland real estate and large, single investments.
~ ~ ~
See also: Mark McConaghy
For more, GO TO > > > The Nature Conservancy
Blackstone Group - A New York-based private investment bank.
From The Conspirators: Secrets of an Iran-Contra Insider, by Al Martin:
GOVERNMENT FRAUD, CORPORATE FRAUD,
AND MORE FRAUD
People in the media often ask me to give them examples of frauds that began in Iran-Contra and continue to this day, albeit under different names.
It’s essentially the same fraud and the same cast of characters.
The examples I always give (about which I have substantive information, since I was involved in all three of the original frauds and also involved in marketing some of the partnerships for the secondary fraud) are the Ocean Reef Development Group, Ltd., the Omni Development Group, Ltd., and the Tri-Lateral Investment Group, Ltd.
Who are the common players who are links between all three deals during Iran-Contra ?
They are Frank Carlucci and Richard Armitage.
When Frank Carlucci and Richard Armitage left government service immediately after Iran-Contra (they literally had to leave in order to avoid being subpoenaed as part of the overall coverup), they became principals with Pete Peterson, the infamous Republican player and GOPAC money launderer, in the Blackstone Investment Group, which is a big organization.
Then they simply continued the same real estate development frauds which were begun under Iran-Contra....
* * *
January 26, 2001
Maui Hyatt sold for $200 million
By Andrew Gomes, Advertiser Staff Writer
New York based private investment bank The Blackstone Group has contracted to buy the Hyatt Regency Maui Resort for an estimated $200 million from KM Hawaii Inc., an affiliate of Japan-based transportation company Kokusai Jidosha, according to people familiar with the deal....
Founded in 1985 in part by the former chief executive of Lehman Brothers, Blackstone has been looking for upscale hotel investments in Hawai`i for several years. In 1998, the company unsuccessfully pursued one of Waikiki’s finest, the Halekulani.
People with knowledge of the Maui Hyatt deal said a purchase agreement for the 806-room Ka'anapali hotel —— Maui’s largest —— has been reached, and said Hyatt, which manages the property with about 1,000 employees, may be taking a small ownership interest in the hotel in exchange for a long-term management contract with Blackstone....
If completed, the Hyatt sale would follow sales of four other major properties in 1998: the Maui Marriott Resort for $152.5 million; the Westin Maui for $132 million; the Grand Wailea for $263.5 million; and the Kea Lani for an undisclosed amount.
The Hyatt Regency Maui, trophy of the Ka‘anapali resort, also has been attractive to buyers. It was developed for $80 million in 1980 by luxury resort developer Christopher Hemmeter and sold to KM Hawai‘i by Chicago real estate firm VMS Realty for $325 million in 1987.
KM Hawai‘i spent about $30 million on renovations in 1990 and 1996. Last year, the hotel opened a $3.5 million spa....
See also: Chris Hemmeter; VMS Realty
For more, GO TO > > > Birds that Drink from Cesspools; The Blackstone Group; Paradise Paved; Predators in Paradise; Woo vs. Harmon-Witness: V.K. Durham
Bruce Nakaoka - Former investment manager at Kamehameha Schools/Bishop Estate.
Ex-estate workers to talk to Bronster
They were granted immunity from
suits that could come up
By Honolulu Star-Bulletin Staff
Two former investment managers at Kamehameha Schools/Bishop Estate have agreed to comply with subpoenas issued by Attorney General Margery Bronster in the state's investigation of the $10 billion charitable trust.
Bruce Nakaoka and Eric Martinson agreed to meet with the attorney general before Nov. 26, after they were granted immunity from civil suits that may arise from their cooperation, said Deputy Attorney General Hugh Jones.
The agreement was approved today by Circuit Court Judge Kevin Chang.
In another Bishop Estate investigation, retired Circuit Judge Patrick K.S. Yim today said he met with the five estate trustees Monday to update them on the progress of his fact-finding report into management of the schools.
Yim did not disclose the nature of the discussion. He is required by court order to complete his report on or by Dec. 5.
None of the trustees commented on the meeting.
Critics of the trustees' management said Yim was wrong to privately meet with the group before he releases his report....
See also: Eric Martinson
Cades, Shutte, Fleming & Wright - A leading law firm in Hawaii (leading in the fees charged to KSBE, that is.)
For more, GO TO > > > Claims By Harmon; The Morgan, Lewis & Bockius Report
Carlyle Group - a Washington-based merchant bank that is chaired by Frank Carlucci, the former Secretary of Defense in the Reagan Administration. Among Carlyle’s partners are numerous former Reagan and Bush administration notables, including Richard Darman, economic adviser to President Bush, and James Baker III, the former White House Chief of Staff, Secretary of State, and Bush-Quayle campaign chairman.
* * *
From The Hartford Courant, 10/21/99: Top Politicians Linked to Pension Fund Deals . . . (Connecticut) State Treasurer Denise L. Nappier shone the light Wednesday on seldom-seen machinations that have put millions into the pockets of well-connected “finders” in state pension investment deals — and some of the state’s best-known politicians were caught in the glare.
Nappier, responding to the scandal surrounding her now-disgraced predecessor, Paul J. Silvester, released a list of those who have received finder’s fees and other compensation in treasurer’s office deals since 1991....
One firm that has given Nappier an incomplete response is the Carlyle Group — which has figured prominently in the Silvester scandal....
Silvester invested $50 million in pension funds with Carlyle, which has been a client of Wayne Berman, a Washington-based consultant and major fund-raiser for Texas Gov. George W. Bush’s presidential campaign. . . . Berman gave Silvester a job with his new business consulting firm, Park Strategies, after his term ended....
For more, GO TO > > > A Connecticut Yankee in King Kamehameha’s Court; The Carlyle Group: Birds That Drink From Cesspools
Central Pacific Bank - one of Hawaii’s largest commercial banks, formerly majority-owned by Japan’s giant Sumitomo Bank. The major financial asset of Senator Daniel K. Inouye (D-HI).
See also: Dan Inouye; Sumitomo Bank; Yakuza
Chubb Corporation - Chubb is a holding company whose subsidiaries are engaged in two industries: property & casualty insurance and real estate.
The second largest institutional investor in Chubb is Putnam Investment Management, a subsidiary of the world's largest insurance broker, Marsh & McLennan. The third largest institutional investor in Chubb is Citigroup, which was formed through the mega-merger of Citicorp and Travelers Insurance Company.
Citigroup is co-headed by Robert Rubin, the former U.S. Treasury Secretary and former co-chairman of Goldman Sachs. A leading institutional owner of Goldman Sachs is Hawaii's wealthy Bishop Estate.
The broker for Bishop Estate is Marsh & McLennan. Marsh & McLennan placed the estate's Directors & Officers Liability insurance policy in Federal Insurance Company, a Chubb subsidiary.
Federal Insurance Company provided the excess liability insurance policy for Bill Clinton that defended him in the Paula Jones lawsuit.
Just one big happy flock.
* * *
From the RICO lawsuit: Harmon v. Federal Insurance Co, et al.:
Defendant Federal Insurance Company, Inc. (Federal), a member of The Chubb Group, conducts business in the United States and was, at all times, registered with the Insurance Commissioner, State of Hawaii, as an admitted foreign insurance company. Federal conducts business through insurance brokers as well as through licensed general agents of the company. In Hawaii, one of Federal's licensed general agents is Marsh & McLennan, Inc. (M&M).
On or about October 27, 1995, Plaintiff, in his capacity as Risk/Insurance & Safety Manager for Kamehameha Schools Bishop Estate (KSBE), caused Federal, through its agent M&M, to bind coverages under an Association Liability Insurance policy....
Plaintiff alleges that the failure of Federal, and its agent, M&M, to provide defense coverage to Harmon in Civil No. 97-0512-02 constitutes mail fraud, wire fraud, misrepresentation and fraudulent inducement to purchase this insurance....
As detailed in Plaintiff's complaint, there was collusion among the Defendants, the primary purpose of which was to increase their profits through the awarding of non-bid insurance contracts to Federal and its agent, M&M.
Profits were further enhanced by Federal through reduction in their claims payments by means of fraudulently "back-dating" an exclusion endorsement in their Association Liability Policy in order to wrongfully deny defense coverages to Plaintiff....
For more, GO TO > > > Broken Trust; Insurance Commissioners
Coconut Island - Better known to millions of TV viewers as “Gilligan’s Island”.
GO TO > > > Vultures on Gilligan’s Island
Colleen Wong - Kamehameha Schools’ Chief Legal Officer; served as acting CEO until a replacement for Dr. Hamilton McCubbin was found.
From a letter from Bobby Harmon to Hamilton McCubbin:
July 26, 2000
Dear Dr. McCubbin:
Thank you for the opportunity to meet with representatives of Morgan, Lewis & Bockius, LLP on this date. As I understand the major focus of your investigation to be the improper use of outside legal counsel, accounting firms and other third-parties, the following is a list of individuals and companies that, in my opinion, colluded to improperly transfer trust assets from the Kamehameha Schools and related companies:
Attorneys and Law Firms
Cades Schutte Fleming & Wright (Michael Hare)
Chee & Markham (Kevin Chee)
Devens Lo Nakano & Youth
Watanabe Ing & Kawashima (Douglas Ing and James Kawashima)
Goodsill Anderson Quinn & Stifel
Law Offices of Stanford Manuia (Stanford Manuia)
Torkildson Katz Jossem Fonseca Jaffe Moore & Heatherington
Carlsmith Ball Wichman Murray Case & Ichiki
Nathan Aipa, Louanne Kam, Lyn Anzai and Colleen Wong often directly engaged these firms to handle insurance claims without the required authorization of the insurance companies, including P&C.
Once the firms were engaged, these KSBE employees “controlled” and “managed” the claim directly with outside counsel, deliberately disregarding insurance company guidelines regarding the use and payment of these firms. Nathan Aipa, as principal executive of the Legal Group, had ultimate approval of all legal bills including P&C’s.
Aipa would frequently pay these legal fees and costs from his General Counsel Account, without approval from the insurance companies. Often the amounts billed by the law firms exceeded allowable fees and costs provided in the insurance company guidelines. When, if ever, KSBE submitted the legal bills to the insurance company, many of the charges were disallowed.
This practice led to the loss of millions of dollars that were never recovered from the insurance companies....
See also: Hamilton McCubbin; Lyn Anzai; Nathan Aipa; Torkildson Katz...
For more, GO TO > > > Harmon’s Letter to the New Trustees; RICO in Paradise
Crossroads Group - Another vulture-capital firm.
April 8, 2002
Crossroads to buy out Kamehameha stake
The venture-capital firm gets court backing that paves the way
to sever ties with the Hawaii trust
By Randy Whitestone, Bloomberg News
Wilmington, Del. -- Crossroads Group LP, which sued investor Kamehameha Schools for blocking fund-raising efforts, won backing from a Delaware judge to buy out the Hawaiian charity, its top outside investor.
Delaware Chancery Court Vice Chancellor Jack B. Jacobs in an April 1 ruling said Pauahi Management Corp., whose parent Kamehameha Schools made $2 billion on an investment in Goldman Sachs Group Inc., must appoint an appraiser to value its stake in Crossroads. The appraisal, which will probably take place this week, would pave the way for a buyout, said John Buser, chief operating and chief financial officer for the Dallas-based firm.
"They have blocked our efforts to move forward," said Crossroads' Buser, who said management will now invest $15 million, boosting the fund-management firm's capital to more than $55 million.
"This frees us to expand the business the way we see fit."
The worst venture and buyout returns on record the past two years have prompted court battles between private-equity partners that in the past would likely have been settled behind closed doors.
The Crossroads suit was filed Feb. 28, the same week Connecticut's state pension fund sued buyout firm Forstmann Little & Co. over money-losing telecommunications investments.
Crossroads, started in 1981, is a "fund of funds" firm that takes money from institutions like Pauahi and invests in venture-capital and buyout funds managed by other firms. Since 1981, it has raised $2 billion, acquiring stakes for investors in more than 200 private equity funds.
Crossroads in its suit charged that Pauahi more than once kept the firm from making investments. Pauahi this year objected to a $30 million fund-raising plan, part of which was to be used to buy a stake in early-stage venture fund Matrix Partners VII LP, while in early 2000 it blocked an initial public offering that was slated to raise as much as $1 billion for Crossroads.
Under its 1996 partnership agreement, Pauahi invested $12.3 million and had the right to block additional outside investments in the management company because it owned more than two-thirds of the limited-partner interests. Crossroads management, which owned the rest of the limited and general partner interests, had the right to buy out the investor's 26 percent stake after an appraisal if Pauahi objected to further outside investments.
Pauahi claimed in court papers that Crossroads with the IPO sought to force the investor to sell out at an unfair price -- as little as one-sixth its original investment -- and hadn't shared investment distributions.
Kamehameha President Wallace Chin and Donald Reid, Pauahi's Delaware attorney, didn't return telephone messages seeking comment....
For more, GO TO > > > Part I
Dan Inouye - U.S. Senator (D) from Hawaii, called by some Hawaii’s “Political Godfather”.
For more, GO TO > > > Part I; Woo vs. Harmon-Witness: Dan Inouye
Data House - Computer firm with some good connections.
January 17, 1998
Estate's hiring of computer firm
raises questions
by Star-Bulletin Staff
A computer consulting company that came under fire for receiving millions of dollars in nonbid state contracts during Gov. John Waihee's tenure has become a big recipient of nonbid work at Kamehameha Schools/Bishop Estate.
Data House Inc. conducted more than $900,000 in computer consulting work for Bishop Estate during its 1995-1996 fiscal year, according to a Star-Bulletin review of the estate's expenses.
Prior to that, the company had conducted less than $17,000 in work for the estate during fiscal 1994-1995.
Critics point to the close relationship between Data House founder and President Daniel Arita and the estate's principal executive for budget and review, former state Budget Director Yukio Takemoto.
Data House's work for the estate may come under scrutiny by state Attorney General Margery Bronster, who is investigating allegations of financial mismanagement and breaches of fiduciary duties by Bishop Estate trustees.
As part of her investigation, Bronster has subpoenaed the estate for information involving all nonbid and bid contracts over $100,000.
Both the estate and Arita said Data House's relationship with Takemoto played no role in the company's work with the estate.
The two have been golfing partners for years, and their relationship came under scrutiny in 1994 after a special state Senate committee found that the Waihee administration awarded Data House nearly $12.9 million in state contracts between 1987 and 1992. Most of those contracts were made on a nonbid basis.
Takemoto resigned under pressure as Waihee's budget director in December 1994 and joined the estate the following February.
* * *
See also: Jim Boersema
David Ige - Former Hawaii legislator.
For more, GO TO > > > Predators in Paradise
Dennis Fern - From the Kukui, Inc. website:
MANAGEMENT OF KUKUI OPERATING COMPANY
Dennis E. Fern - President
Mr. Fern is a graduate of Willamette University in Oregon with a Bachelor's degree in Mathematics. A Certified Public Accountant, Mr. Fern worked for PricewaterhouseCoopers (formerly Coopers & Lybrand) in their auditing division.
In 1983, Mr. Fern joined Kamehameha Schools Bishop Estate (KS), the largest private landowner in the state of Hawaii and an education trust, as their Internal Auditor.
In 1991, in his role as Internal Auditor, he became involved in KS' investment in coalbed methane projects in Alabama, Colorado, and New Mexico. In 1996, he took over responsibility for KUKUI, INC., a wholly owned taxable subsidiary of KS, which had been assigned KS' interest in the coalbed methane project....
See also: McKenzie Methane; The Woodlands
For more, GO TO > > > Aloha, Harken Energy; The Sinking of the Ehime Maru; Woo vs. Harmon-Witness: Dennis Fern
Eric Martinson - A Kamehameha Schools manager from 1984 to 1996, at one point managed the estate’s substantial financial holdings, which included a multibillion interest in Goldman Sachs.
From the RICO lawsuit - Harmon v. Federal Insurance Co, Marsh & McLennan, Trustees of Bishop Estate, et al.:
o) Unison Pacific - As a subsidiary of KSBE, General Liability, Directors & Officers Liability and other insurance coverages for this entity were combined under KSBE’s master policies, and premium charges were allocated according to the entity’s risk exposures. After this arrangement had been in effect for several years, Eric Martinson, KSBE Assets Manager and officer of Unison Pacific, directed KSBE’s accounting department to reallocate Unison’s premiums. This had the effect of KSBE paying the premiums for this subsidiary.
* * *
From Harmon’s letters to the Hawaii Insurance Commissioner: Deceptive Business Practices; Conflicts of Interest; Mail Fraud.
At the direction of Henry Peters and other managers for KSBE, premiums that should have been charged to subsidiaries were actually paid by KSBE. One example is Eric Martinson's memorandum of September 24, 1996 to Ramona Hinck regarding the reallocation of premiums for the SoCal, AFCO, Unison and SINO subsidiaries. As a result of this directive, premium charges that had been previously allocated by me to these subsidiaries were transferred to KSBE. Eric Martinson was the Financial Assets Manager for KSBE, and was also the Secretary/Treasurer, Sino Finance Group LLC, and Vice President, Unison Pacific Investment (US) Limited.
Under the lease agreements for various commercial properties that are owned and managed by the estate, insurance costs are directly passed on to the lessees and tenants through monthly maintenance fees. As a result of the overcharges by M&M, and the improper allocations of premiums and claims costs to the various subsidiaries, these lessees and tenants were wrongfully and deceptively billed a share of these higher costs. The various commercial properties would include Royal Hawaiian Shopping Center, Windward Mall, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), and Velvet Cloak Inn (North Carolina), among others.
These monthly maintenance billings and payments are normally done by mail and involve interstate commerce since many of KSBE’s properties, and the home offices of various lessees, are located on the mainland. As a result, these acts may be subject to the 1994 Federal Insurance Crimes Act, which covers crimes by persons engaged in the business of insurance whose activities affect interstate commerce....
For more, GO TO > > > Woo vs. Harmon-Witness: Eric Martinson
Eric Yeaman - Kamehameha Schools’ first CFO.
May 16, 2002
Kamehameha uses Enron firm in audit
By Jim Dooley, Honolulu Advertiser
The beleaguered accounting firm Arthur Andersen, on trial in Houston for obstructing justice in the federal investigation of Enron Corp.'s collapse, was paid $2.1 million last year to help audit Hawaii's largest nonprofit organization, the $6 billion Kamehameha Schools, according to the organization's tax return, made public yesterday.
Eric Yeaman, chief financial officer of Kamehameha Schools, was an Arthur Andersen employee, working as "internal auditor" of the schools, when the Kamehameha trustees decided to hire him for the CFO post in July 2000.
Arthur Andersen has continued to serve as internal auditor and provides other services to Kamehameha Schools. The company will receive a slightly lower sum this year than the $2.1 million it was paid last year, according to Yeaman and to the tax return.
Yeaman said he has a conflict of interest in dealing with Arthur Andersen and "leaves the room" when there is any discussion at Kamehameha Schools about a business transaction with the accounting firm.
Hamilton McCubbin, chief executive officer of the schools, said the Honolulu office of Arthur Andersen has demonstrated "outstanding integrity" in its dealings with Kamehameha Schools.
The internal auditing contract with Arthur Andersen expires this summer, and the schools plan to hire their own internal auditing staff rather than rely on an outside company for the work, McCubbin said.
But an outside firm will be needed to help in that transition and to provide independent expertise when needed by the internal auditing staff, McCubbin said.
Arthur Andersen will be free to bid for that work, he said.
Once the fourth-largest accounting firm in the world, Arthur Andersen has lost clients steadily in the wake of the Enron scandal. In addition to the criminal trial now going on in Houston, Arthur Andersen has been named in a class action lawsuit filed by Enron shareholders. The firm has been selling offices and assets around the country, and could face bankruptcy in the near future, according to news reports.
The Kamehameha Schools tax return shows net assets of more than $4 billion. A wholly owned subsidiary, Kamehameha Activities Association, filing a separate return for the first time, listed assets of more than $2 billion....
* * *
December 25, 2002
Kamehameha exec to leave for HEI
Honolulu Star-Bulletin
The Kamehameha Schools' chief financial officer and chief operating officer will leave the $6 billion trust to join Hawaiian Electric Industries Inc.
Eric Yeaman informed the estate yesterday that he has accepted an offer to serve as HEI's chief financial officer, treasurer and financial vice president, according to an e-mail to staffers from Kamehameha Schools' Chief Executive Officer Hamilton McCubbin.
McCubbin praised Yeaman's efforts during his 2 1/2 year tenure at the Kamehameha Schools, saying he made "numerous significant contributions."
"He took on an executive leadership role during a period of ambiguity and has been a central figure in KS' successes in bringing greater clarity and definition to its endowment resources, processes and procedures," McCubbin said in his e-mail.
Yeaman could not be reached for comment and HEI officials did not return calls yesterday.
Yeaman played a critical role in the financial and administrative reforms implemented at the estate in wake of the 1999 court-ordered ouster of the trust's former board of trustees.
He also was in charge of new campus construction and reorganized the estate's Human Resources Division.
Prior to joining the estate, Yeaman was employed by the local office of Arthur Andersen, where he oversaw a critical audit of the Kamehameha School's finances and administrative functions.
The Arthur Andersen audit played a major role in the 1999 removal of former Kamehameha Schools trustees Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender.
In his e-mail, McCubbin said that he plans to hire an outside consulting firm and appoint a search committee to name Yeaman's successor. In the meantime, McCubbin said that Yeaman will work with the estate's managers to ensure a smooth transition.
For more, GO TO > > > I Sing The Hawaiian Electric; The Turnstone Birds
Gene and Nora Lum - From freerepublic: Lum Pleads Guilty to Tax Fraud -
Tulsa, Okla (AP) 8/13/98 - Democratic fund-raiser Gene K.H. Lum changed his plea in a tax fraud case to guilty Thursday as part of an agreement that seeks his cooperation in other investigations.
Lum, who pleaded guilty in 1997 to making illegal donations to Democratic campaigns, admitted he filed tax returns that claimed more than $7.1 million in false deductions for him and his wife.
Lum, 59, faces up to six years in prison and $500,000 in fines at a Nov 23 sentencing....
Under the pleas agreement, the government agreed not to seek indictments against his wife, Nora, or their corporations. . . .
The Lums, who operated a Tulsa-based gas pipeline company at the time of the violations, pleaded guilty last year to a charge of felony conspiracy for laundering $50,000 in illegal donations to 1994 congressional campaigns.
Their daughter, Trisha C. Lum, pleaded guilty to a misdemeanor violation in a separate campaign finance incident.
Gene and Norn Lum each received 10 months in prison and $30,000 fines in that case.
The tax charges stemmed from information uncovered by independent counsel Daniel S. Pearson during his investigation of Commerce Secretary Ronald H. Brown. Pearson closed his inquiry when Brown was killed in an airplane crash. He transferred his findings about other people to the Justice Dept for continued investigation and prosecution.
* * *
Comments in the freerepublic forum: . . . Of some interest to me was the fact that the golf course Michael Brown (son of Ron Brown) was given a membership to (and which Bill Clinton often uses ...) in suburban Virginia was owned by the Bishop Estate of Hawaii. . . . Bishop put close to 100 million into a company called McKenzie Methane Gas a few years before Dynamic. Bishop also bought into a Red Chip bank with Mochtar Riady's brother in law. Bishop hired as its Washington law firm Verner Liipert whose lobbyist is ex Gov. John Waihee. Waihee appointed 4 of the 5 Bishop Trustees. Waihee attends Clinton coffees. Waihee appointed Sen. Akaka. Verneer Liipert has another big name partner ex Sen. George Mitchell. Mitchell's son in law was president of Lum's company Dynamic Energy. Bishop owns 11% of Goldman Sachs. Sec of Treasury Robert Rubin's blind trust managed by Bishop, etc, etc. (abwehr, 8/13/98)
See also: John Waihee; Mochtar Riady; Sports Shinko; Yakuza
George Mitchell - Former Senate Majority Leader; lobbyist for the tobacco industry.
From The Courier-Journal, Dec 28, 2001:
Mitchell to Oversee Fund for Red Cross
NEW YORK – Former Sen. George Mitchell was named yesterday to oversee the $667 million American Red Cross fund created to help victims of the terrorists attacks.
The charity also announced that it will exceed its goal of distributing $275 million in aid from the Liberty Fund by Dec. 31. It said it expects to hand out $317.5 million by year’s end.
Mitchell, who is from Maine, has spent his post-Senate life trying to negotiate peace in the Middle East and Northern Ireland.
As independent overseer of the Liberty Fund, Mitchell will supervise the development and carrying out of a plan to distribute the fund’s balance, said Harold Decker, chief executive of the Red Cross. The plan is scheduled for release by the end of January....
* * *
Comments in the freerepublic forum: . . . Of some interest to me was the fact that the golf course Michael Brown (son of Ron Brown) was given a membership to (and which Bill Clinton often uses ...) in suburban Virginia was owned by the Bishop Estate of Hawaii. . . . Bishop put close to 100 million into a company called McKenzie Methane Gas a few years before Dynamic. Bishop also bought into a Red Chip bank with Mochtar Riady's brother in law. Bishop hired as its Washington law firm Verner Liipfert whose lobbyist is ex Gov. John Waihee. Waihee appointed 4 of the 5 Bishop Trustees. Waihee attends Clinton coffees. Waihee appointed Sen. Akaka. Verner Liipfert has another big name partner ex -Sen. George Mitchell. Mitchell's son in law was president of Lum's company Dynamic Energy. Bishop owns 11% of Goldman Sachs. Sec of Treasury Robert Rubin's blind trust managed by Bishop, etc, etc. (abwehr, 8/13/98)
* * *
In the 02/18/00 edition of The Honolulu Advertiser, reporter Sally Apgar revealed that the ousted Bishop Estate trustees used the trust money to "enlist" the aid of U. S. Sens. Dan Inouye and Daniel Akaka in 1995 to influence fellow members of Congress to vote against "interim sanctions" regulations that threatened the trustee's $1 million-a-year paychecks. According to Apgar:
Thirteen confidential memos during the fall of 1995 through April 1996 detail the trustees' strategy against the bill....
The memos express the trustees' intent "to kill the measure" and their recruitment of influential contacts such as Inouye, Akaka and the Rev. Jesse Jackson. They also targeted others, including Sen. Daniel Patrick Moynahan of New York and even White House insiders such as Leon Panetta, then President Clinton's chief of staff, to win support....
The memos give a glimpse of the behind-the-scenes political power and influence the former trustees once wielded and describe a costly, intensive effort to protect their interests.
As previously reported, the ousted trustees hired former Gov. John Waihee and his Washington, D.C.-based law firm Verner Liipfert Bernhard McPhearson Hand to lobby against the federal legislation...
Other Verner firm members enlisted in the effort included former Treasury Secretary Lloyd Bentsen of Texas, former Senate Majority Leader George Mitchell of Maine and former Texas Gov. Ann Richards....
The state Attorney General's Office has said previously that the trust paid the firm more than $900,000 for its lobbying efforts on intermediate sanctions legislation between 1995 and 1998.
Waihee alone was in charge of swaying Erskine Bowles, then assistant to the president and deputy chief of staff, and Doug Sosnick, then assistant to the president and director of political affairs....
Mark McConaghy of PriceWaterhouseCoopers LLP, a longtime tax adviser to the trust, was charged with contacting Leslie Samuels, then assistant secretary for tax policy....
Congressman Neil Abercrombie (D-HI) is also mentioned in the memos. For example, the Oct. 12 memo said, "Congressman Abercrombie is prepared to speak to Rep. Gibbons, the ranking minority member, Charles B. Rangel (D-NY) and Andrew Jacobs, Jr. (D-Ind) as well as GOP Rep. Nancy Johnson....
Gilbert Tam - From RICO lawsuit Harmon v. Federal Insurance Company; P&C Insurance Company; Marsh & McLennan, Inc. et al.:
Gilbert Tam is a Director, P&C Insurance Company, Inc. and the former Administrative Group Director for Kamehameha Schools Bishop Estate. Tam is currently an officer with Bank of Hawaii, which has substantial financial connections with KSBE.
Tam was also a co-investor in the McKenzie Methane deal at the time he was a KSBE manager. Plaintiff alleges that Tam's actions, through his complicity, deceptions, and breach of fiduciary duties, in collusion with some or all of trustees of KSBE, with other managers and employees of KSBE, with other officers and directors of P&C, and with outside contractors, attorneys, politicians and others, constituted a conspiracy to defraud P&C and the beneficiaries of the Estate of Bernice Pauahi Bishop; racketeering; mail fraud; wire fraud; extortion; and violation of IRS interim sanctions regulations....
For more, GO TO > > > Vultures of the Sandwich Isles
Goldman Sachs - The Goldman Sachs Group is a leading global investment banking and securities firm with three principal business lines: Investment banking; Trading and Principal Investments; and Asset Management and Securities Services.
* * *
From USA Today, May 3, 1999: Trust Scandal Haunts Goldman -- Sullied Bishop Estate Owns 10% of Bank: . . . Daytime television has nothing on the Bishop Estate, a charitable trust that will make a huge windfall in Goldman Sachs' initial public offering expected Tuesday... The trustees of the estate are mired in an explosive scandal with subplots of greed, cronyism, sex and suicide that are worthy of the tawdriest soap opera....
Kamehameha Schools/Bishop Estate was set up 115 years ago to educate Hawaiian children as stipulated in the will of Princess Bernice Pauahi Bishop, the last direct descendant of the king who united the islands. With assets of about $10 billion, it is one of the richest trusts in the USA and the largest private landowner in Hawaii....
Among its assets: a 10% stake in Goldman Sachs, the leading investment bank that is ending its long reign as a private partnership. When Goldman goes public, the estate stands to at least triple the value of its $500 million investment....
* * *
For more GO TO > > > Dirty Gold in Goldman Sachs?
Hamilton McCubbin - Kamehameha’s first CEO in its 119 years.
May 5, 2003
Kamehameha CEO resigns
Hamilton McCubbin became head of the trust in 2000,
after the former trustees were ousted
By Rick Daysog, Honolulu Star-Bulletin
Hamilton McCubbin, the first chief executive officer in the 119-year history of the Kamehameha Schools, has stepped down.
The $6 billion trust announced today that McCubbin has submitted his resignation, which took effect immediately.
The trust also said that its Chief Legal Officer Colleen Wong will serve as acting chief executive officer until a replacement is found.
McCubbin, a 1959 graduate of the Kamehameha Schools, could not be reached for immediate comment but was scheduled to speak at a news conference later today.
Kamehameha Schools trustee Constance Lau met with employees today to inform them of McCubbin's resignation, according to several people who attended the meeting. Lau did not discuss the reasons for McCubbin's departure but said he offered his letter of resignation to the board on Friday.
McCubbin, a world renowned expert on early childhood education, earned about $350,000 a year. He has served as the Kamehameha Schools' chief executive officer since January 2000.
His appointment was hailed as a major milestone in the three-year controversy surrounding the estate and its former trustees Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis.
During his tenure, McCubbin oversaw the trust's ambitious expansion of its educational reach as it opened new satellite campuses on the neighbor islands, reinstituted several early childhood education programs and looked to partner with the state Department of Education to establish charter schools in areas heavily populated by native Hawaiians.
McCubbin also was in the middle of the Maui campus controversy last year in which the schools admitted its first non-Hawaiian student in more than 40 years.
Prior to joining the estate, McCubbin served as dean of the School of Human Ecology at the University of Wisconsin-Madison.
McCubbin's resignation is the latest in a string of recent departures at the Kamehameha Schools. In January, the schools first chief education officer, Dudley "Skip" Hare stepped down.
That move came a month after Chief Financial Officer Eric Yeaman left to become Hawaiian Electric Industry Inc.'s chief financial officer....
. . . Continued in Part III
Hanford's Creations, Inc. - A company that makes Christmas decorations. Owned by Elizabeth Hanford Dole, a friend of Mark McConaghy of PricewaterhouseCoopers, before she sold it to a group headed by Bishop Estate.
The estate promptly lost boku money on the deal.
See also: Mark McConaghy; PricewaterhouseCoopers; Woo vs. Harmon-Witness: Elizabeth Dole
Hawaiian Airlines - Hawaii’s major low-flying airline.
September 3, 1997
Bishop Estate swings for
the fences
Some investments have been home runs;
others, disappointing strikeouts
By Rick Daysog, Honolulu Star-Bulletin
When Hawaiian Airlines flew into financial turbulence several years ago, it cost Kamehameha Schools/Bishop Estate about $700,000.
Bishop Estate had quietly owned about 1 percent of Hawaiian Air through a private investment fund, but the shares lost nearly all their value after the carrier filed for bankruptcy reorganization in 1993, said the fund's manager, George McCown.
"They weren't happy campers," said McCown, partner and founder of Menlo Park, Calif.-based McCown de Leeuw & Co., which teamed up with former major league baseball Commissioner Peter Ueberroth in the 1989 buyout of Hawaiian Air.
In many ways, the Hawaiian Air losses underscore Bishop Estate's swing-for-the-fences investment strategy that has produced its share of home runs as well as a few disappointing whiffs.
The 113-year-old charitable trust, the state's largest private landowner with assets estimated as much as $10 billion, is set up to educate native Hawaiian children. Its portfolio includes some 368,000 acres of land in Hawaii, the Royal Hawaiian Shopping Center in Waikiki, interests in a mainland China bank, timberland in Michigan and a majority interest in the parent of the People's Bank of California -- a thrift with $1.8 billion in assets....
See also: Lyn Anzai
For more, GO TO > > > Hawaiian Airlines
Henry Peters - Ex-trustee of Kamehameha Schools/Bishop Estate.
For more, GO TO > > > RICO in Paradise; Woo vs. Harmon-Witness: Henry Peters
Industrial and Commercial Bank of China - From The Straits Times-Asia, 10/31/00:
ANTI-GRAFT AUDITS TO INCLUDE TOP LEADERS
China's chief auditor plans to take his fight against corruption to almost the top of the country's political system, according to state media.
This follows the discovery of US$11 billion in mismanaged funds at Chinese government offices and businesses.
The astounding sum, reported by Mr. Li Jinhua, Auditor-General of China's National Audit Office, is one of the strongest indications of how mismanagement is in China....
"Corruption thrives under a lack of efficient supervision," the paper said....
According to earlier official reports, the auditing led to the discovery of misuse of funds at the Industrial and Commercial Bank of China, and the Construction Bank of China, causing losses worth more than 10 billion yuan (S$2 billion)....
Mr. Li's auditors found that individual officials and managers had misappropriated 590 million yuan. But this marked only a fraction of the 96.17 billion yuan mismanaged, if not embezzled, by offices and firms, the China Daily said.
The reports did not give details of how the funds were misused . . . But in previous reports over the past 18 months, Mr. Li has criticised officials for diverting government subsidies and spending lavishly on offices. There has also been talk of speculation in stocks....
* * *
Asia 2000, 11/8/00, by Jeremy Page:
CHINA SENTENCES 14 TO DEATH IN SMUGGLING CASE
China sentenced 14 people to death on Wednesday, including senior police and customs officials, in the first verdicts of a multi-billion dollar smuggling scandal, the biggest corruption case of the Communist era.
Those sentenced to death included the former customs chief and deputy mayor of the southern port of Xiamen, and the former deputy police chief of southern Fujian province....
But state media said the mastermind of the smuggling scam, businessman Lai Changxing had fled overseas after being tipped off by police....
Lai's Yuanhua Group smuggled more that $6 billion worth of cars, luxury goods, oil and raw materials in the early 1990s, paying off city and provincial officials to facilitate and cover up duty evasion, Xinhua said.
"The group also used money and women to seduce a number of government officials for the convenience of their smuggling activities," Xinhua said.
The smuggling "caused serious damage to the normal economic order, brought huge financial losses to the state, led to rampant corruption, and impaired the social, political and economic life in China," it said....
The death sentences included Xiamen's former customs chief Yang Qianxian and former vice mayor Lan Pu, and former Fujian deputy police chief Zhuang Rushun, Xinhua said.
Ye Jichen, head of the Industrial and Commercial Bank of China in Xiamen, was also given a death sentence....
See also: Xiamen International Bank
Investcorp - Investcorp is a leading global investment group with offices in London, New York and Bahrain. Since 1982, it has completed transactions in North America and Western Europe, with a total acquisition value of approximately $19 billion.
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JMB Realty Corp. - A major US commercial real estate investment firm which owns, develops and manages real estate projects throughout North America, including regional malls, hotels, planned communities, and office complexes.
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Honolulu Star-Bulletin, 6/16/00 - Kamehameha Losses Top $335 Million - Despite unprecedented financial growth, the Kamehameha Schools recorded more than $335 million in losses and writeoffs during the past decade. . . . The troubled investments underscore criticisms that the estate’s embattled former trustees mismanaged assets and took ill-advised bets on speculative ventures....
The estate’s largest write-off was for $50 million. It involved a 1987 investment in Cadillac Fairview Corp, a Toronto-based office and retail property developer.
The estate, following the advice of Chicago-based JMB Realty Corp, joined 38 institutional investors in the $2.6 billion leveraged buyout of Cadillac Fairview, but the investment went south after the mainland recession of the early 1990s forced the developer into bankruptcy protection....
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