David C. Farmer vs. Harmon - Witness LeeAnn E.P. Crabbe

David C. Farmer, Successor-Trustee vs. Harmon

(Formerly Woo vs. Harmon & Nicholson vs. Harmon)

CV05-00030 DAE KSC

U.S. District Court For the District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

—

DEFENDANT’S WITNESS

LEEANN E.P. CRABBE

Queen Liliuokalani Trust
1100 Alakea Street, Suite 1100
Honolulu, Hawai‘i 96813

Fax: (808) 203-6151

E-mail:info@onipaa.org

LeeAnn Crabbe is vice president of Queen Liliuokalani Trust; formerly chief financial officer for the trust, she will oversee development on the trust's land, which is primarily on the Big Island. The $400 million trust served 6,000 Hawaiian children directly and 29,000 indirectly through community programs in 2004.

Background: Crabbe joined the trust amid a major reorganization in 2002 after working for about 15 years at the Kamehameha Schools, where she was director for budget and financial planning. Before joining the trust, Crabbe had no direct background in development, though she had done financing work for Kamehameha Investment Corp.

~ ~ ~

April 16, 2006

Trust puts its trust in Crabbe

Queen Liliuokalani Trust's new VP says
she has been given a "great opportunity"

Star-Bulletin staff

Question: Why did you move from chief of finance to head of development?

Answer: I've been actually presented a really great opportunity by the leadership here at the trust, recognizing that I've been doing a large portion of it already. We're very thinly staffed here at the trust. We have six employees at the endowment side and most of our work is outsourced.

The leadership has given me an opportunity to stretch my wings, recognizing not just my commitment to the trust but the fact that I know the importance of the trust to the Hawaiian people. It's a tremendous responsibility.

Q: How big are the trust's assets?

A: Approximately $400 million. We consider ourselves sort of a startup. In 2002, First Hawaiian Bank stepped down as co-trustee and asset manager. We are now totally self-governed and we had some reorganizing to do. We did have to lay off 25 percent of our staff at that time. Our rebound has been stronger than anticipated. We took our medicine and we have gotten better quicker than we thought we would. We're now at about 150 employees.

Q: What development are you considering for Keahuolu and Honohina on the Big Island?

A: Honohina, right now, none. We have 2,400 acres there. Our main focus now is Keahuolu, which is next to Kailua-Kona. We are in the process of master planning our 3,500 acres. ... Really, for us, we're a small trust. Keahuolu is really our future in terms of growing our trust, and the reason for this is the needs of native Hawaiian children are growing and that's the reason we exist.

We have some 16 acres in Waikiki that provide over 75 percent of our rental income.

Q: What kind of development are you looking at? Residential? Commercial? Hotel?

A: All of the above are potential uses, but no specific uses have been identified at this point.

Q: Will you need to seek land-use and zoning approvals?

A: We have some state land-use entitlements in place and county zoning as well but, yes, we will need to go back in.

Q: Is any development already taking place?

A: We've put in a new road, a small road, and that opened up 11 lots for leasing. We're holding back the final two for potential commercial development. We are in discussions with a party.

http://starbulletin.com/2006/04/16/business/story03.html

~ ~ ~

November 24, 1997

HAND DELIVERED

Colbert M. Matsumoto, Esq.
Master, Bishop Estate
Amfac Tower, Suite 2000
700 Bishop Street
Honolulu, Hawaii 96813

RE: Kamehameha Schools Bishop Estate (KSBE); Pauahi Holdings Corporation (PHC); P&C Insurance Company, Inc. (P&C)

Dear Mr. Matsumoto:

This is to provide information regarding what may be conflicts of interests, breach of fiduciary duties and other wrongful acts by trustees, officers, directors, managers and other employees of the referenced entities.

I was employed by Kamehameha Schools Bishop Estate (KSBE) as their Risk/Insurance and Safety Manager from November, 1988. I was president of P&C Insurance Company, Inc. (P&C), a for-profit subsidiary of Pauahi Holdings Corporation (PHC) from October, 1994. I was terminated from my position at KSBE by Nathan Aipa on November 20, 1996; and from my position at P&C by Henry H. Peters on the same date.

My responsibilities at KSBE included arranging insurance and bonds for the estate and its subsidiaries, and providing oversight for claims settlements which were handled by the insurance carriers or independent adjusters. Lines of coverage included trustee bonds; bid and performance bonds; crime insurance, including employee dishonesty; directors and officers liability; fiduciary liability; workers compensation; and other property and casualty coverages. Safety was another of my primary responsibilities.

My belief is that the main reason for both terminations was the fact that I would not follow the directives of Henry Peters, Nathan Aipa, Louanne Kam and others to carry out what I believed were illegal or wrongful acts, including tax fraud and the breach of fiduciary duties.

When I was hired by KSBE, I reported to Gil Tam, who was at that time the Director of Personnel, and later became the Administration Group Director. While in this department, I was interviewed by the masters who requested information on the insurance programs including summaries of insurance policies, claims, etc. After I was transferred to the Legal Group, I no longer was given the opportunity to meet personally with the masters. Instead, Nathan Aipa would ask a paralegal or a legal secretary to obtain insurance summaries or other documents requested by the master. Likewise, I never had the opportunity to talk with the IRS auditors that were in the KSBE offices for several months in 1996. I considered this to be the result of Mr. Aipa’s desire to control the disclosure of information that might raise questions of improprieties on the part of the trustees and others.

The following are examples of breaches of fiduciary duties; questionable tax returns; intentional violation of federal and state statutes; discrimination and other wrongful acts:

1. There was a failure to disclose conflicts of interest and other financial information in federal tax returns as regards personal investments by certain trustees, executives, managers and employees in related for-profit companies controlled by KSBE.

2. IRS rules regarding the maintaining of “arms-length” relationships between a tax-exempt charitable organization and its for-profit subsidiaries were being breached. For example, at the direction of Henry Peters, Nathan Aipa, Louanne Kam, Eric Martinson, and others, KSBE paid insurance premium charges, legal fees and claims costs that should have been paid by for-profit subsidiaries (e.g. Kukui, Inc., Sino Finance, Unison Pacific, SoCal, AFCO, Paradise Petroleum, etc.), or by individual trustees, officers, directors or employees.

3. Services were being provided by KSBE employees, including myself, to P&C and other for-profit entities at no cost to the subsidiaries. In effect, KSBE is subsidizing these for-profit entities, which results in larger profits for the subsidiaries (and possibly larger commissions for the Trustees).

4. Henry Peters, Nathan Aipa and Louanne Kam were attempting to control the operations of P&C, including claims. This included directing the payment of “excess benefits” to independent contractors for non-bid or non-existent contracts. For example, P&C contracted with M&M Insurance Management Services, Inc. (M&M IMS), a subsidiary of Marsh & McLennan, Inc., for captive management services. This contract was on a time and expense basis, with a cost estimate of around $60,000. Yet the broker, Marsh & McLennan, Inc., was billing P&C an additional flat $200,000 annual fee. There was no contract for these services, and no satisfactory explanation was ever given for the charges. One belated explanation given was that this fee included safety and loss control services and “brokerage” services. However, P&C had paid M&M Protection Services, Inc. (another related company) under a separate “time and expense” contract for the safety services, and M&M had received commissions from the reinsurance carrier for their “brokerage” services. This constituted duplicate billing and well as over-billing for these services. Despite my objections as president of P&C, Peters, Aipa and Kam were adamant that I continue to pay these unexplained overcharges by M&M. In addition to these overcharges, I obtained property insurance proposals from another broker, Hobbs Group, which greatly improved coverages over M&M’s program and reduced the costs by over $600,000 a year. Nathan Aipa and Louanne Kam desperately attempted to prevent Hobbs Group from obtaining this account and to keep M&M on as Broker of Record, even at the risk of losing this program and its savings to the estate.

5. Insurance premiums and loss costs were being improperly allocated to lessees and tenants of KSBE properties. Many of the insurance policies for KSBE and its subsidiaries combine coverages for all entities under the same “blanket” policies. These insurance premiums, as well as the claims costs which were paid under self-insured retentions and deductibles, were allocated to the Kamehameha Schools, to Bishop Estate, and to covered subsidiaries. These charges, in turn, were further allocated to specific commercial projects, such as Royal Hawaiian Shopping Center, Windward Mall, Keauhou Shopping Village, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), etc., in accordance with procedures set forth in KSBE’s Policies & Procedures Manual and under P&C’s operating guidelines. Costs which were allocated to the commercial projects were nearly 100% recovered from the lessees and tenants through their monthly maintenance fees. Due to directives of Nathan Aipa, Louann Kam, Eric Martinson and others, these insurance costs were being improperly allocated, resulting in unfair charges to the tenants and lessees of these projects. The “overcharges” being made by M&M would also be included in these insurance costs that were passed through to tenants and lessees.

6. A portion of these improperly allocated insurance costs were also paid from the millions of dollars of Federal grant funds, including grants for the school’s ROTC program. On KSBE’s tax returns, Form 990, the estate states that it does not discriminate on the basis of race, while it is well known that in order to apply for admission you must complete a questionnaire which inquires of the applicant’s racial background.

7. Several of P&C’s claims were being directed by Louanne Kam or other KSBE in-house attorneys. An example was the Larry Ching flood damage claim. Kam, in conjunction with Aipa, wanted to hire an outside attorney and an expert to handle this claim. In keeping with P&C’s “arms-length” guidelines and its Operations Manual, only P&C’s contracted independent adjuster, John Mullen & Co., was authorized to hire attorneys and experts. Furthermore, this involvement by Aipa and Kam was, according to Kam, at the direction of Trustee Richard Wong who wanted to see what we could do to “settle this claim”, which had previously been denied by Mullen based on their findings that this was “an act of God”.

8. Annual financial statements for KSBE and P&C, which were prepared by Coopers & Lybrand (C&L), failed to disclose large claims, and to show adequate financial reserves for these claims (e.g., the McKenzie and Kona Enterprises, claims). I had several discussions with the auditors from C&L during which I expressed my concerns regarding the failure to disclose this information, and on November 20, 1996, I documented some of the recent discussions in a letter to C&L, with a copy to the State Insurance Commissioner. To my knowledge no action was taken by either C&L or the Insurance Commissioner.

9. It was reported that KSBE guaranteed several large bank loans (including loans from Bank of Hawaii) to “insider partners” in several investments.

10. It was reported that an “insurance policy” was issued to Robert Rubin to protect his financial interests in Goldman Sachs while he is serving as U.S. Treasury Secretary. Even though insurance contracts and surety bonds were my area of responsibility, I was never informed of this arrangement and, to my knowledge, no actuarial studies were made, no reinsurance was obtained, and no reserves were established to cover this substantial financial guarantee. (This arrangement would also appear to constitute a conflict of interest situation between the federal government, Robert Rubin, Goldman Sachs, and the wealthiest tax-exempt educational charity in the United States.)

11. There was coercion of employees, by means of threats of discipline or termination, to violate laws or to “look the other way” while superiors engaged in illegal or unethical acts, such as: the altering and/or falsifying of staff reports and contracts; directing notaries public to notarize documents without witnessing the signatures, or the signatories personally signing the notary logs; collusion with independent contractors to conceal and cover-up wrongful acts; discriminatory practices in hiring; and misuse of the “attorney-client privilege” to prevent the disclosure of these acts.

12. In my capacity as president of P&C, I refused to sign the annual financial statements prepared by Coopers & Lybrand for the fiscal period July 1, 1995 to June 30, 1996. The basic reasons for my refusal were the attempts by Henry Peters, Nathan Aipa and Louann Kam to direct all areas of P&C’s operations and investments, including the improper awarding of insurance contracts and settlement of claims, and the failure to set proper loss reserves. I discussed these irregularities with Cary Okawa and Dennis Tsuhako of Coopers & Lybrand on October 18, 1996, and followed-up with a letter dated November 20, 1996, in which I enclosed documents that provided evidence of these wrongful acts. A copy of this letter was sent to the Hawaii Insurance Commissioner.

13. There were intentional violations of the Environmental Protection Act (EPA) and other environmental regulations, with various attorneys in the Legal Group actively participating in discussions in order to keep the actions of trustees confidential under the “attorney-client privilege” doctrine. The refusal to act promptly to remediate known environmental problems endangered public safety. Two health teachers complained for months that they felt that there was asbestos in their classrooms, and they were assured that there was not. Eventually, the teachers sent samples of the ceiling tile to a testing lab, and asbestos was indeed found in the ceiling materials. The materials were eventually replaced, but the two teachers were labeled as “chronic complainers” and “trouble-makers”. Over 200 known sites on KSBE properties were identified in a “confidential” survey about two years ago. I was not privileged to see the results of the survey. To my knowledge, little or nothing was done to remediate any of these sites. There was known environmental impairment at the Nationwide Industries’ chemical plant in Pandora, Ohio, which the estate did nothing about for the several years it owned Nationwide (the name was later changed to Snap Products, Inc.). When the company was sold, KSBE retained the liability for clean-up of the site. To my knowledge, there was no clean-up during the time I was employed by KSBE. The one site that environmental clean-up was attempted was the Waterpark Tower site. This project was delayed for months, while tenants and neighbors were exposed to the unknown effects of wind-blown and water- borne hazardous chemicals. Even then, the remedial work was questionable, performed by an uninsured, non-licensed contractor, with hazardous materials being transported from the site by an improperly insured (for environmental liability) trucker.

14. The trustees knowingly disregarded regulations under the Americans with Disabilities Act (ADA). Colleen Wong informed the committee formed to handle the ADA that the schools were exempt from the regulations because it was “a religious institution”. This was despite an outside legal firm’s prior opinion that KSBE indeed fell under the regulations. A multi-million dollar class action suit filed against the estate and its subsidiaries indeed proved the legal department again to be wrong in its advice. Also the estate failed to make reasonable accommodations for persons with disabilities. An example is Marcia Diver, who became disabled on the job from bilateral carpal tunnel syndrome from heavy use of the computer. After having an operation, she was brought back to a job which required even heavier use of the computer. Consequently, her disability worsened. KSBE’s claim committee attempted to bring her back to work in a lighter duty position, but this proposal was successfully defeated by Colleen Wong and Carol Koza from the Personnel Department.

15. Insurance claims were not being reported by the Legal Group (e.g. Kona Enterprises, McKenzie Methane), and were being mismanaged by Aipa, Kam and others when they were reported. This resulted in hundreds of thousands of dollars in legal costs and settlements lost by the estate for failure to comply with the terms of the insurance contracts.

16. Contracts were not being put out for bid proposals in accordance with the trustees’ policies and procedures. For example, the Waterpark Towers environmental remediation contract was supposedly put out for bid. However, it appears that there were no bid specifications and no bid bonds were required for this project. (A consultant, Ed Tabangay, told me that he waived the bond requirements.) One of the bidders told me that there were no specifications, and that the bid was basically “done over the phone”. The low “bidder” was Stay & Sons, which was unable to furnish evidence of proper insurance for the contract. It also appeared that the company was not a licensed contractor, and the remediation process apparently had not been proven to work on this type of chemical (PCB). When the initial on-site remediation treatment was unsuccessful, a change order was issued which approximately doubled the original bid. To top it off, Trustee Lokelani Lindsey’s son just happened to be a key employee for Stay & Sons, which has all the appearances of a conflict-of-interest.

17. Racial discrimination was evident, obviously in the admissions policy for the schools (reportedly the last racially segregated school in the United States), but also in hiring practices. I was informed by -------------- that her department had advertised for a job opening, and that from a number of applicants they had selected the most qualified individual (who happened to be from the mainland) and had made an offer to him. According to -------- in a confidential phone conversation with me, she was called in to the office of her superior, Rodney Park, and was told that Henry Peters wanted her to hire one of the less qualified applicants simply because she was a Kamehameha graduate. She was also the wife of a supervisor at the schools.

Religious discrimination was also evident, and it took a long, expensive lawsuit before the estate was forced to hire other than protestant teachers.

Some of these situations I discussed with persons within the organization or connected with the organization. I reported my concerns regarding the Waterpark Tower situation (among others); co-investments of trustees and others in projects controlled by KSBE; conflict of interest situations; non-bid contracts, and other issues with the internal auditor, Dennis Fern, and his assistant Andrea Oshiro. I reported the pressures being put on me by Nathan Aipa and Louanne Kam to commit illegal acts and to breach my fiduciary duties, with Sandie Wicklein, Director of Personnel, and Pat Chalfin. I had many discussions with Karen Wilkenson, who was responsible for compiling KSBE’s Policies and Procedures manual, concerning the Legal Group’s “ostrich” approach to compliance with environmental protection laws. I discussed the “arms-length” and conflict of interest issues with Gil Ishikawa and Myron Mitsuyasu and with representatives from Coopers & Lybrand. I discussed the Legal Group’s improper interference and improper handling of claims with several claims supervisors and adjusters at John Mullen & Co., notably Robert Kuroda, Gary Gowdy and Neal Seamon. I reported my concerns regarding the excessive charges and improper conduct of M&M to the Insurance Commissioner.

Persons having direct knowledge or information of these acts I have described are believed to include:

KAMEHAMEHA SCHOOLS / BISHOP ESTATE:

Henry Peters, Trustee

Richard S.H. Wong, Trustee

Oswald Stender, Trustee

Lokelani Lindsey, Trustee

Gerard Jervis, Trustee

Matsuo Takabuki, (former) Trustee and current consultant

William Richardson, (former) Trustee and current consultant

Myron Thompson, (former) Trustee (deceased)

Rodney Park, Director of Administration Group

Wally Chin, Controller

Yukio Takemoto, Budget Director

Leeann Crabbe, Budget Mgr.

Gilbert Ishikawa, Tax Manager

Myron Mitsuyasu, Asst. Tax Manager

Dennis Fern, (former) Internal Auditor

Andrea Oshiro, (former) Internal Audit Dept.

Ramona Hinck, Accounting Mgr.

Doyal Davis, (former) Budget Mgr.

Maryanne Inouye

Bruce Nakaoka, Real Estate Investments Department Manager

Eric Martinson, Financial Assets Manager

Aaron Au, Financial Assets Division

Daniel Jones, Financial Assets Division

Nathan Aipa, General Counsel & Director, Legal Group

Linda Jacobs, Legal Assistant

Louanne Kam, Director, Litigation and Risk Management Division

Gilbert Tam, (former) Director, Administration Group

Guido Giacommetti, (former) Director, Asset Management Group

Mitch Gilbert, (former) Financial Assets Manager

Sydney Keliipuleole, Asset Management Div.

Charles Maeda, Information Systems Div.

Neil Hannahs, Asset Management Group

Michael Chun, Pres., Kamehameha Schools

Ed Tabangay, (former) Engineering Dept

Marcia Diver, Information Services Division

Emalia Keohokalole, Secretary

Colleen Wong, Esq.

Phil Chang, Esq.

Lyn Anzai, Esq.

Allan Yee, Esq.

Sam Hata, Director of Administration

Allen Young, Engineering Dept.

Sandie Wicklein, Director of Personnel

Pat Chalfin, (former) Personnel Dept.

David Dunigan, Litigation & Risk Management Div.

Julie Kawakami, Litigation & Risk Management Div.

Kim Kanalaupuni, Litigation & Risk Management Div.

Daniel Pires, Documentary Dept.

Leslie Yamashita, Notary Public

Werylend Tomczyk, Notary Public

Luana Sala, Notary Public

Lori Loo, Notary Public

William Rosehill (former employee)

PRICE WATERHOUSE:

Mark McConaghy

P&C INSURANCE COMPANY, INC:

Henry H. Peters, Chairman, Board of Directors

Gilbert Tam, Director

William S. Richardson, Director & Secretary/Treasurer

Peter J. Lowe, Vice-President

Rocco Sansone, Marsh & McLennan, Inc., Broker

Nathan T. K. Aipa, Asst. Sec./Asst. Treasurer

PAUAHI HOLDINGS CORPORATION:

Richard Wong, President

Glenn Hara, Treasurer

Henry Peters, Chairman, Board of Directors

ROYAL HAWAIIAN SHOPPING CENTER, INC:

Richard Wong, President

Glenn Hara, Treasurer/Controller

COOPERS & LYBRAND

Cary M. Okawa, C.P.A.

Dennis Tsuhaka, C.P.A.

Carl Kobayashi, C.P.A.

STATE OF HAWAII

Rey Graulty, Insurance Commissioner

Wayne Metcalf, (former) Insurance Commissioner

Margery Bronster, Attorney General

Kevin Wakayama, Deputy Attorney General

JOHN MULLEN & CO.

Robert Kuroda

Neal Seamon

Gary Gowdy

MARSH & McLENNAN, INC.

Rocco Sansone

Patricia Onogi

Christine Lee

M&M INSURANCE MANAGEMENT SERVICES, INC.

Peter Lowe, Sr. Vice-Pres.

Garrett Liu

UNITED EDUCATORS INSURANCE GROUP

Joseph McCullough

CHUBB INSURANCE GROUP

Milton T. Perkins

Michael Goolsby

M. Tony Rangel

ARKWRIGHT INSURANCE COMPANY/HOBBS GROUP

John McGrath

Tim McGrath

Mary Brieghner

Documents which relate to these allegations include:

► Federal and state tax returns, financial statements, invoices, credit memos, receipts and disbursements pertaining to insurance premium transactions, payments for insurance claims including legal expenses, and payments by KSBE and P&C to Marsh & McLennan, Inc., M&M Insurance Management Services, Inc., M&M Protection Services, Inc., and William Mercer Co.

► P&C’s application to the Insurance Commissioner, State of Hawaii, for a license to operate as a captive insurance company, including all supporting documents.

► My letter dated 11/20/96, to Coopers & Lybrand, with all enclosures, and any written response or record of discussion between Coopers & Lybrand and KSBE/P&C/PHC, or with M&M and/or M&MIMS, regarding this letter.

► My letter dated December 29, 1996, to Trustees, with all enclosures.

► P&C’s Operations Manual.

► My draft of P&C’s “Arms-Length Guidelines”.

► All sections in KSBE’s Policy and Procedures Manual which relate to conflicts of interest; maintaining arms-length relationships; bidding and contract procedures for third party contracts.

► Minutes from P&C’s Board of Directors meetings.

► The following documents relating to the Waterpark Tower Environmental Remediation project: Bid Specifications; List of Bidders; Bid Bonds; all Contracts (including Ed Tabangay’s); Performance Bonds; Staff Reports; all invoices.

► The contract (referred to in newspaper reports as an “insurance policy”) between KSBE and Robert Rubin guaranteeing the value of Mr. Rubin’s financial interests in Goldman Sachs. All documents related to this contract, including actuarial studies, reinsurance contracts, surety agreements, etc.

► Copies of any loan guarantees made by KSBE to any trustees, employees or business partners in any partnerships, joint ventures, or corporations in which KSBE had an interest.

► Sections of KSBE’s Employee Manual, staff reports, internal and external letters, memorandum, and written opinions relating to “arms-length” and conflicts of interest issues.

► Information, correspondence and staff reports relating to the “Taxpayers Bill of Rights II”, including KSBE’s lobbying activities and funds expended in its unsuccessful efforts to defeat the bill.

► The following Bate-stamped documents which I was required to return to KSBE under court injunction:

1-3; 4-5; 6-50; 61-63; 65-66; 67-80; 120-121; 132-134; 139-141; 142-151; 152-153; 154-155; 156-157; 158-159; 160-162; 165; 167; 176; 177-180; 182; 183-184; 185-188; 225-226; 227; 228; 229; 230; 242; 243; 258-259; 260; 261-262; 263; 264; 265; 266; 267; 268; 269-270; 271; 272; 274-275; 276-279; 281-282; 283-344; 391; 393-394; 397; 407-408; 409; 410-421; 440-441; 442-453; 454; 459; 461; 462-472; 473-474; 475-476; 477-478; 479-498; 543; 544-545; 546-547; 548; 549; 550-552; 553; 554; 562-564; 565-569; 621; 622-624; 733-734; 840-925; 976-977; 978-979; 980-991; 1008-1009; 1019-1023; 1076-1077; 1078-1079; 1080; 1081-1082; 1089; 1133-1150; 1151-1212; 1260-1261; 1270-1272; 1273; 1422-1427; 1428-1429; 1430-1433; 1434; 1435-1444; 1445; 1446; 1447; 1451-1458; 3073-3129; 3130.

Thank you very much for your efforts in helping restore control of the legacy of Bernice Pauahi Bishop to those who have a genuine concern for the true beneficiaries--the children of Hawaii.

Very truly yours,

Bobby N. Harmon

cc: State Attorney General Margery Bronster
John Goemans, Esq.
Roy Hughes, Esq.

~ ~ ~

October 10, 2000

Janet S. Hughes, Mgr.
Employee Plans & Exempt Organizations
Internal Revenue Service
1244 Speer Blvd., Ste 442
Denver, CO 80204-3583

RE: Reasons the IRS Should Not Approve Kamehameha Schools' Insurance Settlement

Dear Ms. Hughes:

According to recent news articles, the insurance settlement reached between Kamehameha Schools, the State of Hawaii and Federal Insurance Company is dependent upon approval by the Internal Revenue Service. Because the terms of the agreement are under Court seal, and thus hidden from the taxpaying public, I feel compelled, once again, to comment on this matter. And because the settlement negotiations were held in secret, my comments must necessarily take a "shot-gun" approach rather than zeroing in on particular issues.

To keep things as brief as possible, however, these comments will be limited to certain entities and individuals involved in activities which resulted in "excess compensation" as defined under the "interim sanctions" regulations, and which, apparently, are still continuing under the current management:

I. Attorneys and Law Firms

Nathan Aipa, Louanne Kam, Lyn Anzai and Colleen Wong directly engaged the following firms to handle insurance claims without the required authorization of the insurance companies, including P&C:

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

Once the firms were engaged, the named 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 Insurance Company's, which violated "arms-length" guidelines. 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.

In the case of claims under P&C Insurance Company policies, Nathan Aipa, Louanne Kam or other KSBE attorneys directed that P&C pay the bills even though the outside firms flagrantly disregarded P&C's written guidelines.

These outside legal firms reported directly to in-house counsel, rather than to the insurance companies. In-house attorneys, including Aipa, often would not disclose critical information to the insurance carriers in these "sensitive" claims, resulting in further millions lost to the estate due to "non-cooperation".

This situation became particularly suspect and troublesome when these same KSBE employees handled claims in which they had also participated in the original activity which led to the claims. They may have been potential witnesses-- even defendants-- in resultant lawsuits. These were extremely serious "conflict of interest" situations.

With P&C this became even more critical due to the obvious violation of "arms-length" principles, which potentially exposed the estate to unlimited losses beyond the actual insurance policy coverages and limits of liability.

During my years at KSBE, the following are just some cases in which KSBE and P&C funds were misused in the handling of insurance claims which resulted in "excess benefits" to outside attorneys:

McKenzie Methane

Kona Enterprises

Ted Fields

Robert Trent Jones Golf Club

McConnell vs. KSBE

William Rosehill

From all public accounts, these corrupt practices appear to have continued-- unhindered and unabated-- from the time of my departure until the present, under both the ex-trustees and the interim trustees, and under present top management.

II. Accounting Firms/Representatives

The roles that these two firms played are well-documented in my own RICO lawsuit against the estate, and will not be repeated here:

Coopers & Lybrand LLP (Dennis Tsuhako)

Price Waterhouse (Mark McConoghy)

These two firms, as you no doubt are aware, have since merged and the single entity is now PricewaterhouseCoopers.

III. Insurance Companies and Agent/Brokers

The roles of the following firms are also detailed in my RICO lawsuit:

Marsh & McLennan (Hawaii) (Rocco Sansone, Christine Lee)

M&M Insurance Management Services (Peter Lowe)

Federal Insurance Company

My estimate of excess payments to Marsh & McLennan by Kamehameha Schools and P&C Insurance Company during the term of my employment with them would approach one million dollars. From all indications, these excessive payments to Marsh & McLennan have continued unabated during the nearly four years since my termination, under both the ex-trustees and the interim trustees.

IV. Other Subsidiary Companies and Independent Contractors

In my letter dated November 10, 1997, addressed to Carolyn Woods of the IRS, I provided information regarding what were suspected to be fraudulent tax returns filed by Bishop Estate, P&C Insurance Company, and Pauahi Holdings Corp. Among other things, I reported that:

18.There was a failure to disclose conflicts of interest and other financial information in federal tax returns as regards personal investments by certain trustees, executives, managers and employees in related for-profit companies controlled by KSBE.

19.IRS rules regarding the maintaining of "arms-length" relationships between a tax-exempt charitable organization and its for-profit subsidiaries were apparently being breached.

For example, at the direction of Henry Peters, Nathan Aipa, Louann Kam, Eric Martinson, and others, KSBE paid premium charges, legal fees and claims costs that should have been paid by the for-profit subsidiaries (e.g. Kukui, Inc., Sino Finance, Unison Pacific, SoCal, AFCO, Paradise Petroleum, etc.), or by individual trustees, officers, directors or employees.

Services were being provided by KSBE employees to P&C and other for-profit entities at no cost to the subsidiaries. In effect, KSBE was subsidizing these for-profit entities, which resulted in larger profits for the subsidiaries (and larger commissions for the Trustees).

The operations of P&C, including claims and investments, were being controlled by Henry H. Peters, Nathan Aipa and Louanne Kam. This included directing the payment of "excess benefits" to independent contractors for non-bid or non-existent contracts....

Insurance premiums and loss costs were being improperly allocated to lessees and tenants of KSBE properties. Many of the insurance policies for KSBE and its subsidiaries combine coverages for all entities under the same "blanket" policies. These insurance premiums, as well as the claims costs which were paid under self-insured retentions and deductibles, were allocated to the Kamehameha Schools, to Bishop Estate, and to covered subsidiaries. These charges, in turn, were further allocated to specific commercial projects, such as Royal Hawaiian Shopping Center, Windward Mall, Keauhou Shopping Village, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), etc. . . . Costs which were allocated to the commercial projects were nearly 100% recovered from the lessees and tenants through their monthly maintenance fees. Due to directives of Nathan Aipa, Louann Kam, Eric Martinson and others, these insurance costs were being improperly allocated, resulting in unfair charges to the tenants and lessees of these projects. The "overcharges" being made by M&M would also be included in these insurance costs that were passed through to tenants and lessees.

A portion of these improperly allocated insurance costs were also paid from the millions of dollars of Federal grant funds....

Several of P&C's claims were being directed by Louann Kam or other KSBE in-house attorneys. An example was the Larry Ching flood damage claim. Kam, in conjunction with Aipa, wanted to hire an outside attorney and an expert to handle this claim. In keeping with P&C's "arms-length" guidelines and its Operations Manual, only P&C's contracted independent adjuster, John Mullen & Co., was authorized to hire attorneys and experts. Furthermore, this involvement by Aipa and Kam was ,,, at the direction of Trustee Richard Wong who wanted to see what we could do to "settle this claim", which had previously been denied by Mullen ...

3. Annual financial statements for KSBE and P&C, which were prepared by Coopers & Lybrand, failed to disclose large claims, and to show adequate financial reserves for these claims (e.g., the McKenzie and Kona Enterprises, claims).

4. It was reported that KSBE guaranteed several large bank loans (including loans from Bank of Hawaii) to "insider partners" in several investments.

5. It was reported that an "insurance policy" was issued to Robert Rubin to protect his financial interests in Goldman Sachs while he is serving as U.S. Treasury Secretary. ... to my knowledge, no actuarial studies were made, no reinsurance was obtained, and no reserves were established to cover this substantial financial guarantee....

6. There was coercion of employees, by means of threats of discipline or termination, to violate laws or to "look the other way" while superiors engaged in illegal or unethical acts, such as: the altering and/or falsifying of staff reports, board minutes and contracts; directing notaries public to notarize documents without their witnessing the signatures or personally signing the notary logs; collusion with independent contractors to conceal and cover-up wrongful acts; and misuse of the "attorney-client privilege" to prevent the disclosure of these acts.

7. In my capacity as president of P&C, I refused to sign the annual financial statements prepared by Coopers & Lybrand for the fiscal period July 1, 1995 to June 30, 1996. The basic reasons that I declined to sign was due to the attempts by Henry Peters, Nathan Aipa and Louann Kam to direct all areas of P&C's operations and investments, including the improper awarding of contracts and settlement of claims. I discussed these irregularities with Cary Okawa and Dennis Tsuhako of Coopers & Lybrand on October 18, 1996, and followed-up with a letter dated November 20, 1996, in which I enclosed documents that provided evidence of these wrongful acts. A copy of this letter was sent to the Hawaii Insurance Commissioner....

A basic scheme with P&C Insurance Company involved having KSBE employees provide free services to P&C's operations while being paid by KSBE. Then Marsh & McLennan would invoice P&C for the services which were actually performed by KSBE's employees (myself included). During my tenure, the amount billed by M&M to P&C was $200,000 a year.

A second scheme probably cost KSBE even more in dollars, but is more difficult to prove and to determine an exact amount: the premium overcharge for various insurance coverages that were handled by Marsh & McLennan as KSBE's broker.

From all indications, this subsidizing of P&C Insurance Company by Kamehameha Schools is still continuing. According to the Attorney General's office, the latest annual report for P&C showed Henry Peters as Chairman of the Board, and Louanne Kam as an officer. Rodney Park was President.

A more recent indication: On October 8, 2000. Kamehameha Schools ran a Help Wanted advertisement in The Honolulu Advertiser for a "Risk Management Claims/Safety Administrator." The listed qualifications included: "Bachelor's degree in Business Management and more than ten years with Independent Adjusters license. Demonstrated ability to prepare reports & analysis of loss ratios, experience modifications, and market trending of the P&C industry and apprises appropriate parties of findings. ... Ability to work with extremely sensitive and confidential information."

From what I know of the job descriptions for employees of Kamehameha Schools and P&C, this position would more appropriately fall under the operations of the insurance company (P&C) rather than the insured (Kamehameha Schools and its subsidiaries). Normally, only insurance companies (and independent claims adjusters) would require someone with more than ten years of experience and an Independent Adjuster's license. This strongly suggests that the tax-exempt entity is continuing to subsidize a for-profit subsidiary.

Kamehameha Schools even lists one possible reason for their keen desire for this arrangement -- so that their legal department can continue to control and hide "extremely sensitive and confidential information." This is again reminiscent of KSBE's improper involvement in handling the McKenzie Methane, Kona Enterprises, William Rosehill, Ted Fields, McConnell, and Robert Trent Jones claims during my tenure.

A number of other outside contractors and entities that were allegedly involved in "kick-backs" and other schemes were described in detail in various Masters' Reports and Attorney General Reports. They are too numerous to describe here. However, I would like to mention a few entities which seem to have escaped unscathed:

Stay and Sons

Orion Partners

Xiamen International Bank

Azabu Building

Mitsui Trust

Sukamto Sia

The scheme involving Stay and Sons was detailed in my RICO lawsuit. The alleged kick-back scheme with National Housing, Jeff Stone, Henry Peters and Richard Wong was revealed in the Attorney General's investigations and Master's Reports. I have previously reported to the IRS the connections between WCI Communities, Orion Partners, the MacArthur Foundation, Adele Smith, Charles Harmon, Marsh & McLennan and Bedford Properties (in connection with the Paul Silvester and Connecticut State Treasury scandals). Bank of Hawaii's involvements were described in my RICO lawsuit.

To my knowledge, no agency has yet officially reported on the suspicious relationships with the other entities listed above. In my opinion, someone should-- before letting the insurance companies off-the-hook with a global settlement.

V. Kamehameha Schools' Executives and Employees

It is clear that the ex-trustees did not operate alone in the alleged theft of hundreds of millions of dollars from the estate. It takes the consent and cooperation of key executives and managers to facilitate such a broad misuse-- even embezzlement-- of trust funds. Details were given in documents which were previously provided to your office by a third party.

VI. P&C Insurance Company, Inc.

The following individuals were involved in the alleged schemes to defraud P&C Insurance Company, and its insureds (including commercial lessees,) and to provide excess compensation to the ex-trustees (in the form of commissions) and to independent contractors:

Henry H. Peters, Chairman, Board of Directors

Gilbert Tam, Director

William Richardson, Director, Secretary/Treasurer

Peter Lowe, Vice-President

Nathan Aipa, Asst. Secretary/Asst. Treasurer

Rodney Park, President

Louanne Kam, Officer

Marsh & McLennan, Inc.

Bank of Hawaii

William M. Mercer, Inc.

PricewaterhouseCoopers

Details of the culpability of these various entities are provided in my RICO lawsuit.

VII. Individual Co-Investors in KSBE For-Profit Businesses

According to newspaper reports, in 1989 the four KSBE Trustees, Peters, Takabuki, Richardson and Thompson approved of the investment of approximately $85 million in a Houston-based energy venture with McKenzie Methane. (Trustee Lyman had recently passed away and a fifth trustee had not been appointed.) This same venture also received more than $3 million in personal funds from all four trustees and employees and business associates of the estate.

The Honolulu Advertiser reported in their February 26, 1995 issue that: "The troubled deal may cost the estate as much as $65 million in lost capital and at least twice that much in lost earnings and tax benefits. . . Honolulu businessman Desmond Byrne. . . called the personal investments by estate trustees and staffers 'an absolutely improper conflict of interest. It raises the appearance that their official decisions are affected by their own personal financial interests'. . . The current board is almost completely different from that of 1989. Only one trustee, Henry Peters, remains. But the current board still holds that the old one did nothing wrong, according to Aipa. 'There was no conflict of interest,' Aipa said. The Texas court files clearly show, however, that the trustees, their employees and associates relied on estate reports and financial data when they decided to put their own money in the deal. Estate personnel have immediate access to the high-priced and sophisticated financial expertise of such firms as First Boston Bank and Goldman, Sachs & Co. The estate, a non-profit, tax-exempt institution . . . must be very careful in structuring its investment activities so it won't imperil its tax-exempt status. The Houston investment was particularly tricky because one of the principal benefits was that the estate would receive federal energy tax credits, which the tax-exempt estate intended to sell."

This same news article went on to describe other personal investments in estate-related business deals: "According to court records, the estate board of trustees was told in April, 1989 by Aipa, that 'no conflict (of interest) exists in the personal investments.' . . . The personal investments were made 'only after careful review of the issues and advice from the law firm of Rush Moore Craven and Stricklin,' Aipa said.

But current trustee Oswald Stender . . . said under oath in a 1993 deposition that he would not have made such a personal investment . . . that he would not invest in activities . . . that I had self-dealing in. . . Takabuki, his wife, three children and family company, Magba Corp., invested $1.5 million . . .

The investments were made through a series of five partnerships, called the 'HAK Partnerships', that were organized and administered by Mitchell Gilbert, Bishop Estate financial assets manager from 1988 to September 1994. . .

Gilbert and members of his family invested nearly $72,000 in the five partnerships, the court records show. And he invited various influential 'investment affiliates' of the estate to invest in the HAK Partnerships. . .

In 'marketing' the deal to potential investors, he was acting individually and not as a representative of the Bishop Estate, Gilbert said in his deposition. . . But the letters he wrote were on estate stationery and he signed them as Bishop Estate's financial assets manager. . . A Texas lawyer for Bishop Estate said in Houston bankruptcy court last month that the estate can only hope to recover $20 million at most of its $85 million investment. . .

According the Honolulu Advertiser article, other co-investors included:

Henry Peters (trustee)

William Richardson (former trustee and Sec./Treasurer of P&C)

Myron Thompson (former trustee)

Matsuo Takabuki (former trustee and subsequent consultant)

Dave Thomas (owner of Wendy's restaurants and co-investor with KSBE on several other projects)

William E. Simon (former U.S. Treasury Secretary, and co-investor with KSBE on several other projects, including HonFed Savings & Loan, Sino Finance, Xiamen Bank (China), and SoCal Holdings)

Wayne Rogers (the actor, who later brought suit against KSBE for the Kona Enterprises deal)

Bruce Nelson (treasurer of the Rockefeller Group)

Raymond Pettit (CFO of the Rockefeller Group)

Frederick "Ted" Field (three Field employees also invested. . .Field was the estate's partner in the corporate takeover of European conglomerate DRG, Inc. Field later brought suit against the estate in a co-investment deal involving The Pantry)

Mark McConaghy (Bishop Estate's principal tax lawyer and lobbyist. McConaghy, who works for the Price Waterhouse accounting firm's national headquarters in Washington, D.C., was a finalist on last year's state Supreme Court list of nominees to fill the latest vacancy on the estate board of trustees)

Michael Chun (President of Kamehameha Schools)

Gilbert Tam (at the time Director of Administration, KSBE; currently, an officer of Bank of Hawaii and director, P&C)

Guido Giacometti (then Director of Asset Management, KSBE)

Anthony Sereno (deceased, then Board of Directors, Royal Hawaiian Shopping Center, Inc.)

Neil Hannahs (head of the estate's Kakaako development project)

Charles Maeda (head of Information Services Division, KSBE)

Richard Wong (president of RHSC and Pauahi Holdings Corp.)

Wallace Tirrell (then president of Kamehameha Investment Corp.)

Gilbert Ishikawa (KSBE tax manager)

Ed Hendrickson (KSBE Financial Assets Division)

Rodney Park (then KSBE Controller; currently Director, Administration Group, and President, P&C)

Wally Chin (then Deputy Controller; currently Controller, KSBE)

Donald K. H. Pang (father of KSBE Budget Dept. employee, Leeanne Crabbe)

Many important questions remain unanswered (or at least hidden from the public) regarding these co-investment deals:

Were special deals made whereby "insiders" gained excess financial benefit at the expense of the estate or its subsidiaries? Did KSBE improperly guarantee the loans of any of these individuals with the Bank of Hawaii or other lending institutions? Did KSBE or any of its subsidiaries illegally "bail out" the individual co-investors when McKenzie Methane, Accessory Place, and other subsidiaries declared bankruptcy? Did the insurance companies and the individual investors pay their fair share of the millions in legal costs involved in the many suits and countersuits-- or were they borne in their entirety by the estate? Will the recovery of funds from outside legal firms, as recommended by Special Master Robert Richards, be pursued by current or future management and trustees?

To summarize, then, some of my major concerns:

1. The undisclosed settlement agreement. With the settlement documents sealed, how are the beneficiaries and the general public to know whether the final settlement was fair and reasonable? Have the current trustees and CEO, for example, pursued legitimate fidelity insurance claims against Milton Holt, Yukio Takemoto, Rodney Park, Nathan Aipa, Henry Peters and others for their roles in the illegal scheme to pay Holt's campaign finance debts, and the illegal lobbing activities in which Holt used a KSBE credit card to entertain politicians at local "strip" clubs.

2. According to my understanding of the "interim sanctions" legislation, the ex-trustees, Marsh & McLennan, and all others who improperly received "excess benefits" are supposed to return the excess portion to the estate, plus a healthy penalty. My understanding is also that these excess benefits and penalties are NOT COVERED BY ANY INSURANCE POLICY. Therefore, a waiver of these sanctions should NOT be a requirement in any insurance settlement agreement!

3. Many of the same breach-of-trust activities which led to the long, hard-fought and expensive ouster of the old trustees appear to be continuing under the watch of the interim trustees. A majority of the "old" managers and independent contractors which facilitated, and personally benefitted from, the illegal activities are still in place (with the exception of Nathan Aipa who is on PAID leave pending the outcome of an "internal" investigation).

For further information which is too extensive to include in this letter, I refer you to the following Web site:

www.the-catbird-seat.net (CLOSED BY ORDER OF JUDGE DAVID EZRA - Now www.kycbs.net )

As this matter hopefully nears its end, I wish to personally thank you for all your efforts on behalf of the many concerned citizens who hope to see that justice is ultimately achieved and "pono" is restored to this worthy institution.

If I can be of any further assistance, please feel free to contact me.

Very truly yours,

Bobby N. Harmon

cc:

Robert K.U. Kihune, Trustee

Ronald D. Libkuman, Trustee

Constance H. Lau, Trustee

David P. Coon, Trustee

Francis A. Keala, Trustee

Dorothy Sellers, Esq., Office of the Attorney General

Dr. Randy Roth, University of Hawaii

Trustee Screening Committee

Robert P. Richards, Esq.

~ ~ ~

WAIKIKI IMPROVEMENT ASSOCIATION

BOARD OF DIRECTORS

OFFICERS

Eric Masutomi, Chair
Outrigger Enterprises
Marleen Akau, Vice Chair
Royal Hawaiian Shopping Center / Festivals Company
Leighton Mau, Vice Chair
Waikiki Business Plaza
Fred Orr, Vice Chair
Sheraton Princess Kaiulani
Peter H. Schall, Vice Chair
Emeritus
Patricia Tam, Vice Chair
Halekulani Corporation
Chris Tatum, Vice Chair
Waikiki Beach Marriott Resort & Spa
Susan Todani, Vice Chair
Kamehameha Schools
Mark Yamakawa, Vice Chair
Queen Emma Foundation
Don Yannell, Treasurer
First Hawaiian Bank

DIRECTORS

David Asanuma JTB Hawaii, Inc.
William Brizee Architects Hawaii
Barbara Campbell Outrigger Enterprises
Michael Carr Bank of Hawaii
Jean-Pierre Cercillieux New Otani Kaimana Beach
LeeAnn Crabbe Queen Liliuokalani Trust
Eric Crispin Hawaii Starwood Vacation
Greg Dickhens Kyo-ya
Gary Ettinger Resort Quest Hawaii
Rosemary Fazio Ashford & Wriston Attorneys at Law
Karl Fujii Hawaiian Building Maintenance
Troy Fujino 2100 Kalakaua
John Geppert Tiffany & Co.
Robin Graf Wyland Hotel
Paul Kosasa ABC Stores
Maki Kuroda E Noa Corporation
John Lopianetzky Pacific Beach Hotel / HTH Corp.
Ken Morikami Hawaiian Electric Company
Mike Murray Kalakaua Business Center
Michael Paulin Aqua Hotels & Resorts
Deborah Rosenblum Wimberly Allison Tong & Goo
Dale Ruff Louis Vuitton Hawaii, Inc.
Phil Russell Graham Murata Russell
Kim Scoggins Colliers Monroe Friedlander
Jane Sinnott Macy's West
Jim Steiner Steiner Family Limited Partnership
George Stewart Hawaiian Cement
Steven Sullivan Waikiki Trade Center / CBRE
Bob Taylor Maui Divers
William Tobin Tiki's Bar & Grill
Sharon Weiner DFS Galleria

http://www.waikikiimprovement.com/bod.html

~ ~ ~

October 22, 1997

Bishop Estate had argued
that the attorney general's subpoenas
were too broad

By Jim Witty, Star-Bulletin

A Circuit Court judge this morning upheld the validity of three state subpoenas involving Bishop Estate documents and testimony, rejecting arguments that they were "overly broad."

Judge Kevin Chang ruled that the attorney general's subpoenas - seeking a list of Bishop Estate contractors with annual billings, a roster of estate employees with phone numbers and addresses, and an interview with trustee Lokelani Lindsey - are relevant and provide adequate notice of the subject matter requested. And he denied the estate's request for a protective order covering the subpoenaed documents.

Chang also ruled that while subpoena recipients are entitled to have legal counsel present during questioning, a Bishop Estate attorney cannot sit in at this point in the investigation.

In addition, Chang ordered Attorney General Margery Bronster not to give unlisted telephone numbers provided on the employee list to any third parties.

"The judge's rulings are quite clear," said Bronster after this morning's hearing. "They're consistent with the law. He made it quite clear we're entitled to the information and if the trustees have a valid basis for confidentiality, he will look at it."

But Bishop Estate attorney Bill McCorriston said the ruling sets a bad precedent and the trust may appeal. "We're disappointed at the judge's refusal to require some specificity of the matters being investigated," McCorriston said.

"The judge's ruling makes it possible for the attorney general to investigate any business for any reason at any time. It's a bad precedent for constitutional rights."

McCorriston argued that the subpoenas are too broad and would mean "virtually every person and every document in Kamehameha Schools would be subject to this investigation. . . . They are so absolutely general, so absolutely undefined. That cannot be the law."

Bronster countered, "What is really going on here is an effort to delay the progress of the investigation."

She argued that the roster of employees is needed for quick reference in the future and that she isn't asking for all contracts, but a list of independent contractors over the past five years and contract amounts.

Chang ruled that the focus of the subpoenas - as part of an investigation of alleged financial misconduct and breach of fiduciary duties - is adequate.

Earlier this month, Chang ordered Bishop Estate trustees to comply with a state subpoena and turn over all nonprivileged trustee minutes since January 1993.

He is in the process of determining whether the balance of those minutes, deemed proprietary by Bishop Estate, should be kept from public view.

Rockne Freitas: "Whatever our obligations are, we're going to do our best to meet them."

State: Bishop Estate’s
lawyer impeding probe

By Harold Morse. Star-Bulletin

The state attorney general's office says Bishop Estate attorney William McCorriston suggested that two estate employees not comply with subpoenas in an investigation.

State Attorney General Margery Bronster filed a motion yesterday to compel Bruce Nakaoka, Bishop Estate manager for real estate, and Eric Martinson, a financial analyst, to answer their subpoenas.

The attorney general is investigating possible breaches of trust and fiduciary duty by trustees of Bishop Estate/Kamehameha Schools.

"Today's problem is that William McCorriston, counsel for the trustees of Bishop Estate/Kamehameha Schools, sent counsel for the (sic) Mr. Nakaoka and Mr. Martinson a letter suggesting that they not comply with the subpoena," says a memorandum signed by Deputy Attorney General Hugh Jones.

McCorriston said later that his advice to Robert Hackman, attorney for Nakaoka and Martinson, was solicited by Hackman and it was up to Hackman whether to advise his clients to honor the subpoenas.

The memo said the substance of McCorriston's letter is erroneous. The memo says McCorriston wrote Hackman, counsel for witnesses Nakaoka and Martinson, that it was "premature" for Attorney General Margery Bronster to examine Nakaoka and Martinson.

"The primary problem with Mr. McCorriston's letter is not that it is substantively inconsistent with representations made to the court the day before but that it was sent at all," the memo says. "Mr. McCorriston's letter was obviously intended to impede the investigation and to intimidate properly subpoenaed witnesses."

The attorney general wants the court to order trustees, whether or not acting through counsel, "to cease attempts to thwart the participation and cooperation of witnesses properly subpoenaed in the attorney general's investigation."

McCorriston said he doesn't want confidential information disclosed without a guarantee that it will be kept out of the public eye and there has been no agreement with the attorney general on the matter.

Also, Hackman was upset that his clients Nakaoka and Martinson were given only 24 hours or less to respond to the subpoenas, McCorriston said. He called it a lack of courtesy.

Bishop Estate Archive

http://starbulletin.com/97/10/22/news/story1.html

~ ~ ~

November 12, 1997

Ex-estate workers
to talk to Bronster

They were granted immunity
from suits that could come up

By 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.

Bishop Estate Archive

http://starbulletin.com/97/11/12/news/story1.html

~ ~ ~

This witness is expected to testify with regard to his relationships with Defendant, William S. Richardson, William K. Richardson, Matsuo Takabuki, Robert Rubin, Henry Paulson, Goldman Sachs, Bruce Nakaoka, LeeAnn Crabbe, Queen Liliuokalani Trust, Colbert Matsumoto, William McCorriston, HMS Hawaii Management Partners, HMS Investments GP, University Connections, UH Foundation, Dee Jay Mailer, Gilbert Tam, Robert Kihune, Sandwich Isles Communications, Summit Communications, Communications-Pacific, Inc., Steven Guttman, Mary Lou Woo, Adele Smith Simmons, Mark McConaghy, PricewaterhouseCoopers, Guido Giacometti, Susan Tius, Sukamto Sia, Kevin Showe, Jeffrey Stone, Michael McKenzie, McKenzie Methane, Dennis Fern, William S. Simon, Nathan Aipa, Colleen Wong, Louanne Kam, The MacArthur Foundation, Rocco Sansone, Marsh & McLennan, Hawaiian Electric Industries, Edwina Clarke, Dr. Elizabeth K. “Doc” Buyers, C. Brewer & Co., Brewer Environmental Industries, Robert Katz, Gensiro Kawamoto, Carlsmith Ball, Donna Tanoue, Bank of Hawaii, Silicon Valley Bank, James Nicholson, David C. Farmer, and others to be named upon discovery.