David C. Farmer vs. Harmon - Witness Lawrence Goya

THE UNITED STATES DEPARTMENT OF JUSTICE

OFFICE OF THE U.S. TRUSTEE

David C. Farmer, Successor Trustee
vs.
Bobby N. Harmon

(Formerly Mary Lou Woo vs. Harmon and James Nicholson vs. Harmon)

CV05-00030 DAE/KSC

United States District Court, District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

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DEFENDANT’S WITNESS

LAWRENCE GOYA

Lawrence Goya is a Deputy Attorney General, State of Hawaii

Office of the Attorney General
425 Queen St., Rm 317
Honolulu, HI 96813

Website: www.hawaii.gov/ag/

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August 20, 1997

State attorneys interview ex-worker
who alleges irregularities

By Bruce Dunford, Associated Press

A Bishop Estate official who says he was fired last year for raising questions about irregular and possibly illegal activities has been interviewed by state attorneys ordered by the governor to investigate the estate.

Bobby Harmon served for eight years as head of the estate's insurance programs and ultimately served as president of P&C Insurance Co., a for-profit subsidiary of the $10 billion charitable trust that supports Kamehameha Schools.

He said he questioned:

> An annual payment the estate made without accounting for why it was made;

< His salary for the profit-making organization being paid by the nonprofit trust in apparent violation of IRS rules;

> The company's legal work being parceled to certain lawyers.

Harmon met for 1-1/2 hours yesterday with Senior Deputy Attorney General Lawrence Goya and the attorney general's auditor, he said.

They expressed interest in obtaining a 50-page document he prepared detailing questionable and possibly illegal activities by Bishop Estate's trustees and top executives, Harmon said.

Bishop Estate, however, earlier obtained a Circuit Court injunction against the release of the document, claiming it contains confidential and proprietary information that should not be made public.

Harmon has also offered to share his papers with retired Circuit Judge Patrick Yim, who is also conducting an investigation into the management of Bishop Estate and Kamehameha Schools at the request of the probate court.

Harmon said he was fired in November after he refused to sign off on a required financial report involving the estate's contract with Marsh & McLennan Inc. as the estate's insurance broker.

He said was worried about a $200,000 annual flat fee superiors wanted him to pay to MMI because there was no accounting why it was being paid, Harmon said.

Harmon said he felt if he "looked the other way" as encouraged by his superiors, "I would be breaching my fiduciary duties to the organization."

Harmon also questioned why his salary was from the nonprofit trust when almost all his time was spent working for the for-profit P&C captive insurance company.

This appears to violate IRS rules against using tax-exempt trust funds to subsidize a profit-making company, he said.

It appeared that Bishop Estate attorney Nathan Aipa, Harmon's direct supervisor, and trustee Henry Peters wanted to maintain tight control over all insurance matters, including parceling out related legal work to selected attorneys, he said.

Estate spokeswoman Elisa Yadao has declined to comment on Harmon's allegations, but said they will be challenged in court.

Harmon's documents support his proposed settlement for what he claims was his wrongful termination by Bishop Estate. It seeks up to $1.8 million.

The use of trust funds to support Bishop Estate's various taxable subsidiaries was common, yet not reported on IRS forms as required, Harmon said.

http://starbulletin.com/97/08/20/news/index.html

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KARL ROVE & THORNS IN THE ROSE GARDEN

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July 3, 2005

Cemetery operator faces criminal probe

'Wall' keeps criminal, civil probes separate

By Jim Dooley, Advertiser Staff Writer

The state Attorney General's office is conducting a criminal investigation of the purchase and operation of the RightStar group of funeral and cemetery companies in Hawai'i, according to state officials and private attorneys familiar with the investigation.

The criminal probe is separate from a civil lawsuit filed last year by the Attorney General's office that accuses RightStar officials and four local lawyers, including former Gov. John Waihee, of mismanaging more than $20 million in RightStar funds held in trust for thousands of Hawai'i customers who purchased "pre-need" funeral services and cemetery plots.

RightStar owns and operates four cemeteries: Valley of the Temples on O'ahu, Maui Memorial Park on the Valley Isle, and Homelani and Kona Memorial Parks on the Big Island.

The company purchased the cemeteries and related mortuary and funeral plan trust assets in 2001, and the state licensed RightStar to operate them in November 2001.

William McCorriston, attorney for Waihee and the other three lawyers who acted as trustees of the RightStar customers' trust funds, said he does not believe his clients are targets of the criminal investigation.

"We have informed the Attorney General of irregularities and delinquencies which had concerned us," McCorriston said. "We believe our information was the genesis of their investigation."

Waihee could not be reached for comment.

Attorneys for RightStar officials and Vestin Mortgage Inc., a Las Vegas-based lender that financed RightStar's purchase of the companies and filed a mortgage foreclosure lawsuit against RightStar for failure to repay $34 million in loans, said their clients have done nothing wrong. They said company officials are cooperating in the criminal and civil probes conducted by the Attorney General.

State Attorney General Mark Bennett and Deputy Attorney General Lawrence Goya confirmed the criminal investigation but would not elaborate on details of the case.

Legal quagmire

RightStar's financial problems have spawned a welter of lawsuits in state and federal court here, and involved the companies and its officials in at least one other ongoing criminal investigation, according to court records.

Most of the civil cases center on how the companies and trustees managed trust-fund assets.

The trust funds contain money from cemetery plot and funeral plan buyers that is supposed to be held in trust for the customers until they die. The funds also contain money set aside for "perpetual care" of the cemeteries.

According to state figures, the value of the trust funds stood at $63.2 million when RightStar took control of them. A year later, the value dropped to $40 million.

The foreclosure lawsuit filed by Vestin Mortgage claims that RightStar defaulted on loans that were used to purchase the companies. A state judge handling that case has appointed an independent receiver, Guido Giacometti, to run the cemeteries and funeral businesses and protect the rights of customers while the competing claims from numerous parties are sorted out.

In his two most recent monthly reports filed with the court, Giacometti said the companies have a "critical need" for additional money and are attempting to develop new cemetery plots and sell new funeral plans to increase cash flow.

"We're doing OK — sales volumes are relatively consistent," Giacometti said. "We'd like them to be higher but we inherited a company that had not reinvested in itself. There are a limited number of cemetery plots available, so we're working toward development of future areas."

Consumers caught

Local resident John Quinores bought four burial plots for himself and his family at Valley of the Temples in the 1960s and said he's worried about his investment. After agreeing to buy the cemetery plots, Quinores later supplemented that purchase with "pre-need" plans designed to provide funeral services when he dies.

"I'm still paying," Quinores said. "I called the company a couple of months ago with some questions but the lady that answered was vague and defensive."

Giacometti said he has made customer service a top priority and also is dealing with a variety of other pressing issues, including satisfying a dozen consumer complaints filed with the state Regulated Industries Complaints Office. Also unresolved are numerous other complaints about RightStar's decision last year to sell burial plots and funeral services contracts at a discount to a company called Alternative Debt Portfolios.

That sale was an effort by previous RightStar management to raise funds, Giacometti said.

"About 2,100 cemetery plot contracts were sold, but some of the contracts had already been paid in full and should not have been included in the deal," Giacometti said. "There are also some questions about who is responsible for the funeral services that are included in some of the other contracts."

Giacometti said he's cooperating in state and federal tax investigations of RightStar as well as a separate FBI investigation of Funding Solutions Inc., a company in Stamford, Conn., to which RightStar turned for financial assistance in 2004.

RightStar "made a $250,000 payment to them in return for a loan commitment, but then never got the loan," Giacometti said.

When Giacometti asked the company for a refund, "we ran right into an FBI investigation," he said. "They are investigating Funding Solutions and principals of the company and we are cooperating in that investigation."

According to federal court records, Funding Solutions executives Leonard Kalish and Joel Pondelik were charged with conspiracy to commit wire fraud in a criminal complaint filed by the U.S. Attorney's office in New York City in January.

A call to the company for comment was returned by Kalish's New York attorney, Martin Adelman, who said only that Kalish "will answer any and all official inquiries (about RightStar) when they are made."

A right to foreclose

Hawai'i Circuit Judge Sabrina McKenna ruled last month and again Friday that Vestin had the right to foreclose on RightStar, with the companies to be sold "to a licensed and qualified buyer" who would protect "the interests of consumers."

Attorney Grant Kidani, attorney for Alternative Debt Portfolios, had asked McKenna to delay foreclosure proceedings for 120 days, arguing that documents filed in another RightStar-related lawsuit, now pending in federal court here, showed both Vestin and RightStar had "unclean hands." Their relationship should be examined more closely before foreclosure takes place, he said.

The other federal court suit, first filed in U.S. Bankruptcy Court in Delaware and now pending before Hawai'i Federal Judge Helen Gillmor, alleges that Waihee and three other local attorneys who acted as RightStar funeral plan trustees were part of a fraudulent conspiracy to "strip the assets" of RightStar.

The suit was filed against RightStar by Alderwoods (Hawai'i) Inc., which purchased the assets of the cemetery and mortuary business in a Delaware bankruptcy court sale and then resold it to RightStar in 2001.

Charges in the suit are based in part on allegations from David Jackson, a former financial controller of RightStar Hawaii Management, who charged that Waihee used his "political influence" to smooth the company's dealings with state regulators.

McCorriston, Waihee's attorney, said Jackson's allegations "are part of an effort to besmirch Waihee's and the other trustees' reputations. RightStar has gone belly-up, so instead they're pointing their guns at the trustees."

Candace Ito, executive officer of the state Cemetery and Funeral Trusts Program, also denied Jackson's allegations, saying that "RightStar did not receive any special treatment" from the state.

RightStar President John Dooley said Waihee "did nothing improper while representing the company in the licensing process. He used his abilities to assist a private business attain licensing in the state of Hawai'i in much the same way that other former governors have assisted businesses in the past."

RightStar attorney James Wagner added, "Jackson is a disgruntled former employee who was fired for incompetence."

Attempts to reach attorneys for Jackson and Alderwoods were unsuccessful.

Transfers questioned

The state has charged in its civil suit against RightStar that the company and the former trustees improperly removed about $20 million in trust fund assets in 2002, transferring the money to RightStar's operational accounts. The state said the transfers should only have been made after a full accounting of the finances of the cemeteries and trust funds had been completed and filed with the state. Such financial statements have yet to be filed by RightStar, according to court records.

The Attorney General's suit also charged that the trustees removed another $20 million in trust fund assets and improperly invested the money in a Nevada real estate venture called Vestin Fund II. That fund is managed by Vestin Mortgage, the same company that financed RightStar's purchase of the cemeteries and trust funds in the first place.

An independent expert, John Candon, has been appointed by the court in the Attorney General's civil lawsuit to examine the finances and activities of RightStar and the trust funds and to make sure the money is properly accounted for and protected.

Last year, the U.S. Securities Exchange Commission revealed that it was investigating Vestin Fund II. Vestin called the SEC probe an "informal inquiry" that appears to focus on its financial reporting to the SEC.

Vestin attorney Paul Alston said the investment has yielded a return of 9 percent interest per year and is probably one of the best investments the trustees made."

And Alston said at least some of the blame for RightStar's problems belongs with the state. "It appears that the trusts were mishandled under the state's proverbial nose, and it is only because of Vestin's complaints ... that the state has stirred to action," Alston said in a letter to Judge McKenna.

In late May, state Deputy Attorney General James Paige said in a letter to Judge McKenna that the state had attempted unsuccessfully to recover $20 million in RightStar trust money from Vestin Fund II.

Under the terms of the investment, Paige said, the fund can give back no more than 10 percent of an investment per year. At that rate, the consumer trust funds that the state wants back will not be fully recovered "until approximately the year 2015," Paige wrote.

Class-action suit filed

Last week, a class-action lawsuit was added to the legal woes besetting RightStar. One plaintiff in the suit, Yahnina Hackney, repeated claims reported earlier by The Advertiser that RightStar improperly canceled her stepmother's funeral services contract after the elderly woman became sick and failed to make monthly payments to the company.

The company said in response that the cancellation was made by previous owners of the company and some of the disputed funds are still being held in trust.

Hackney said when her stepmother died, there was no money to pay for her burial. "I had to ask the state to do it," she said. "It was very sad. She was cremated. She didn't want that. I have her ashes at home."

She said she "would like to see everybody wake up and take a look at this issue. It's very important and it's something we all will have to face."

Reach Jim Dooley at 535-2447 or jdooley@honoluluadvertiser.com.

Honolulu Advertiser

For more, GO TO > > > Vampires in the Cemetery

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Lawrence Goya is expected to testify regarding his business, professional and personal relationships with Kamehameha Schools/Bishop Estate, Colbert Matsumoto, William McCorriston, Lisa Ginoza, Michael Tanoue, Margery Bronster, Earl Anzai, Lyn Anzai, Robert Miller, Mark Bennett, Nathan Aipa, Colleen Wong, Louanne Kam, Federal Insurance Co., XL Insurance Co., William Richardson, Matsuo Takabuki, Myron Thompson, Henry Peters, Richard Wong, Jeff Stone, Leighton Mau, Peter Bedford, Milton Holt, Bank of Hawaii, John Waihee, Dan Case, Guido Giacometti, Susan Tius, David Farmer, Bobby Harmon, and others to be determined upon discovery.