BROKEN TRUST: The Book

BROKEN TRUST
Greed, Mismanagement & Political Manipulation
at America’s Largest Charitable Trust

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Latest Developments as of January 23, 2008

Named "BOOK OF THE YEAR" by Hawaii Book Publishers Association ... see details here and here

Click Here to buy a copy of BROKEN TRUST

This Week's Quote*:

"One of the best follow-the-money thrillers is not found on the fiction shelves, but rather in the nonfiction section. This true story of the modern plundering of Hawaii’s Bishop Estate Charitable Trust, described as a "world record for breaches of trust," has elements most novelists couldn’t devise. Just when you think the only thing missing from this account of avarice, arrogance, corruption and deception is sex, we get lewd acts in a public rest room.... Broken Trust ends with such irony even King and Roth can hardly believe it. If the measure of tragedy is how far the mighty can fall, then this story is enormous."

--Westside Chronicle, Santa Monica, California

Last Week's Quote*:

“As a mere story, even if it were fiction, the book would be fascinating reading. Beginning with a sensitive portrait of the cultural and political setting for the Princess’s life and the formation of her values and vision, the book combines the lure of the Islands with the intrigue of a whodunit to draw the reader inescapably into the drama. Like readers of any good novel, we join the plot vicariously, we picture the action, we pick heroes and cheer, and we identify villains and his. We turn page after page.”
--Ronald D. Aucutt, Real Property, Probate and Trust Journal

Last Month's Quote*:

“King and Roth present a fascinating, and suspenseful, account of the Bishop Estate scandal. They write in a simple, journalistic fashion that will captivate both the casual and academic reader, particularly those with an interest in legal and estate matters. Broken Trust is rich in anthropological detail, and spiced with characters and quotations that would comfortably populate a John Grisham novel, even the obligatory sexual interlude. The authors are cogent, fearless, and uncomplimentary when documenting the role and ethical quandaries of lawyers and judges. They even provide an index and photographs to help keep track of the large cast of characters, and they lighten the text with editorial cartoons…. Personally, I found Broken Trust as enthralling as the business book Barbarians at the Gate, which was later turned into a movie. It would sit well on your library shelf, or that of a wealthy client who is contemplating posterity.”

--James Daw, Estates, Trusts & Pensions Journal

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Latest Developments as of February 19, 2007

This Week's Quote:

"I loved this book! Not only is the story amazing, and well-researched, but it is so well told. It was like reading a thriller; I could not wait to find out what would happen next. Who would have thought that a book about a charitable trust could be so exciting? Some of the characters are truly unforgettable. I guess truth really is stranger than fiction. I am still shaking my head at the fiduciary breaches and the conflicts of interest."

-Professor Mary LaFrance, University of Nevada School of Law

Last Week's Quote:

"I write a monthly column for Morningstar on fiduciary investment issues so naturally I have a deep interest in ensuring that non-profits invest and spend their money prudently. Nonetheless, I was not too keen on reading a 300-page book on a Hawaiian charitable trust while on my vacation. Boy, was I wrong! Broken Trust reads like a political thriller with a whole assortment of characters straight out of a Tom Clancy novel and plot twists that are always unexpected. What's most amazing, though, is that it all happened in real life. I really enjoyed this book; it was hard to put down. A great read!"

-W. Scott Simon, author of The Prudent Investor Act: A Guide to Understanding (2002)

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October 6, 2006

From www.brokentrustbook.com:

Lokelani Lindsey's Handwritten Notes
from Trustee Meetings:

Volume 1
Volume 2

Number One Nonfiction Book in Hawaii for Past Six Months:

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Excerpts from the book ...

BROKEN TRUST

By Samuel P. King & Randall W. Roth

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Princess Bernice Pauahi Bishop was the richest woman in the Hawaiian kingdom. Upon her death in 1884, she entrusted her property – known as Bishop Estate – to five trustees in order to create and maintain an institution that would benefit the children of Hawaii: Kamehameha Schools. A century later, Bishop Estate controlled nearly one out of every nine acres of private land in the state. ... In 1995 the Wall Street Journal called it the nation’s wealthiest charity ... Then in August 1997 the unthinkable happened: four kapuna revered in the native Hawaiian community and a professor of trust law publicly charged Bishop Estate trustees with gross incompetence and massive trust abuse. Titled “Broken Trust,” the statement provided devastating details of rigged appointments, violated trusts, and the shameful involvement of many of Hawaii’s powerful.

This book brings to light information that has never before been made public, including accounts of secret meetings and communications involving Supreme Court justices. The authors also show, in vivid detail, how the scandal was swept under the rug by a judiciary that did not want a public airing of its dirty laundry, how Princess Pauahi’s will has been systematically violated, and why the violations may continue.

The book throws a spotlight on the legislature, the courts, the legal profession, the native Hawaiian community, and the media, showing how each functioned – or failed to function – during the two-year crisis and its aftermath.

Broken Trust offers readers the opportunity to reexamine fundamental questions about unchecked power and civic responsibility that resonate far beyond the borders of America’s fiftieth state.

– From the book jacket of Broken Trust

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CHAPTER 1

Princess for a New Hawaii

The Hawaiian Islands are remote specks of land in the largest ocean on Earth. Europeans had been exploring the Pacific for two and a half centuries before Captain James Cook happened upon the Islands in 1778. Although Hawaiians had navigated to the archipelago more than a thousand years before Europeans found it and had continued their voyages for hundreds of years, the Hawaiians Cook encountered had long since lost contact with other cultures. From their polynesian roots they had evolved their own version of the creation and workings of the cosmos, the origins of life, and the nature of the gods....

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Pauahi was born in 1831, twelve years after the rejection of the old gods. By then, the place where she was born, Honolulu, on the island of Oahu, had become a busy port town....

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Bernice’s decision to marry Charles Bishop meant defying her parents, who as high chiefs were looking to a marriage of state. There was a brief disruption in family relationships and communications, but within a year there were good feelings again, helped by the fact that the marriage turned out to be a good one....

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At age fifty-one, Bernice, Mrs. Bishop, Ke Alii Pauahi, was now far and away the largest landowner and the richest woman in the kingdom.

Until now, Pauahi had seen no need to make a will. But she had become the owner of valleys and plains, forests and grasslands, from the mountains to the sea. ... Beyond that, it was the sacred legacy of Kamehameha, the royal ‘aina.

On October 31, 1883, she signed her own will....

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CHAPTER 2

A Culture Suppressed

... In her will Pauahi made more than forty individual bequests of money or interests in land to alii, friends, servants, retainers, charities, and Charles....

The bulk of the estate, 125 parcels of land totaling 378,569 acres, went in trust to five named individuals: Charles R. Bishop, Samuel M. Damon, Charles M. Hyde, Charles M. Cooke, and William O. Smith.

As trustees, they were subject to strict fiduciary duties that required them to manage the trust estate prudently and to pursue the charitable mission spelled out in article 13 of Pauahi’s will: “to erect and maintain in the Hawaiian Islands two schools, each for boarding and day scholars, one for boys and one for girls, to be known as, and called the Kamehameha Schools.”

Pauahi instructed her trustees to prefer Hawaiians when providing “support and education [to] orphans and others in indigent circumstances,” but she did not limit admission to just Hawaiians. Instead, she authorized her trustees to decide who could attend the schools. As legal owners of the trust estate, Pauahi’s trustees also had the authority, acting jointly by majority vote, to buy and sell property, hire and fire employees, and expend trust money in pursuit of the charitable mission....

Several provisions in the will suggest that Princess Pauahi had in mind two trade schools where moral training and religious instruction would be emphasized. But she specifically authorized her trustees to make the rules and regulations for the schools, including who and what would be taught.

Pauahi’s ultimate goal was production of “good and industrious men and women.”...

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CHAPTER 5

The Trust Plays Politics as Activism Grows

IRONICALLY, the deadlock among the (Supreme Court) justices over Larry Mehau ultimately led to the only non-political appointment of the era -- Oswald Kofoad "Oz" Stender, a non-candidate who emerged as the compromise choice. ...

Stender (who was then CEO at another private trust, Campbell Estate) had not applied to be a Bishop Estate trustee. One day he got word that Chief Justice Herman Lum wanted him to come to the Supreme Court building right away. ... If Stender wanted the job he had to say so immediately, on the spot.

"You know, it's appalling," Stender said later of the way he had been chosen. "It's such a responsible job. No interview. Nothing. It was totally irresponsible."

From the moment Stender joined the Bishop Estate board in January 1990, the way trustees did business made little sense to him. At Campbell Estate there were clear policies, internal controls, annual reviews, regular appraisals. Campbell Estate staff knew what was expected of them and the extent of their authority. Fiduciary responsibility and responsiveness to the needs and concerns of beneficiaries were constantly emphasized....

At Bishop Estate, Stender could not see any map at all. After spending three months sizing up the situation, he wrote a memo to the other trustees that gave a broad overview of the entire operation. He noted the need for strategic planning and organizational accountability at Bishop Estate....

A special meeting was called. Chairman (Matsuo) Takabuki thanked Stender for his memo, explained to the group that Stender had not yet been around long enough to understand how things were done at Bishop Estate, and adjourned the meeting. It had lasted 30 seconds.

The other trustees said nothing. They recognized that Stender had experience managing a large land-based trust, but they did not appreciate being told that their way of doing things was not up to his standards. Nor did they appreciate an interview Stender had given shortly after his appointment to the board. A reporter had asked whether Stender thought the trustee selection process was "rigged." Trying to be diplomatic, Stender said that seemed to be the perception of some people.

The reporter persisted, asking if Stender agreed with that perception. Stender, taught at Kamehameha always to be truthful, said yes, he thought it was "rigged." ...

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CHAPTER 7

‘Black and blue panel’ courts trouble

By 1994, Governor John Waihee had appointed all five justices to Hawaii's Supreme Court. In February of that year, trustee Myron Thompson would be 70 years old, the mandatory retirement age that had earlier been set by the state Supreme Court justices.

It was no secret that Waihee was looking down the road to the end of his second and final term, which would be later that year. A Bishop Estate trusteeship would be a crowning achievement for the soon-to-be-former governor -- and would bring with it a tenfold increase in his pay.

Normally the justices began their search for a successor well before a scheduled vacancy, but this time they did not. They never explained why. Many people speculated that the justices wanted to appoint Waihee. For justices to appoint to the board of Bishop Estate the man who had personally appointed all of them to the Supreme Court might strike the public as overly political, but then, what did not operate politically in Hawaii?

A president of the Senate, Dickie Wong, had made it to the boardroom, as had William Richardson, a chief justice. Henry Peters had kept on being speaker of the House after his appointment to the supposedly nonpolitical trusteeship. All three had appointed people to the Judicial Selection Commission, which played a key role in the selection of the justices. This struck many as a bit too cozy, yet it had happened, and without adverse political consequences to anyone.

Even so, the justices appeared skittish about appointing the governor. Waihee's popularity was at an all-time low. During his two terms as governor, he had managed to turn a large budget surplus into a huge deficit, and, because of a series of procurement and land use scandals, a growing segment of the public perceived his administration as corrupt.

It would assuredly look bad for a sitting governor to be moonlighting as a Bishop Estate trustee. On the other hand, if the selection could be delayed until later in the year, and if his name could be put on a short list by a supposedly independent panel of people who were prominent in the community, then maybe the same result could be achieved: Waihee might be made a Bishop Estate trustee without its provoking the public too much.

Shortly before Thompson's scheduled retirement date, Chief Justice Ronald Moon announced that the justices had decided to appoint a panel of community leaders to assist in filling the vacancy. This would be the first time in the trust's history that anyone other than the justices would have an official role in selecting a Bishop Estate trustee. It would slow down the process, but Thompson would be allowed to serve beyond the end of his term, which would be another first. This approach, as described by Moon, would instill public trust in a process that critics had taken to calling "political."

The justices appointed 11 community leaders to what came to be called the "blue-ribbon panel." Two were former Bishop Estate trustees: (Matsuo) Takabuki and Richardson. Three others were experienced in business: Henry Walker Jr., a former chairman and CEO of Amfac, one of the largest corporations in Hawaii; Robert Pfeiffer, chairman of Alexander & Baldwin, another large Hawaii corporation; and Herbert Cornuelle, chairman of the board at Campbell Estate.

There were also Kenneth Mortimer, president of the University of Hawaii; Gary Rodrigues, state director of the United Public Workers, a powerful union; Alvin Shim, an attorney with a long involvement in politics; Melody MacKenzie, a founding member of the Native Hawaiian Bar Association; Monsignor Charles Kekumano, a retired Catholic priest who served on the board of the Queen Liliuokalani Trust; and Gladys Kamakakuokalani Brandt, who had retired as the principal of Kamehameha Schools and was the current chair of the University of Hawaii Board of Regents.

Mortimer had been at the University of Hawaii for less than a year. Advisers told him to turn down Moon's invitation because service on the panel would be too political. When Mortimer relayed that message to Moon, the chief justice responded, "That's why you have to serve, Mr. President. We need to have a group that is not enmeshed in local politics and whose integrity is beyond question."

A few days later Mortimer and the other panel members gathered at the Supreme Court building, where Moon assured them that they could determine their own process; the justices would not interfere. Some of the panel members had doubts. They were concerned that the panel's list would be honored only if it had "the right name" on it. Pfeiffer looked squarely at Moon and asked, "Would the justices select from our list even if there were only one name on it?"

For Pfeiffer and at least four others on the panel, getting the right answer to this question was a make-or-break condition of serving. Moon did not hesitate. He said he would rather have a longer list, but, yes, the panel's list would be honored, regardless of the number of names on it.

At its first working session, the group named Brandt chairperson. She suggested a rule: that each name on the panel's list of finalists must have broad support, that a name not be there simply to accommodate a determined minority. She wanted to avoid the horse trading that was known to occur in sessions of the Judicial Selection Commission, where Waihee insiders like Gerard Jervis and Gary Rodrigues were adept at getting "the right name" added to each judicial selection list. A majority of Brandt's panel members agreed to her suggestion.

Brandt set an ambitious schedule for the panel and stuck to it. Within two months, members had received and considered more than a hundred applications. Deliberations went smoothly until Waihee came up for discussion. Richardson, Shim and Rodrigues wanted Waihee's name added to the list of finalists; the others did not.

The discussion dragged on and on, even after the panel cast formal votes and Waihee fell well short of the required majority, eight to three. Rodrigues refused to move on. He eventually shouted at the others, ripped up the papers in front of him and threw the shreds across the table. Brandt, now 87 years old, told Rodrigues to behave himself. He responded that he was tired of being treated like a child.

"Gary," said Brandt, "when you act like a child, you must expect to be treated like a child. " Rodrigues stormed out of the room, reportedly straight to a telephone. According to Henry Walker, within minutes Rodrigues had reached Waihee.

The next day Brandt took the list (which contained the names of five candidates and had been signed by everyone on the panel but Rodrigues) to the Supreme Court building. There were five copies for the justices, each one sealed in a separate envelope. Brandt intended to drop them off and leave, but a secretary asked her to step into a side room, where the justices had gathered. Following a brief exchange of pleasantries Brandt handed them the envelopes, then stood by silently as the justices each took out the list and looked at it.

Brandt later recalled, "They didn't say anything; they just looked at the paper. Finally, one of them said, 'Where's his name?'" Brandt responded that the panel had considered adding the governor's name to the list but a motion to do so did not pass. She added that some panel members were of the opinion that there already were enough politicians serving on the board.

Brandt could tell that the justices were not pleased with the list, but she just assumed that in a matter of days the justices would announce which one of the five individuals on the list would be the next Bishop Estate trustee. But days passed without a word from the justices, and then more days.

After a week without uttering a public word, the justices announced that they had decided to postpone the choosing of the new trustee. They said they first would seek an opinion from the Commission on Judicial Conduct, an unofficial group whose members they had chosen.

Five months later, that commission announced that the justices were not legally obligated to use a trustee-screening panel. Moon wrote to the blue-ribbon panel: "Based on the advisory opinion and based on our individual consciences, we believe it only fair to reopen the application process."

When Pfeiffer heard what the justices had done, he swore that he would never again serve on a government panel in Hawaii. Others from the blue-ribbon group agreed, telling Brandt that they felt "used and abused." From then on, she referred to the group as the "black and blue" panel.

The justices eventually wrote that although they had "set no parameters on the search and (given) no directions," they had wanted "a list of finalists who were the most eminently qualified individuals." According to the justices, "for reasons known only to the panelists, their list did not include the names of all 'eminently qualified' applicants."

On November 25, 1994, more than nine months after a retirement date that had been known for years, the justices filled the vacancy with someone whose name had not appeared on the blue-ribbon panel's list. In the opinion of Hawaii's five Supreme Court justices, the most "eminently qualified applicant" was none other than Waihee's closest associate, Gerard Jervis.

"Wait and see," said Supreme Court Justice Steven Levinson. "Gerry Jervis will be a great trustee."

Many suspected that Jervis was just a seat warmer who would resign when a politically safe opportunity arose to appoint Waihee, but the trustees encountered bigger troubles before this scenario had any chance to play out.

After leaving office, Waihee joined a Washington, D.C., law firm that the trustees immediately hired to find a way for them to avoid state and federal oversight and to lobby against pending federal legislation that would limit trustee compensation.

A few years later, law enforcement personnel searched a secret office safe at (Bishop Estates' headquarters at) Kawaiahao Plaza and found a computer file named "CJ" that contained an astonishing two-page memo from "Nam" to "Speaker." "Nam" was Namlyn Snow, who worked directly for Henry Peters. "Speaker" was Peters. "CJ" was Chief Justice Moon.

The memo's subject was "Trustee Selection Process," and it was dated March 21, 1994, immediately after Gladys Brandt had delivered the blue-ribbon panel's list of names to the justices. In this memo, Snow, an employee of a charitable trust, mapped out a plan by which the justices of Hawaii's Supreme Court could steer the trustee nomination process back onto a more congenial track. ...

The steps laid out in the secret memo bore a remarkable similarity to the steps Moon and the other justices took at the time: "In certain aspects, the justices' writings and actions closely match reactions and announcements scripted by Snow," according to a confidential report submitted to the attorney general and Campaign Spending Commission in 2000.

The Snow memo was a smoking gun, but there was even more evidence of behind-the-scenes manipulation. Although verbatim minutes of trustee meetings were never taken, investigators eventually gained access to handwritten notes Lokelani Lindsey had made during these meetings.

One such note, dated weeks before the justices formed the blue-ribbon panel, listed the names of Pfeiffer, Cornuelle, Brandt, Shim, Richardson and Takabuki, who were all later named to the panel by Moon. Also among Lindsey's jottings were statements concerning the selection of a new trustee by the justices and the ways in which a screening committee could be used to achieve the desired outcome.

Bearing in mind the possibility that the justices already knew who they wanted to pick and that they perceived a need to slow down the selection process, Lindsey wrote: "If they already made up their minds ... the screening committee will be an excellent way to go." Then she added: "Only mechanism to allow the delay to occur is the committee."

Lindsey's handwritten notes and Snow's secret memo raised serious concerns about the justices' independence and increased the chances that someone would sue them for breaching the fiduciary duties they accepted when they agreed to select trustees. Individuals cannot be forced to select trustees, but anyone who accepts such a power is required to use it to further the trust's charitable mission, not for personal gain or political payback.

This legal exposure gave the justices strong personal incentives not to cooperate with any investigation of Bishop Estate trustees. In fact, the justices' personal interests would be best served if any such investigation could be shut down prematurely and the records sealed, incentives that were to play out strongly in events to come.

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CHAPTER 8

Five Fingers, One Hand

Matsuo Takabuki’s decision to take control of investing marked the beginning of waht evloved into a “lead trustee” system, in which trustee functions and areas of responsibility were divvied up among the Bishop Estate trustees. This was a serious breach of trust for a number of reasons.

For example, each co-trustee has a fiduciary duty to stay informed and involved, and to petition the appropriate court when confronted with serious, ongoing breaches of trust. Under Bishop Estate’s lead trustee system, however, access to information was tightly controlled, even among trustees. A single trustee was able to decide what information would go out from his or her area; when, in which directions, and to what form it would be presented to the board: or whether it would presented at all.

By 1995 the lead trustee system was both deeply rooted and pervasive. Henry Peters was in control of asset management, Lokelani Lindsey had education and communications, Dickie Wong handled government relations, and Gerard Jervis was in charge of legal affairs. For a while Oz Stender was lead trustee for alumni relations, but then the other trustees took that away, and he was left with nothing.

Stender was constantly surprised by decisions made by single trustees, such as the hiring of Yukio Takemoto to manage contracts. Takemoto had left the Waihee administration under a dark cloud. His activities in administering contracts, especially non-bid contracts, were the subject of an extensive investigation and serious allegations. Without Stender’s even knowing it was a possibility, Dickie Wong hired Takemoto to administer all of Bishop Estate’s contracts. He also gave Takemoto a large budget and a thirteen-person staff.

Stender also was surprised by Bishop Estate’s increasingly creative record keeping. Sometimes there would be three sets of minutes for a single meeting. Anything deemed sensitive was stamped “Confidential–Attorney-Client Privilege” and held by Bishop Estate’s chief in-house lawyer, Nathan Aipa.

For years people whose job it was to keep an eye on the trustees, such as court-appointed masters and lawyers in the attorney general’s office, did not even know these documents existed. The trustees took the absurd position that anything said or done in Aipa’s presence, as well as anything given to him for safekeeping, was protected by attorney-client privilege and for that reason could be kept secret.

During the 1990s the trustees hired dozens of outside lawyers while adding yet more lawyers to Aipa’s in-house staff. Despite the presence of so many lawyers, there was never a written policy on conflicts-of-interest, and no significant effort was ever made to acquaint the trustees with even the rudiments of their fiduciary duties....

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Under English common law, trustees were expected to serve without compensation unless the trust document said otherwise. Pauahi’s will said nothing about trustee fees. In 1884 the Hawaii Supreme Court ruled that trustees of any trust could take “reasonable compensation for their time and trouble.” In 1927 the legislature established statutory formulas that trustees could use when setting their fees for any particular year....

In most years the maximum trustee fee was set at slightly more than 2 percent – but of what? Did the formula apply to net or gross income? Gains or net gains? The answers to these critically important questions were never clear. Compounding the uncertainty, the trustees never stated publicly how they were interpreting or applying the formulas. Most years they apparently applied a liberal interpretation of the formulas and then divided the resulting amount among themselves in equal shares.

This approach drew scattered criticism but did not produce shockingly high numbers until the mid-1980s, after the U.S. Supreme Court upheld the 1967 mandatory leasehold conversion law. By 1987 trustee fees had grown to slightly more than $925,000 per trustee.

Trustees at prominent private schools in Hawaii, such as Punahou, Iolani and Mid-Pacific Institute on Oahu; Seabury Hall on Maui; and Hawaii Preparatory Academy on the Big Island, took no compensation. Neither did members of the governing boards at well-endowed universities, such as Harvard, Yale and Stanford. It had always been that way. Why would Bishop Estate be different?

The pat answer provided by Bishop Estate trustees was that, unlike the governing boards at other charitable institutions, the trustees at Bishop Estate functioned as lead trustees, which made them the equivalent of full-time CEOs, rather than part-time directors.

Dickie Wong frequently expressed pride in the lead trustee system, describing it as "five fingers acting as one hand." He said it enabled the trustees to do the work of a chief executive officer, chief operating officer, chief financial officer, chief legal officer, and chief communications officer, as well as a board of directors. When asked under oath who held the five trustees accountable for good results, Wong first said, "Nobody," then changed his answer to, "Us."

The trustees had effectively hired themselves to run the organization, a highly unusual move. There were no job descriptions, performance standards or annual reviews, and no one except they themselves had the power to conduct such reviews. The trustees of Bishop Estate had power without accountability, a recipe for disaster....

THERE ARE people who are responsible for oversight of charitable trusts. The state attorney general, as parens patriae, has the responsibility and ongoing power to investigate indications of trust abuse, and to ask the courts to take action when trustee misconduct is found. Even if the attorney general falls short in providing such oversight, the state court with jurisdiction over trusts -- in Hawaii, the probate court -- has the power to take action sua sponte (on its own) when it sees trust abuse. Hawaii also provides for a master to review the trustees' accounts each year.

Supreme Court justices who selected trustees arguably had an ongoing responsibility to take appropriate action in the face of serious trust abuse by anyone they selected. Also, probate court rules since 1995 have required lawyers to report misconduct by their trustee clients directly to the probate court.

Despite glaring problems at Bishop Estate for many years, all these lawyers, specifically attorneys general, probate judges, masters, justices of the Supreme Court and trust counsel, acted as though everything was as it should be.

Year after year, decade after decade, attorneys general never investigated, and masters appointed by the probate court never scratched below the surface. In fact, many of the masters submitted fawning reports. The high-water mark was reached by master Alvin Shim in his 1988 report (on estate operations). Bishop Estate trustees, he gushed, were doing an "awesome" job. That particular adjective appeared 17 times in his 25-page, double-spaced report....

In 1988, when the trustees wanted to keep secret the $599,000 annual raise they had just given themselves, Shim not only approved the increase, but actually joined the trustees in arguing to the court that the numbers should remain a secret. Shim's explanation for not telling the public was that Hawaiian cultural modesty weighed in favor of nondisclosure.

This was an era of enormous power for the people who ran Hawaii's government. What was noteworthy was not the power itself, but its concentration. There seemed to be less and less separation between individual branches of government, which were supposed to act independently -- and also between Hawaii's government and Bishop Estate....

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CHAPTER 12

Time to Say “No More”

On April 9, 1997, the Honolulu Star-Bulletin published an essay in its editorial section under the banner headline, “Broken Trust.” The essay began, “The community has lost faith in Bishop Estate trustees, in how they are chosen, how much they are paid, how they govern. The time has come to say ‘no more.’”

The essay went on to cover virtually that entire section of the paper, a head-on, 6,400-word attack charging that under-qualified and over-paid trustees had been selected in a rigged political process, had engaged in loose and self-serving financial management, and had distinguished themselves mostly by conflicts of interest, disdain for accountability, greed, and arrogance.

“Broken Trust” reached beyond Bishop Estate to indict the whole interlocked system of cogs and wheels that had produced the trustees and allowed them to operate with impunity: Hawaii’s political machine, the Judicial Selection Committee, the Hawaii Supreme Court justices.

Names were named: Dickie Wong, Henry Peters, Lokelani Lindsey, Gerard Jervis, Chief Justice Ronald Moon, Associate Justices Steven Levinson and Robert Klein, Governor John Waihee, union leader Gary Rodrigues, former court-appointed master Alvin Shim, political insider Larry Mehau, and more.

Stories were told. How Mehau had almost become a trustee. How Waihee manipulated the judicial selection process to get his men, Levinson and Klein, onto the Supreme Court. How Rodrigues had badgered other members of the blue-ribbon panel in an unsuccessful attempt to get Waihee onto the Bishop Estate board. How the justices rejected that panel’s selections and then picked the ultimate political insider, Gerard Jervis. How Waihee, after failing to get onto the board, went straight from the governor’s office to a law firm that was paid seven-figure legal fees to preserve the right of Bishop Estate trustees to pay themselves excessive compensation. How Yukio Takemoto had been hired at Bishop Estate after having been seriously compromised in a legislative investigationof his activities in the Waihee administration. How Lokelani Lindsey used Bishop Estate staffers for her own private purposes. How Henry Peters negotiated a transaction on behalf of a group buying real estate from the Estate. How trustees improperly put their own money in a Bishop Estate oil deal....

“Broken Trust” ended with a story about a school in New York where the trustees had operated with conflicts of interest and the president was grossly overpaid. A group of angry faculty, students, alumni, and former trustees had made enough noise to prompt an investigation that resulted in the removal of all but one of those trustees. The state attorney general filed a lawsuit to hold each of those trustees personally accountable, legally and financially, for mismanagement of assets and violations of fiduciary duty.

“If it can happen in New York,” the authors concluded, “why not in Hawaii?”...

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“Broken Trust” set off other strong reactions. One of the trustees’ lawyers, Michael Hare, criticized the authors for “throwing mud” and “tarring people with rhetorical questions and faulty logic.” Hare said it was wrong for the authors to reveal that his firm received over $10 million in legal fees from Bishop Estate in the years following his term chairing the Judicial Selection Commission. He did not question the statement’s accuracy: he simply argued that it might lead readers to assume a connection.

John Waihee told reporters he was disappointed that the “Broken Trust” authors had not had “the courtesy to call to check the facts.” He gave his version of the blue-ribbon panel story and of a subsequent meeting he had had with Kekumanu to discuss the matter. Kekumano subsequently said Waihee’s story was “not the same as my clear recollection of what transpired.”

U.S. Senator Daniel Inouye declined to comment on the essay, calling the situation “rather tragic and sad.” The other senator from Hawaii, Daniel Akaka, defended the trustees. He said the level of compensation was not too high; if anything, the trustees deserved to be paid more. His elder brother, Abraham, still pastor of Kawaiahao Church, delivered a completely different message from his pulpit. He said that the moral character of the trustees needed to be carefully weighed.

The Bishop Estate communications department characterized the essay as an attack of Pauahi’s legacy. They placed full-page newspaper ads defending the trustees, with Pauahi’s portrait prominently placed. Won insisted that the essay was the work of Roth, a Mainland haole.

The trustees’ chief in-house lawyer, Nathan Aipa, picked up on this, repeatedly referring to the “Broken Trust” authors as “the Roth Group.” Aipa also told reporters that Sam King was probably just sore because nobody ever mad him a Bishop Estate trustee. Those reporters called King for a response, and King was happy to oblige: “Nathan Aipa is an ass.”...

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The May 15 march by Na Pua had put a spotlight on the problems at Kamehameha Schools. The “Broken Trust” essay expanded the zone of attention. The public now knew that the problems at Bishop Estate were greater than just the work of one heavy-handed trustee on the Kamehameha campus, and they involved more than just Bishop Estate....

Everybody was talking about Bishop Estate, and not in glowing terms. More than talk, these events galvanized action, a chain of events that would never be forgotten by those who took part in them, and whose ultimate outcome seemed at every turn uncertain.

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CHAPTER 14

Mistrust and Paranoia

If 1997 had been an earth-shattering year for Bishop Estate trustees, it had been equally unsettling, in different ways, to the trust’s employees at Kawaiahao Plaza and Kamehameha Schools....

The trustees’ close monitoring of the march in May 1997 added paranoia to the atmosphere of fear within Kawaiahao Plaza. Few dared, however, to say a word about it....

Outside Kawaiahao Plaza the nastiness had started early and spread, and it was still going on. Greg Barrett of the Advertiser received a threatening visit at home from a man who said it was his job to “make nice” with people before they got hurt: “You know what I mean, brah.” Margery Bronster received direct threats, two of them serious enought to warrant security at her home. Beadie Dawson, the unofficial voice of Na Pua, received typewritten threats. Stender got anonymous phone calls at home, and someone slashed one of his car tires in a downtown parking garage.

A deputy attorney general received word one day that Lindsey had been seen at Kawaiahao Plaza over the weekend, ordering files deleted from an office computer. Laurian Childers, an information technologist in charge of the Estate’s computer network, told deputies that she had been instructed to make sure that the deleted files could not be restored. Childers swore to this in an affidavit. Sixty minutes after Childers made this statement, her husband received an anonymous phone call at home. A man’s voice said, “Tell that f------ haole bitch if she knows what’s good for her she won’t testify.”

Lindsey insisted that the deleted files were a collection of Hawaiian songs and some information about a trip to New Zealand and had nothing to do with the attorney general’s investigation. She did not explain why, in the middle of an investigation, such innocuous items would need to be deleted from a computer over the weekend and carefully wiped clean from the server.

Childers wanted only to tell the truth and then be left alone. It was not to be. The threats continued. Bronster arranged for armed guards at the Childer’s home and an escort for their three-year old daughter to and from preschool.

Childers loved her job at Bishop Estate, but the situation became intolerable. After several weeks of living in the company of armed guards, she and her family sold their house and moved away from Hawaii.

She never testified....

~ ~ ~

The teachers had banded together as Na Kumu O Kamehameha because of Lokelani Lindsey. As events unfolded, they widened their sights.

On June 6, 1997, the Star-Bulletin’s front page headlines read: “Kamehameha faculty goes public: Risking their jobs, more than 200 teachers organize and issue a two-page statement blasting trustees.”

Unlike the teachers, Kamehameha administrators did not complain publicly. They continued to follow orders (as required by their employment contracts), even when Lindsey, Wong, and Peters targeted Na Kumu and especially its leaders, Abad, Eyre, Ho, and Obrecht.

Two administrators, however, became convinced that the situation was so abnormal, so perverse, that a higher duty required them to support the teachers, and to do so openly. These renegade administrators were Julian Ako and Kathy Kukea.

Ako had worked for Bishop Estate since 1979, first in outreach, then on campus as head of social studies, and finally as dean of student activities. Everyone in his family had gone to Kamehameha, and he himself had finished his senior year in 1961 as the head of his class, slightly ahead of Michael Chun. Ako’s valedictorian’s speech was on the biblical text, “For unto whomsoever much is given, of him shall be much required.”

Kukea had spent nearly all of the preceding twenty years as the coordinator of curriculum and instructions at the Kamehameha high school. She had looked forward to having a woman trustee at Bishop Estate but had come to view Lindsey’s appointment as a huge mistake.

Distance immediately developed between Ako and Kukua, on one side, and their boss, Tony Ramos, on the other. As the divide widened, fellow administrators found it increasingly difficult to keep one foot in each camp....

Na Kumu decided that a teachers’ union might improve the situation and hired a lawyer to help sort through the possibilities. These efforts drew financial support and encouragement from members of the statewide public-school teachers’ union, but the Kamehameha teachers had little interest in being part of a large labor union. They just wanted respect and protection.

Although deeply divided on other issues, all five trustees and Michael Chun were absolutely united in their desire to stop the teachers from forming a union. They hired a labor lawyer and a labor “consultant.”

Michael Chun wrote to Na Kumu that the two were being brought in to promote communication and help with “the healing process.” Na Kumu quickly discovered, however, that the lawyer the trustees had hired specialized in sharp-edged advocacy for employers, and the consultant was known around town as a union buster.

The trustees said that the teachers could not hold organizing meetings on campus, but this was eventually ruled to be in violation of federal law. Then the trustees asserted that the Kamehameha teachers could not form a union because they all were part of the management `ohana. This, too, was determined to be without merit.

Chun argued that a teachers’ union at Kamehameha would be divisive. He campaigned against the idea with letters and memos and had an anti-union video running on the schools’ closed circuit TV system right up to the day of the union vote on March 13, 1998.

When the secret ballots were tallied and certified, the result was 186 for a union, 36 against....

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CHAPTER 15

A World Record for Breaches of Trust

As the investigations mounted, it became abundantly clear that Bishop Estate trustees, over time, had violated numerous fiduciary duties, perhaps even criminal laws. As the IRS eventually put it, they were treating Princess Pauahi’s legacy like “a personal investment club,” theirs to do with as they pleased, with shocking little apparent concern about the trust’s charitable mission.... [Colbert] Matsumoto, Sakamaki, and accountants from the Arthur Andersen firm eventually compiled a list of forty-seven Bishop Estate investments that each lost at least $2 million between 1994 and 1996....

Matsumoto’s list of forty-seven separate transactions ... began with Kukui ($49,395,947); Montrose Group ($47,205,472); SoCal Holding ($34,459,800); JMB Cadillac Fairview ($29,000,000); and Rock Real Estate ($22,535,000). Before Matsumoto discovered this information and made it public, most people only knew about investments that either worked out well (because the trustees would talk about those) or that ended up in litigation outside Hawaii (where courts rarely seal records. This second category included not just the oil and gold course deals previously mentioned, but also an Internet start-up called KDP Technologies.

KDP said it provided a computer dating service and software that allowed actors, entertainers, and models to display their talents on the Internet. This investment had been presented to Bishop Estate by Ben Bush III of California, whom Lindsey had met when they were both involved in an effort to buy gold hidden in the Philippines for resale to rich Arabs at a big profit. Lindsey had said nothing to the trustees about her personal business dealings with Bush, and Bishop Estate’s staff did not look into his background. ... Bishop Estate initially committed only $500,000, but that quickly grew to $1.3 million. Bush got a finder’s fee, reimbursement for a loan, and a salary of $90,000. Dickie Wong’s brother-in-law, Randy Stone, received a $150,000-a-year consultancy, plus stock options.

The trustees eventually learned that Bush, in another part of his investment-advising activities, had been laundering money and committing fraud. He was indicted, tried, convicted, and jailed. Bishop Estate’s entire investment in