U S DEPT OF JUSTICE, DAVID FARMER, TRUSTEE vs HARMON

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

CONSTANCE H. LAU

Hawaiian Electric Company
900 Richards St.
Honolulu, HI 96813

Constance Lau is a former Kamehameha Schools trustee; Trustee, Punahou Schools, President/CEO of Hawaiian Electric Industries (HEI); former treasurer at Hawaiian Electric Company and Hawaiian Electric Industries (HEI); President and CEO, American Savings Bank; director of the Consuelo Zobel Alger Foundation, Alexander & Baldwin, Maunalani Foundation, and the Hawaii Banker’s Association.

From Forbes.com:

Cash Compensation (FY December 2006)

Salary:

$680,667

Latest FY other long-term comp.

$3,020,653

Total:

$3,701,320

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THE CATBIRD’S NEST

TRACKING THE TRUSTEES!

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NEW DISCOVERY (06/22/09): More undisclosed conflicts of interests between Constance Lau and other parties related to this case:

Publication: Hawaii Business

Date: Thursday, August 1 1991

Constance Lau

Hawaiian Electric Industries

Looking for a job back in 1984, Connie Lau was picky. But she could afford it. Lau had returned to Honolulu with a diploma from Yale, a law degree, an MBA and four years of corporate law practice under her belt. So when a friend called about an opening at Hawaiian Electric Co., Lau didn't exactly jump. "I thought, “Ugh, an electric utility? I'm not the utility type,'" she recalls. "The environment, I felt, would be bureaucratic and not very creative."

Feeling duty bound to her friend, however, Lau met with the utility's corporate counsel and its vice president of administration. To her surprise, she found a company on the verge of diversification - a word that sparked her interest. HEI was planning to expand into areas like real estate development and the maritime industry. "After the interviews," says Lau, "I thought, ‘Well, this sounds pretty interesting.'"

It's been seven years since she accepted the job offer from HECO, rising from assistant corporate counsel to treasurer of HECO as well as assistant treasurer of HEI, and later to treasurer of HEI - a position she holds today. Along the way, Lau has helped in many of HEI's diversification efforts. Earlier projects included assisting in contract negotiations for its wind turbines in Kahuku, strategic planning for the real estate development firm Malama Pacific Corp., and acting as legal counsel on the acquisitions of Hawaiian Tug & Barge, Young Bros. and the Hawaiian Insurance Group.

Lau's background is no less high-powered. She graduated from Punahou School and enrolled at Yale University, where she earned a degree in administrative sciences. That done, she crossed the country to the Hastings College of Law at the University of California and received her juris doctor in 1977. In 1979 came an MBA from Stanford, followed by four years as an associate with Heller Ehrman White & McAuliffe, a large corporate law firm based in San Francisco. There, Lau honed specialties in corporate law, banking, finance and real estate.

The combination of law and business came in handy at HEI. During her first year as treasurer, Lau helped to raise $335 million in financing for the group. When the company acquired American Savings Bank, she set up a $150-million commercial paper facility to finance the initial purchase. (Financially strong companies with firm credit ratings can access capital markets directly, rather than borrow funds through banks.) That task involved getting the paper rated by Standard & Poor's and Moody's Investor Services, hiring Goldman Sachs to place the paper, and lining up a liquidity backup from banks in case HEI ran into trouble.

Today, as treasurer of HEI, 39-year-old Lau helps out with special projects when they arise. Her job description includes managing a staff of nine, acting as the company's principal spokesperson to the financial community, managing the assets of the firm's pensions, overseeing services for HEI's common stockholders, and promoting HEI's dividend reinvestment plan.

As Lau sees it, one of the biggest challenges facing HEI is supporting the utility company's building drive. "A major part of supporting the building program is finding the capital to spend. We need to invest in order to deliver reliable power," she says. "I'm happy with my job, because my position will be important to meet that challenge."

AllBusiness.com

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March 18 2009

CEO Pay

by Rick Daysog

It's proxy season so executive pay figures for 2008 are beginning to trickle out.

At the top of the list, Allen Doane earned nearly $5 million last year as CEO and chairman of Alexander & Baldwin Inc. But Doane's 2008 compensation was down sharply from his 2007 pay of $8.6 billion.

Hawaiian Electric Industries Inc. CEO Constance Lau received a $2 million pay increase, upping her 2008 pay package to nearly $3.9 million.

Lau's increase came in a year the company experience significant challenges, including lower earnings at its American Savings Bank unit and a Dec. 26 islandwide outage that cut off power to Hawaiian Electric Co.'s 294,000 customers on Oahu.

Rounding out the list, Bank of Hawaii CEO Allan Landon earned about $2.5 million last year, which was down about $100,000 from his 2007 pay.

Look for updates to this list as more local companies file their proxies with the Securities and Exchange Commission. In the future, I'll publish a more listing in the Honolulu Advertiser newspaper once all of the proxies are filed.

Tags: Alexander & Baldwin Inc., Bank of Hawaii Corp., CEO pay, Hawaiian Electric Industries Inc.

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March 17, 2009

Trustee Pay Revisited

by Rick Daysog

Trustees of the Kamehameha Schools received much deserved applause last month when they rejected a court-approved pay increase plan and instead took a 10 percent pay cut.

After all, it's the prudent thing to do in face of the trust’s weakened financial condition, members of the Kamehameha Schools ohana have said.

But others, including former Gov. Ben Cayetano believe the way trustee pay is set is still out of whack and opens the trust to the type of abuses that haunted the estate during the late 1990s.

Previously, trustee pay was based on a formula set by law which entitled them to up to 2 percent of the estate’s annual gross. That resulted in $1 million-a-year trustee pay checks that nearly got the trust's tax-exempt status revoked by the Internal Revenue Service.

Now, trustee pay is supposed to be set at reasonable levels. Every several years, a Probate Court-appointed panel is supposed to come up with recommendations on what those reasonable levels are.

In 2004, the panel approved raising trustees maximum pay by more than 69 percent, generating much criticism among the schools’ ohana and the state Attorney General.

Probate Judge Colleen Hirai approved that increase but trustees turned it down.

Last year, the panel approved a similar plan before trustees decided to take their pay cut. The increase was again opposed by some members of the Kamehameha ohana as well as by the Attorney General’s office.

According to Cayetano, the lack of a more permanent trustee compensation schedule exposes the trust to future controversies.

In the past, the lucrative trustee compensation served as the “root cause for the ethical and political problems” that plagued the estate during the 1980s and 1990s, Cayetano wrote in his recently published memoir “Ben.”

It not only led to corrupted trust but it also tarnished the state Legislature and the state judiciary.

No doubt, the ethical characters of current Trustees Nainoa Thompson, Douglas Ing, Robert Kihune, Diane Plotts and Corbett Kalama are unquestioned. All are dedicated to the trust’s mission of educating native Hawaiian children.

But in approving steep pay raises for the trustees, Cayetano see a potential for history repeating itself:

“One could only wonder whether the panel, the probate judge and the new trustees had learned any lessons from the Bishop Estate controversy,” he wrote.

“The failure of the new trustees to ‘clean house’ left me wondering whether the problems that vexed the old trustees and the Bishop Estate would emerge again one day when the passing of time had blurred the reasons the reforms were made in the first place.”

Tags: Ben Cayetano, Kamehameha Schools, Trustee pay

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NEW DISCOVERIES (12-01-08):

Finance Factors has huge Mainland real estate stake | HonoluluAdvertiser.com | The Honolulu Advertiser

and

StarBulletin.com | Business | /2006/02/19/

* * * * *

NEW DISCOVERY (11-30-08):

THE BEST GOVERNMENT MONEY CAN BUY

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NEW DISCOVERY (11-24-08): New Exhibit: “EQ 2048 - Deposition of Lokelani Lindsey taken on November 4 & 9, 1999". This document provides clear evidence that J. Douglas Ing had multiple conflicts-of-interest in this case and, since he was not a named Defendant in my RICO lawsuit against the former Trustees, he was not a legitimate signatory to the Settlement Agreement: Furthermore, since the Settlement Agreement was NOT SIGNED by any of the five Trustees actually named as Defendants, the Settlement Agreement was not legal or valid. (See Exhibit A)

http://www.kycbs.net/Lindsey-docs-Vol-1-p1-4.pdf

http://www.kycbs.net/Lindsey-docs-Vol-1.pdf

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NEW DISCOVERY (02-09-08): Kamehameha Schools made a “confidential” settlement agreement with the plaintiff in the John Doe vs. Kamehameha Schools case, which my former attorney, John Goemans, Esq., says, according to what he has learned from the IRS, violates the rules for a non-profit charitable trust:

February 9, 2008

$7M

An attorney involved in a challenge to Kamehameha Schools' Hawaiians-only policy reveals the amount of a settlement

By Ken Kobayashi, Honolulu Star-Bulletin

Kamehameha Schools made the first move to settle a legal challenge to their admissions policy giving preference to native Hawaiians and later agreed to pay $7 million, a lawyer involved in the case said yesterday.

John Goemans, an attorney for an unnamed non-native Hawaiian student who filed a lawsuit contesting the policy, said the charitable trust offered for the first time to talk about an out-of-court settlement last May, just days before the U.S. Supreme Court was to decide whether to hear the case.

Goemans, a former Big Island attorney recuperating in Florida from heart surgery, and Sacramento, Calif., lawyer Eric Grant, the lead attorney, represented the unnamed student and his mother.

"They (the schools) approached Eric and said we wanted to settle and we have to settle by Friday morning," when it was believed the high court was to make a decision about accepting the case, Goemans said.

He said it appeared the high court would accept their appeal of an 8-7 decision by the 9th U.S. Circuit Court of Appeals that upheld the policy.

"They (the schools) were worried about losing in the Supreme Court," Goemans said.

Goemans said he did not know how Grant and the Kamehameha Schools arrived at the $7 million figure.

The hotly disputed federal civil rights lawsuit caused a firestorm of controversy among Kamehameha Schools supporters who believed the challenge struck at the more than century-old admissions policy and the heart of the charitable trust's mission to educate children of Hawaiian ancestry.

The confidential settlement was announced on May 14. Those connected with the case repeatedly refused to disclose the terms.

Goemans said he was disclosing the amount because he said he recently learned from Internal Revenue Service officials that Kamehameha Schools, a tax-exempt charitable trust, cannot keep the figure confidential.

"Because exempt organizations operate in the public good, you got to report all your expenses with particularity, and you cannot keep information relative to those expenses confidential," he said. "It's in the public interest to have full disclosure."

Ann Botticelli, Kamehameha Schools spokeswoman, said yesterday the settlement contained a confidentiality clause.

"We intend to honor the terms, and we will not be discussing the settlement or John Goemans' assertions," she said.

Grant said yesterday he had no comment.

Kamehameha Schools, a multibillion-dollar charitable trust and the state's largest private landowner, was established under the 1883 will of Princess Bernice Pauahi Bishop. It educates more than 6,700 students at its flagship campus at Kapalama Heights, two other campuses on Maui and the Big Island, and 31 preschools throughout the state.

Senior U.S. District Judge Alan Kay upheld the school's Hawaiians-first policy, but a panel of the appeals court in San Francisco ruled 2-1 that the practice violated federal civil rights laws. That decision triggered statewide protests and marches by school supporters.

Later, a larger appeals court panel voted 8-7 to uphold the policy.

It was an appeal by Grant of that 8-7 ruling that was on the doorsteps of the U.S. Supreme Court when the settlement was announced.

At the time, school officials indicated that the settlement calling for the dismissal of the lawsuit leaves intact the appeals court's 8-7 decision upholding the admissions policy.

But the dismissal does not guarantee that another lawsuit might surface and make its way to the high court, although it would first have to go through the federal trial and appeals courts, where the 8-7 ruling would be considered to be binding on the issue. But even if those who file the new lawsuit lose on those two levels, they could still ask the high court to review the case.

Honolulu attorney David Rosen said he has plaintiffs for a lawsuit to challenge the admissions policy. He said the settlement does not affect his case. Rosen said he expects the suit will be filed this year.

Goemans said Grant received 40 percent, or $2.8 million of the $7 million. Goemans said he is preparing to file his own lawsuit seeking to recover a "reasonable percentage" of the $7 million for his work in the case.

Goemans said he found the unnamed student and arranged for Grant to be the attorney for the student and his mother.

"I put the whole thing together," Goemans said. "But for me there would not have been a $7 million payment."

The student never was admitted to Kamehameha Schools because his case was pending. He has since graduated from high school and had been attending college, Grant said last year.

http://starbulletin.com/2008/02/09/news/story02.html

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February 9, 2008

Amount of settlement
raises critical concern

By Robert Shikina, rshikina@starbulletin.com

Supporters and critics expressed surprise yesterday at the $7 million Kamehameha Schools paid a student to settle a lawsuit disputing its Hawaiians-first admission policy.

One Kamehameha Schools alumnus says disclosure of the settlement with the anonymous, non-Hawaiian student will prompt questions among Hawaiians.

"I'm not happy with $7 million," said Kamehameha Schools alumnus Jan E. Hanohano Dill. "Unfortunately, that's a lot of money, and it's going to create a lot of questions in the Hawaiian community whether it was right or wrong and to continue."

Dill, also a board member of Na Pua a Ke Ali'i Pauahi, a nonprofit group whose members include students, parents, and alumni of Kamehameha Schools, said he continues to support the school's decision.

"I don't know the details, and I think that's something that has to be cleared," he said. "You settle because you want to avoid costs that would be incurred as you go forward."

He added, "I have to believe that they understood that this was something good for the Hawaiian people. ... It will be clear as things unfold whether that was true."

Dill, who is also president of the nonprofit Partners in Development Foundation, said the admissions policy must eventually be addressed and that the settlement avoids this case but does not stop other cases.

Marion Joy, former vice president of Na Pua, called the settlement a "misuse of trust funds."

"The trust is continually going to be challenged," she said. "This is not going to be the last. ... As far as settling for the particular lawsuit, it's not in the best interests of the beneficiaries (of the 1883 will of Princess Bernice Pauahi Bishop)."

Kamehameha Schools declined comment.

Honolulu attorney David Rosen, who has sought potential clients to sue Kamehameha over its admissions policy after the settlement, sent out a statement yesterday that said the $7 million settlement was used to "buy off this case."

He added that the trustees should open a campus on the Leeward Coast of Oahu and possibly Molokai where increased educational opportunities are needed.

H. William Burgess, a retired attorney and founder of Aloha for All, a group opposed to Hawaiian sovereignty, said the settlement raises questions about the proper use of the trust funds.

"Normally, trustees, if they're doubtful about doing something, they ask the court to give them instructions," he said. "Yet in this case, the biggest charitable trust, probably in the nation, instead of welcoming the opportunity to get the highest court in the land to settle it, they pay $7 million to leave it open. And it is very much open."

http://starbulletin.com/2008/02/09/news/story03.html

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From The Catbird Seat website:

The Wise Old Owl asks: How much of the settlement amount came from Kamehameha’s insurance companies, and how much came from the trust funds? How much did Kamehameha Schools (and/or their insurance company) spend for defense costs in this case before they decided to settle? Who is their insurance company? Their insurance broker? Who actually signed the Settlement Agreement?

http://www.kycbs.net/Bishop7.htm

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NEW DISCOVERY (12/13/07):

November 30, 2007

Former American Savings Bank Assistant Manager Indicted on 10 Counts of Theft, Embezzlement and Fraud

Ewa Beach Resident Marilyn DeMotta Is Being
Apprehended by Federal Agents in Las Vegas

By Malia Zimmerman

Hawaii’s U.S. Attorney Ed Kubo today announced the indictment of Marilyn DeMotta, 41, a former operations manager at American Savings Bank accused by a bank security manager in 2004 of stealing more than $1 million from 91-year-old bank customer Ada Lim.

DeMotta, a resident of Ewa Beach, was indicted in Hawaii’s U.S. District Court on Nov. 15, 2007, on 10 counts including bank fraud, embezzlement by a bank employee, and theft of public funds, but the indictment was sealed until she could be located and apprehended in Las Vegas, Nevada, where she also has a home.

The 18-page indictment alleges that DeMotta:

> Became involved with the personal financial affairs of Lim (referred to in the indictment as “A.L.”);

> Used her position with the bank to access the accounts of Lim and move funds belonging to Lim into other accounts at American Savings as well as other financial institutions;

> Used a variety of financial transactions to redirect Lim’s funds into accounts, which DeMotta controlled at American Savings Bank as well as other financial institutions;

> Altered checks belonging to Lim, so that the money was deposited into DeMotta’s father’s account, which DeMotta had opened;

Falsely endorsed the reverse side of the cashier’s checks as “refunded to customer” which were to be used for Lim’s payment of federal and state tax.

Spokesperson for the U.S. Attorney's office, Larry Butrick, says the federal agents are speaking with DeMotta’s attorney to determine whether she will surrender on her own or if a warrant will be issued for her arrest. Either way, DeMotta will be brought back to Hawaii so she can be arraigned next week.

DeMotta Took Advantage of Her Position

As Hawaii Kai Branch operations manager for American Savings Bank, DeMotta could easily befriend Lim, a frail elderly widow living in an East Oahu retirement home. Lim had no reason to distrust DeMotta when in 2003, the polite bank employee offered to help her with her finances.

Despite declaring bankruptcy in 2001, DeMotta offered to manage the upcoming sale of Lim’s $1.4 million property in Wahiawa, to prepare Lim’s federal and state tax forms, and to act as her “financial manager.” DeMotta even told Lim to get rid of her accountant because he was “too expensive.”

Lim allowed DeMotta to take control of the $668,000 netted from the sale of the property previously rented to Zippy’s Restaurant for $7,000 a month and to prepare her 2003 tax forms. Signing blank checks, Lim gave her banker full access to those funds and more totaling $900,000.

Alarmed at DeMotta's actions, Dennis Kohara, Lim’s long-time accountant, told Hawaii Reporter that he twice took his concerns to an American Savings Bank branch manager who he knew personally, because he believed an investigation was in the best interest of his client and the bank. Angie Ho, Lim’s Realtor, says she also was worried because Lim had a simple lifestyle with few expenses, but her money was rapidly being depleted.

Meanwhile, DeMotta continued as the bank’s assistant manager.

In late 2004, DeMotta allegedly used Lim’s money to open an I-Plan account at the Hawaii Kai Bank Branch under her own father’s name.

The indictment alleges that this money was supposed to go to the Internal Revenue Service and State Tax Collector to pay Lim’s taxes.

But instead, DeMotta allegedly deposited more than $200,000 from the money into an American Savings I-Plan account.

As a result, DeMotta’s Hawaii Kai Branch won a company-wide competition in December 2004, and employees and management personnel subsequently received bonuses of $1,000 and $5,000 each.

Bank Security Manager Bert Corniel pushed for the bank’s senior management to aggressively pursue an investigation into DeMotta and to reimburse Lim the full amount that was stolen.

Instead, the bank’s senior officials claimed they believed DeMotta’s claim that she borrowed the money and that it had all been repaid.

American Savings management wanted to make sure it was on record that DeMotta “borrowed” the money from Lim.

On February 2005, DeMotta picked up three bank employees from the legal and human resources departments and took them to meet with Lim.

Bank general counsel Stanley Chong, who suggested the meeting, went along in hopes that Lim would sign a statement saying she had in fact lent DeMotta the money. With big smiles, and candy and flowers in hand, the four bank employees arrived at Lim’s home with the release. She signed it.

“Mrs. Lim was in no condition to turn them down. She would have agreed to anything to anyone who was nice to her,” attorney Lyle Hosoda said about his client Ada Lim, maintaining his client was improperly manipulated.

DeMotta was fired from the bank in 2005, but was able to secure a job with a local mortgage company.

Corniel filed a complaint with the FBI in 2005 saying DeMotta alleged stole more than $1 million from Lim between 2003 and 2005. It was his report that triggered a federal investigation by four federal agencies.

Corniel was fired from the bank in June 2006.

Two Lawsuits Filed Against Bank Aug. 2, 2006

Corniel filed a lawsuit on Aug. 2, 2006, in First Circuit Court, alleging that he was fired in retaliation for blowing the whistle on the cover-up of DeMotta’s theft by the bank’s top senior officials.

Ten days after Corniel was fired, FBI agents seized his computer and files from the American Savings Bank security headquarters. Sources say federal agencies investigating the case feared evidence might be lost or destroyed. Hawaii Reporter broke that story on Aug. 12, 2006.

Federal agents also issued at least a half-dozen subpoenas in the fall of 2006 to American Savings Bank senior management officials in preparation for a grand jury proceeding at Hawaii’s U.S. District Court.

Federal agents from at least four departments have been involved in the case, including the FBI, U.S. Attorney, Office of Inspector General for Tax Administration and Department of the Treasury. U.S. Attorney Ed Kubo says in his Nov. 30 release that these federal agencies continue their investigation.

Corniel’s lawsuit against American Savings was settled in 2007 for an undisclosed sum on the condition that Corniel agree to strict confidence in terms of the settlement and what he uncovered during his investigation while at the bank.

Meanwhile, Lim also sued American Savings Bank, filing her lawsuit on Aug. 2, 2006 -- the same day as Corniel’s in First Circuit Court.

Lim’s attorney, Lyle Hosoda, said that American Savings, which had been notified twice about DeMotta before she took Lim’s money, did not take action to stop her -- at least not in time, and as a result, DeMotta transferred Lim’s money to a series of accounts benefiting DeMotta and her family members.

Specifically, Lim’s lawsuit alleged that $304,000 went to DeMotta’s account at the Bank of Hawaii; $212,000 went into DeMotta’s father’s retirement fund in American Savings; $110,000 in cash was used to purchase a condo in Waipahu in DeMotta’s own name. In addition, records show another $57,000 going to pay DeMotta’s credit card debt, and several thousand dollars both transferred to the Philippines and set up in a local account for DeMotta’s children.

Hosoda says the bottom line is Lim’s money disappeared within a few months and the 91-year-old is penniless. She once made $9,000 a month from rent and social security and believed she was set financially for life. But Lim was left unable to afford the rent in the East Oahu elderly care home and was forced to move out into low-income housing in Red Hill.

Worse, Lim’s taxes were not even paid, even though she believed the $304,000 was going to pay her taxes and signed cashiers checks prepared by DeMotta for that amount. Today, Lim owes nearly $500,000 in back taxes and penalties for the sale of the property and at this point, has no way to pay the government.

Bank president and Chief Executive Officer Constance Lau, who also serves as president of the Hawaii Bankers Association, and was named by U. S. Banker magazine as one of the top 25 most powerful women in banking and “Business Leader of the Year” in 2004 by Pacific Business News, did not speak publicly about either the civil lawsuits or criminal federal investigations into American Savings Bank.

But in a series of press releases, Lau adamantly denied American Savings Bank has done anything illegal.

On Tuesday, Aug. 22, 2006, American Savings asked the state’s First Circuit Court to dismiss the two lawsuits against the $6.9 billion financial institution and subsidiary of the state’s second largest company, Hawaiian Electric Industries.

In a 10-page filing, the bank attorneys maintained “there have never been any actions by American Savings Bank to conceal any improprieties by bank personnel." The filing also states former security manager Corniel was never coerced or kept from submitting any reports required by law.

After considerable negative press in the local and national trade press, however, American Savings Bank, in a dramatic turn, agreed to a settlement with Lim.

Neither Lim’s attorney, nor the bank, would discuss the terms of the arrangement, which was announced on Sept. 18, 2006, but her settlement is reportedly more than $1 million.

Bank Hires Top Guns, Fights Federal Inquiry

American Savings Bank, Hawaii’s 3rd largest bank with $6.7 billion in assets, retained Washington D.C.-based law firm of Fried, Frank, Harris, Shriver & Jacobson LLP to defend the bank during the federal inquiry.

One of the attorneys hired was former U.S. Department of Justice Inspector General Michael Bromwich, who since entering private practice 7 years ago, has defended both financial and other corporations under investigation by government agencies.

While working with the Department of Justice, he attempted to prosecute Oliver North during the Iran-Contra controversy in the late 1980s and investigated government agencies for their management of such crises as Oklahoma City bombing and the 1993 terrorist attack on World Trade Center.

Bromwich’s experience and that of his co-counsel, Thomas Vartanian, who is an expert in banking law, makes the firm the ideal one to defend the bank against any criminal or civil charges, sources say.

Behind the scenes, the bank’s board and attorneys brokered a deal with the federal U.S. Attorney’s office to delay any indictments while the bank conducted its own audit.

After the bank’s audit was completed and turned over to the U.S. Attorney, key bank employees involved with this case suddenly left the bank.

That includes Abel Malczon, senior vice president of operations, who was considered one of the bank’s most powerful and politically connected officers; and Stanley Chong, general counsel for the bank, who sent the delegation of four employees including DeMotta to get Lim’s signature on the form that stated DeMotta had borrowed the money from her. Wilson Ho, the bank branch manager supervising DeMotta during her alleged crime spree, was transferred to another branch and ultimately demoted. Ken Newman, brought in to replace Corniel when he was fired, also left the bank in recent weeks.

Financial experts familiar with the case say the federal investigation could lead to criminal charges against bank officers, and if they are proven serious enough, the bank could lose its federal charter.

DeMotta Maintains Her Innocence

All along, DeMotta has dismissed any allegations of wrongdoing.

In an interview with Hawaii Reporter in the fall of 2006, DeMotta explained that she was not responsible for Lim losing nearly $1 million.

DeMotta says that she befriended Lim while Lim lived in a Hawaii Kai elderly care home and “became like family.”

DeMotta told Hawaii Reporter that she did not steal any of Lim’s money. She says she merely "borrowed" $304,000 from Lim to “help her out” and paid her back on time and in full. She admits she put $212,000 in her father’s retirement account during a related bank promotion, but she says that money was part of the $304,000.

“Mrs. Lim wanted me to invest her money and I could not find anything that was good in the short-term so I borrowed it and gave her 2 percent interest. I did not need the money. I have plenty of my own.”

DeMotta says she took the $110,000 from the Lim family for a Waipahu condo purchase. DeMotta bought the condo in her name, even though she says she did so as an investment on behalf of the Lims. They were repaid $125,000, DeMotta maintains, saying she kept the additional $55,000 in profit from the condo resale of $180,000 because “she earned it.”

She says she realizes now that she probably should not have borrowed money from a customer, or volunteered to help her with her finances or tax preparation, but that she was not responsible for Lim being forced to move from her Hawaii Kai elderly care home into a low-income housing complex in Red Hill.

DeMotta blamed Lim’s daughter and granddaughter for financially taking advantage of Lim to the point where the senior citizen was impoverished.

But public records show DeMotta emerged from bankruptcy in 2003. She told Hawaii Reporter she was on the financial rebound after her parents’ Waimanalo home was sold. Public records shows the Waimanalo home was sold in 2005, however, not in 2003.

Under bank rules, DeMotta was not allowed to represent herself as a financial planner and tax specialist or to even touch the client’s money. Despite this mandate, DeMotta says she was only going out of her way to make sure Lim was a "satisfied bank customer."

“American Savings is a family-oriented bank, which encouraged employees to go out of their way to help customers,” DeMotta told Hawaii Reporter.

Saddened that she was fired from the bank in 2005 for "unrelated reasons," DeMotta says she realizes that she should not have “helped” Lim with her finances, even though she was only doing so out of the goodness of her heart.

She says because she was generous to Lim, her own family is suffering.

American Savings Bank’s public relations officials did not return calls or emails to Hawaii Reporter by press time to comment on this indictment.

Federal officials would not comment on whether other bank officials will be charged in this case, and would only say the investigation involving four federal agencies is ongoing.

Malia Zimmerman, editor and president of Hawaii Reporter, can be reached via email at mailto:Malia@hawaiireporter.com

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May 8, 1999

THEN THERE WERE NONE

Kamehameha supporters
embrace the chance for
reform and healing

Read the complete text of Judge Chang's ruling

By Rick Daysog, Star-Bulletin

A judge has delivered a possibly fatal blow to the trustees of the Bishop Estate in a historic decision that many believe will lead to the resolution of the two-year controversy surrounding the estate.

Probate Judge Kevin Chang yesterday ordered the immediate and interim removal of trustees Richard "Dickie" Wong, Henry Peters, Lokelani Lindsey and Gerard Jervis in a move that could lead to their permanent dismissal from their $1 million-a-year jobs.

Chang also accepted the voluntary resignation of trustee Oswald Stender and named a panel of five interim trustees to assume the duties of the ousted board members.

The interim trustees -- who were previously appointed by Chang to serve as special-purpose trustees to negotiate with the Internal Revenue Service -- are retired Adm. Robert Kihune, former Honolulu Police Chief Francis Keala, attorney Ronald Libkuman, Hawaiian Electric Industries Inc. treasurer Constance Lau and retired Iolani School headmaster David Paul Coon.

Chang's bombshell follows Circuit Judge Bambi Weil's ruling on Thursday permanently removing Lindsey from the multibillion-dollar trust's board after a four-month trial that ended in April. Trustees Stender and Jervis had sued for Lindsey's ouster, saying she breached her fiduciary duties, mismanaged the estate-run Kamehameha Schools and was unfit to serve.

Yesterday's decision, after a five-hour hearing, came after Chang ordered the trustees to demonstrate why they should not resign or be temporarily removed. The IRS, which has been conducting an audit of the estate since 1996, had threatened to revoke the charitable trust's tax-exempt status if the trustees were not removed.

Loss of the tax-exempt status could have cost the estate tens of millions of dollars a year and forced it to pay significant back taxes.

Chang said the trustees' refusal to step down "creates an immediate and substantial risk of significant harm to the trust estate" and "constitutes a breach of trust."

Under yesterday's order, Chang gave the attorney general's office, the estate's court-appointed master or the interim trustees 90 days to seek the permanent removal of the trustees. If no such suit is filed during the 90-day period, the former board members must ask the court to lift the temporary ban.

Chang also ordered the ousted trustees not to communicate with estate employees, attorneys and their agents and has ordered them off the boards of their various subsidiaries and affiliates.

In February, Chang forbade the trustees from negotiating with the IRS over issues raised by its audits. After reviewing some 2,500 pages of reports known as IRS Form 5701s, or notices of proposed adjustments, Chang found that the trustees had a conflict and prohibited them from handling audit issues.

Yesterday, Wong said he would appeal Chang's ruling because he believes his rights to due process were violated. Since Chang removed the trustees from discussing audit issues with the IRS, Wong said he has never been informed of any wrongdoing.

"I'm entitled to due process and I want to face my accusers and face the allegations. I want to know why I was removed," Wong said.

"I'm not going to walk away from a fight."

Fellow trustee Henry Peters has also hinted at an appeal and has raised the possibility of suing the IRS. Peters yesterday denied wrongdoing, saying the trust today is far more wealthy and liquid than it ever has been.

Peters pointed to this week's public offering of Goldman Sachs Group Inc., which added about $600 million to the estate's coffers. After the estate's investing $500 million in the Wall Street investment banking firm, the value of its holdings in Goldman has risen to as much as $2 billion.

"I'm not here to win a popularity contest, I'm here to do my job as a trustee. I can tell you unequivocally that we've done a good job," Peters said.

"We are big, we are massive, we are wealthy. If you want to refer to that as too much power, than so be it. We are proud of our legacy. We've done a wonderful job here and we're not going to apologize for our success."

To be sure, Wong and Peters are significant players in the controversy surrounding the trust. Both are targets of removal proceedings initiated by former Attorney General Margery Bronster and both have been indicted by separate grand juries investigating an alleged kickback scheme involving Bishop Estate land.

Stender said Chang's decision paves the way for major reforms of the Bishop Estate's operation. Future trustees will be more accountable to the needs of the Kamehameha Schools and to the interests of students, he said.

"I'm very pleased with the court's ruling today because it creates a new era for Kamehameha Schools and a new era for the management of the trust," Stender said.

Randall Roth, University of Hawaii law professor and co-author of the "Broken Trust" essay that criticized trustees' management of the estate, said that once the interim trustees take office, they will be able to waive the attorney-client privilege which former board members used to shield themselves from the state's investigation and to delay justice.

The interim trustees, according to Roth, see the benefit of cooperating with the state and federal probes.

"As a practical matter, what Chang's decision means is that the old trustees will never again be at the helm of the Bishop Estate," Roth said.

"This legal system is slow but it does deliver."

Meanwhile, members of the Kamehameha Schools ohana embraced yesterday's ruling, calling it the beginning of a long-overdue healing process.

"We are pleased the judicial process has worked, but slowly," said a statement issued by Na Pua, an organization of 3,300 Kamehameha Schools alumni, faculty, parents and students.

"Today's court decision is a vindication of the Kamehameha ohana and particularly for the many individuals who placed themselves at risk by speaking out."

Yesterday's hearing, before a packed audience, was attended by more than two dozen lawyers, including Bronster, who received an ovation when she entered the courtroom.

Last week, the state Senate, by a 14-11 vote, rejected Bronster's bid for a second term as attorney general, in a vote many believed was engineered by estate trustees.

Bronster, who launched the state's investigation of the Bishop Estate that led to the indictments of Wong and Peters, praised Chang for his decision and also trustee Oswald Stender for voluntarily stepping down.

"I think the court's order was very well thought out and it is a very important step," Bronster said.

"There's still a lot to be done."

Attorneys for trustees Wong, Peters and Lindsey argued that their clients' rights to a fair trial were denied. Ron Malone, Wong's attorney, accused the special-purpose trustees of "caving in to the IRS," which he said wants board members out so it can negotiate a settlement in its favor.

Malone said he believed that Wong is the target of a "mob mentality" and urged Chang to order a full evidentiary hearing. The request was denied.

Deputy Attorney General Dorothy Sellers said the trustees' real motives for keeping their jobs were made clear by their attorneys' arguments.

"What we heard today was 'Me, me, me, me. My job, my power, my authority, my rights, my compensation, my due process rights,' " Sellers said.

"Tell the trustees that the game is over. Take them out."

===

CHRONOLOGY OF
KEY EVENTS

1997

May 15, 1997: More than 500 Kamehameha Schools parents, students, alumni and supporters march on Bishop Estate headquarters to protest what they said was trustees' micromanagement of the Kapalama Heights campus.

Aug. 9, 1997: The "Broken Trust" article in the Star-Bulletin alleges mismanagement of Bishop Estate assets and conflicts of interests by trustees and criticizes selection of trustees by state Supreme Court justices.

Aug. 12, 1997: Gov. Ben Cayetano orders Attorney General Margery Bronster to investigate.

Dec. 12, 1997: Fact-finder Patrick Yim alleges that trustee Lokelani Lindsey managed Kamehameha Schools by "intimidation."

Dec. 20, 1997: Supreme Court justices remove themselves from selecting Bishop Estate trustees.

Dec. 29, 1997: Bishop Estate trustees Gerard Jervis and Oswald Stender seek Lindsey's removal.

1998

Sept. 9, 1998: Attorney General Margery Bronster calls for temporary removal of four trustees, saying they jeopardized the tax-exempt status of the trust.

Sept. 10, 1998: Bronster calls for removal of trustees Richard Wong, Henry Peters and Lindsey, charging they took part in a pattern of self-dealing and mismanagement.

Nov. 11, 1998: The trial to remove trustee Lokelani Lindsey begins.

Nov. 25, 1998: An Oahu grand jury indicts Peters on a charge of theft.

1999

March 11, 1999: Trustee Gerard Jervis is rushed to a hospital after taking an overdose of sleeping pills a week after a trust employee died in an apparent suicide. The day before her death, Jervis and the female worker were caught in a compromising position in a men's restroom by security workers at a Waikiki hotel.

April 12, 1999: Bishop Estate Chairman Wong is indicted on charges of first-degree theft, perjury and conspiracy.

April 27, 1999: IRS files a report saying it may revoke the tax-exempt status of the estate if the five trustees don't step down.

May 6, 1999: Circuit Judge Bambi Weil permanently removes Lindsey as trustee.

May 7, 1999: Probate Court Judge Kevin Chang temporarily removes four trustees and accepts Stender's resignation on an interim basis.

Bishop Estate Archive

http://starbulletin.com/1999/05/08/news/story1a.html

http://www.kycbs.net/CV05-00030-Exhibit-GY.htm

~ ~ ~

May 21, 2007

ASB settles second suit

Pacific Business News (Honolulu)

American Savings Bank has settled a lawsuit with its former security chief who had accused the bank of covering up the theft of hundreds of thousands of dollars from an elderly customer.

It is the bank's second settlement in eight months over the same issue. The details of the settlement were not made public.

Bert Corniel, the former security director for the bank, sued American Savings Bank, accusing executives of covering up an assistant manager's theft from customer Ada Lim.

In the 17-page lawsuit filed Aug. 2 in 1st Circuit Court in Honolulu, Corniel accused American Savings Bank CEO Constance Lau of attempting to "coerce" him to "conform and recharacterize" fraud losses that escalated between 2002 and 2004.

Corniel said he was was passed over for a promotion in 2004 because of his efforts to report financial irregularities at the bank. He resigned from the bank last June.

Dawn Dunbar, the bank's corporate communications manager, released this statement Monday: "Although we cannot comment on the specifics of the settlement, we believe that this resolution of the matter is in the best interests of American Savings Bank. We are pleased to put this matter behind us and continue our efforts to best serve our customers and communities."

John Mackey, an attorney with the Torkildson Katz Fonseca Moore & Hetherington firm, which represented American Savings, said he would not comment on the settlement. Calls to Corniel's attorney, Brandee Faria with John Francis Perkin, were not immediately returned.

American Savings Bank, Hawaii's third-largest bank, settled a lawsuit last September filed by the 91-year-old Lim. Lim charged the bank failed to protect her from the bank branch employee who befriended her and allegedly drained $900,000 from her account.

In a statement last August, Lau said the facts alleged in the lawsuits were "untrue" and the claims against the bank "outrageous."

"At the end of the day, I expect the bank to be fully exonerated," Lau said.

Chad Blair

http://pacific.bizjournals.com/pacific/stories/2007/05/21/daily9.html

December 11, 2006

American Savings report
raises 'red flags'

•	PDF: See the American Savings Bank corporate security report

By Rick Daysog, Advertiser Staff Writer

An American Savings Bank senior vice president rewrote an in-house report last year on a bank employee's alleged theft of $600,000 from an elderly customer to delete any reference to the customer losing money.

Corporate governance experts say it is unusual for a bank to remove information from a report intended to alert top executives to potential problems.

In February 2005, American Savings Bank security director Bert Corniel learned that a supervisor at the Hawai'i Kai branch took hundreds of thousands of dollars from a 92-year-old customer, Ada Lim. Corniel wrote a 150-word report alerting bank officials of the incident.

Corniel's supervisor, Abel Malczon, the bank's senior vice president of operations, reduced Corniel's report to 65 words, taking out the part about a bank employee taking money from Lim.

The short version was submitted to the bank's disclosure committee, which reviews cases of possible fraud.

"This has the appearance of someone trying to downgrade the gravity of the situation," said banking consultant Tom Tarter, a former president of the Bank of Los Angeles who now advises financial institutions on corporate governance issues. "This is a totally inappropriate action and makes you wonder how other frauds and other problem areas are treated by the bank."

American Savings Bank, the state's third-largest financial institution, said it did nothing wrong, but cannot comment on specifics of the case because of a pending lawsuit and a federal grand jury investigation into the matter.

Dawn Dunbar, American Savings' spokeswoman, said last week the company acted properly. Malczon declined comment and referred all questions to the bank.

American Savings CEO Constance Lau said in a written statement on Aug. 16, after news broke that a bank employee took money from an elderly customer, that the "bank did not in any way, shape or form cover up anything."

When asked about changes to Corniel's report, Dunbar said: "Unfortunately, we cannot respond fully to these allegations because this matter is still pending before the court."

"We are confident that when the facts do become known, it will be clear that American Savings Bank has acted lawfully and properly."

Corniel sued the bank on Aug. 2, claiming bank officials retaliated against him and passed him over for a promotion because of various disclosure reports he filed.

Lau, in her August statement, said Corniel was a "disgruntled former employee."

Corniel's report and Malczon's revisions are key exhibits in Corniel's lawsuit in state Circuit Court. In the lawsuit, Corniel alleges that an operations supervisor at American Savings' Hawai'i Kai branch, Marilyn De Motta, took hundreds of thousands of dollars from Lim between August 2004 and December 2004, and that the bank later tried to cover up the fraud to avoid reporting the losses to its regulators.

To back up Corniel's contention, he filed with the court copies of e-mail messages from Malczon, his supervisor, about the edited report.

"Here is the revised report talked about in management," Malczon wrote in the e-mail to Corniel on Feb. 25, 2005. "Management would prefer no names (of the victim or bank employee) be used."

Malczon added, "If you are not comfortable submitting this under your banner, I understand and will submit it under my name."

Lim, the 92-year-old customer, also filed suit against American Savings on Aug. 2, but the bank settled that lawsuit in September for undisclosed terms.

A federal grand jury recently opened an investigation into the alleged fraud and the bank's handling of the case.

The audit committee of the Hawaiian Electric Industries Inc. board also has opened an investigation into the matter. HEI is the parent company of American Savings.

Founded in 1925, American Savings has about $6.9 billion in assets, 64 branches and about 1,400 employees.

The in-house reports on the Lim incident weren't the only reports bank officials changed.

In sworn testimony taken by Corniel's attorneys, bank officials said they amended a "suspicious activity report" written by Corniel on the Lim matter and filed with federal regulators. The bank officials did not say in their testimony why the report was amended or what was changed.

The bank's CEO, Lau, said in a deposition she gave in the Corniel lawsuit that Malczon directed a staff attorney to change Corniel's initial report. Lau did not provide details on the changes.

Bank spokeswoman Dunbar declined to comment on Lau's testimony and the changes to the report, citing federal laws prohibiting the disclosure of the contents of such reports.

Suspicious activity reports are required of all banks, stock brokerages and casinos when they suspect fraud, money laundering or any other illicit activity involving $5,000 or more.

If the alleged abuse involves a company insider, the financial institution has to file a suspicious activity report regardless of the amount of the loss. A false suspicious activity report could result in criminal prosecution and fines for a company, said Sarah Welling, law professor at the University of Kentucky and an expert on money laundering. Failure to file such reports also can lead to civil penalties.

Banking consultant Tarter, who reviewed American Savings Bank e-mails and disclosure committee reports at the request of The Advertiser, said the way the bank reported the Lim case to its internal disclosure committee fell well below "industry standards that require full disclosure."

Tarter said American Savings' disclosure committee should have been given all of the facts surrounding the alleged fraud against the elderly customer. Full disclosure would allow the bank's senior management and its board to decide whether the bank had to reimburse the customer and whether to set aside reserves for the potential loss, Tarter said.

American Savings' disclosure committee, whose members include senior bank managers, was created in response to the Sarbanes-Oxley corporate reforms several years ago. The committee reviews corporate governance issues for the bank.

American Savings spokeswoman Dunbar declined to discuss the duties and makeup of the bank's disclosure committee.

James Spindler, a corporate governance expert and law professor at the University of Southern California, said amending Corniel's original report probably did not violate any laws from a corporate governance standpoint, because the losses involved aren't material to the bank's earnings.

But Spindler said investors don't look too kindly when managers shift "numbers around to cover up bad things" and don't inform the company's board of such problems.

"This is something that raises some red flags," said Spindler.

September 30, 2006

Bank data subpoenaed in
alleged $600K theft

By Rick Daysog, Honolulu Advertiser

A federal grand jury has subpoenaed documents from American Savings Bank to investigate the alleged theft of hundreds of thousands of dollars from an elderly bank customer and the bank's response to the reported theft.

The 23-member panel issued a blanket subpoena earlier this month for copies of company e-mails, financial statements and other records, people familiar with the investigation said. The sources asked not to be identified because the investigation is ongoing.

The grand jury's subpoena comes on the heels of two civil lawsuits filed on Aug. 2, one by a 91-year-old bank customer, Ada Lim of Moanalua, and the other by the bank's former director of security, Bert Corniel.

The suits charged that Marilyn De Motta, an operations supervisor at the American Savings' Hawai'i Kai branch, took $600,000 from Lim. The suits also alleged that the bank tried to cover up the theft.

American Savings CEO Constance Lau said in a written statement last month that the bank "did not in any way, shape or form cover up anything."

The grand jury's investigation is not limited to Lim's theft allegations but also is examining American Savings' conduct, according to the sources.

The panel is an investigative grand jury, meaning that it was convened to gather evidence and may not file criminal charges depending on what it finds.

When asked for comment on the grand jury, American Savings spokeswoman Dawn Dunbar said in an e-mail, "While we cannot speak on behalf of the FBI, it is important to note that American Savings Bank has been cooperating and will continue to cooperate with all governmental authorities."

Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai'i, could not be reached for immediate comment.

COMPUTER SEIZED

No criminal charges have been filed in the case, but FBI agents last month seized Corniel's computer and interviewed Corniel and other witnesses.

Lim settled her lawsuit with the bank on Sept. 18. Terms of the settlement were not disclosed.

Lyle Hosoda, attorney for Lim, said in a news release at the time that "Ms. Lim recognizes that this was a unique situation and both parties are fully satisfied that the settlement is both amicable and fair."

Corniel's suit is still pending.

De Motta's attorney, Emmanuel Guerrero, declined comment yesterday on the grand jury investigation.

NOTED LAWYER HIRED

Established in 1925, American Savings is the state's third largest financial institution with $6.7 billion in assets. The bank is a subsidiary of Hawaiian Electric Industries Inc.

American Savings recently retained high-profile Washington, D.C., attorney Michael Bromwich to assist the bank with the federal investigation.

Bromwich of Fried, Frank, Harris, Shriver & Jacobson LLP, is a former inspector general at the U.S. Department of Justice and was part of the federal government's legal team that prosecuted Iran-Contra figure Oliver North in the late 1980s.

Bromwich did not respond to an e-mail yesterday seeking comment on the grand jury investigation.

August 16, 2006

FBI probes bank over
alleged fraud cover-up

By Rick Daysog, Honolulu Advertiser

The FBI is investigating claims that American Savings Bank officials tried to cover up theft, including one case in which a bank employee allegedly took several hundred thousand dollars from a 91-year-old customer.

FBI agents interviewed the bank's former security director Bert Corniel yesterday after he charged in a lawsuit that the bank asked him to stop reporting fraud cases to federal and state officials, said John Perkin, Corniel's attorney.

Assistant U.S. Attorney Ron Johnson, who prosecutes federal crimes in Hawai'i, said yesterday he could not confirm or deny that an investigation is under way. A person at the Honolulu FBI office said late yesterday the bureau had no immediate comment.

The bank said the charges are false and it is cooperating with the FBI investigation.

"Although we cannot comment on the investigation, we can say that we have and will continue to cooperate and provide investigators with all the relevant information as it is requested," said American Savings Bank in a written statement. "Mr. Corniel's concerns ... were thoroughly investigated and found to be without merit."

Corniel and bank customer Ada Lim, 91, alleged in separate lawsuits filed on Aug. 2 that a manager at a bank branch took hundreds of thousands of dollars from Lim.

Lim deposited more than $600,000 into her American Savings account in 2004, only to have most of the money siphoned out of her account by the bank employee, who was helping to manage Lim's finances, the lawsuits allege. The bank employee opened an account with Bank of Hawaii and deposited various sums from Lim totalling $304,000, according to Lim's lawsuit. The bank employee bought a condominium using $110,000 of Lim's money, the suit claims.

Corniel said in January 2005, when he was investigating the Lim case, the bank employee confessed to him that she took the money. American Savings officials said the transfer was a loan from Lim to the employee, Corniel said.

Corniel said American Savings officials told him not to report the fraud as required by law to federal regulators and law enforcement agencies such as the FBI, Office of Thrift Supervision and the Federal Deposit Insurance Corp.

Several American Savings employees went to Lim's house in February 2005 with gifts and to get her to sign a document exonerating the bank, according to the lawsuits.

$200,000 SHORT

Lyle Hosoda, Lim's attorney, said the bank returned most of Lim's money but still owes her about $200,000. No criminal charges have been filed against the bank employee, but Hosoda said an Internal Revenue Service investigation of the employee is under way.

Craig Togami, American Savings marketing and communications director, said yesterday the bank would not respond to specific allegations in the two lawsuits. Togami said he could not comment beyond what it said in the written statement.

"American Savings Bank believes that this entire lawsuit is without merit," the statement said. "There are many factual errors in the complaint. ... We look forward to telling our side of the story more fully at the appropriate time."

The bank's statement also cast doubt on the motivation of Corniel. In June, Corniel resigned from the bank, saying he was pushed out.

"To understand what truly happened, there are some facts to keep in mind: Security today goes well beyond physical security, and so the bank decided to emphasize protection of security of information systems and computers; Mr. Corniel, whose background is in physical security, was not selected for the newly created position of VP Security; Mr. Corniel voluntarily resigned after repeated efforts by the Bank to have him stay," the statement said.

PRESIDENT IMPLICATED

Corniel's lawsuit also charges that Constance Lau, the president of the bank, asked him to "recharacterize" the bank's fraud losses as "potential losses" in his reports to federal regulators.

Lau became chief executive of American Savings' parent company, Hawaiian Electric Industries Inc, in May. Togami said Lau was traveling and could not be reached for comment....

FBI agents seized Corniel's computer at American Savings' downtown headquarters on Friday in search of e-mails and other electronic records, which could demonstrate Corniel's allegations, according to Perkin, Corniel's attorney.

Corniel is a retired Honolulu police officer and a former investigator with the city prosecutor's office who was hired as American Savings' security director in 2000.

In his lawsuit, Corniel mentions a second incident, involving two bank tellers and a customer who allegedly defrauded the bank of $256,000 in April and May 2005. Corniel said he filed reports with federal regulators and law enforcement officials, including the FBI, the Office of Thrift Supervision and the Federal Deposit Insurance Corp.

But bank officials recharacterized the losses as expenses or charge-offs and his immediate supervisor told Corniel that his filings with federal authorities could cost him his job, the lawsuit claimed.

August 18, 2006

FBI began bank probe in '05

By Rick Daysog, Honolulu Advertiser

The former American Savings Bank employee accused of taking hundreds of thousands of dollars from a 91-year-old customer said FBI agents have been investigating her case for more than a year.

Marilyn De Motta, an operations supervisor at American Savings' Hawai'i Kai branch before she was fired in February 2005, said FBI investigators questioned her in March 2005 about allegations she took money from Moanalua resident Ada Lim. The FBI interviewed her a second time earlier this year and the Internal Revenue Service joined that session, De Motta said.

An FBI spokesman yesterday would not confirm or deny that an investigation is under way.

Lim alleged in a lawsuit filed Aug. 2 that De Motta approached her and offered assistance with her finances. Lim also alleged De Motta instructed her to deposit $688,669 into an American Savings account. Lim alleged De Motta took $304,000 from Lim's account starting in 2004 and later got Lim to sign a document saying it was a loan paying 2 percent interest.

In a separate lawsuit also filed on Aug. 2, Bert Corniel, the former security director for American Savings, alleged that he interviewed De Motta in January 2005 while she was still working at the bank and she "confessed that she took Ms. Lim's money." Corniel also alleged the bank was "aware of this situation as early as July 2004, but no disciplinary action was taken." Corniel alleged the bank "attempted to cover up De Motta's fraud as a loan."

American Savings CEO Constance Lau on Wednesday said the bank did not "in any way, shape or form cover up anything" in a written response to allegations in the two lawsuits.

The bank said on Tuesday it is cooperating with the federal probe.

De Motta spoke to The Advertiser on Wednesday and said Lim authorized all the transfers of funds to De Motta.

De Motta said she initially didn't want to help Lim with her finances. But De Motta said she felt pressured by Lim, who made repeated phone calls to get her to help....

De Motta, who worked for American Savings for 13 years, also faulted the bank for not adequately supervising her.

"It's not like me to blame someone else, but why didn't anybody hold me and slap me in the face at the time? Instead, they're watching me and throwing me away," De Motta said.

When asked why De Motta borrowed money from a 91-year-old customer, De Motta declined to answer.

"It will be proven in court why I did it," De Motta said. "I'm dying to tell people what happened."

De Motta has not been charged with a crime in this case.

John Knorek, American Savings Bank's attorney, said Wednesday the bank's code of conduct committee began an investigation of De Motta in January 2005 and fired her the following month.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com

August 18, 2006

American Savings works
to keep customers' trust

Pacific Business News (Honolulu) - by Harold Nedd

American Savings Bank executives found themselves scrambling this week to deal with the worst kind of charges: that the bank had covered up the theft of as much as $900,000 from an elderly customer's account by an assistant branch manager.

The separate lawsuits by the customer and the bank's former head of security rippled through the state's banking community and forced American Savings Bank to forcefully respond to the allegations in an effort to reassure customers and uphold its integrity.

In an unusually blunt statement issued late Wednesday, American Savings Bank President and CEO Constance Lau called the allegations raised in the lawsuits "outrageous" and "untrue."

"I have directed our attorneys to take every appropriate legal step to respond to these unfounded allegations despite the apparent orchestrated and unfair attempts by the plaintiffs to sow fear and uncertainty among our customers and stakeholders," Lau said in the statement. "At the end of the day I expect the bank to be fully exonerated."

The lawsuits have brought attention to an issue that is especially troubling to bank executives because it involves managers who are entrusted with overseeing operations, confidential customer information and huge amounts of cash.

"If you are a bank, integrity or credibility is not something you want to have questioned," said Rodney Shinkawa, executive vice president of the Hawaii Bankers Association. "They are very important for financial institutions."

American Savings Bank is only the latest Hawaii bank to be tainted by employee fraud. In recent years, Hawaii National Bank and Territorial Savings Bank were found to have supervisors who stole money from accounts.

"People have to trust their bankers and bankers have to earn their trust and respect," said Warren K.K. Luke, chairman and CEO of Hawaii National Bank.

Assistant U.S Attorney Tracy Hino, who prosecuted both the Hawaii National Bank and Territorial Savings cases, said the law deals harshly with bank supervisors, managers and other bank employees who have substantial authority.

"But federal law deals even more harshly with bank employees who rip off people who are vulnerable, such as elderly customers," Hino said.

In the American Savings Bank case, the former director of corporate security, Bert Corniel, claims he was forced out of his job in June for being too aggressive in reporting suspicious transactions in accounts. His lawsuit seeks unspecified damages.

The bank says Corniel was passed over for a promotion earlier this year and Lau's statement described him as "a disgruntled former employee."

Corniel, a former white-collar crime investigator with the Honolulu Police Department, also is chairman of the Hawaii Financial Security Association, a group of bank security directors who have formed an anti-crime alliance with law enforcement at the county, state and federal levels.

In the lawsuit filed Aug. 2 in 1st Circuit Court in Honolulu, Corniel accuses the bank of covering up the theft of more than $600,000 from an elderly customer she befriended. Corniel claims in the lawsuit that the employee was not disciplined, even after she confessed in writing.

The customer, Ada Lim, 91, filed suit against American Savings Bank the same day as Corniel. In it, Lim claims the bank employee actually stole more than $900,000 from her. Lim is also suing her own daughter, claiming she helped the bank employee defraud her.

According to the lawsuit filed by Corniel, he discovered in 2005 that a former assistant manager of the Hawaii Kai branch had taken money from Lim under the guise of helping her with taxes and investments.

Corniel said the assistant manager participated in the sale of real estate that belonged to Lim and then deposited the money in her own account, later using some of it to buy a condominium.

Corniel said in the lawsuit that bank executives had known about the situation for months but had done nothing. He said he confronted the manager in January 2005 and obtained a confession, but said bank executives tried to explain the transactions as a loan from Lim to the manager.

A month later, the lawsuit says, four American Savings Bank employees were sent to Lim's home "bearing gifts." "They were instructed to obtain Ms. Lim's signature on a document meant to exonerate ... the bank as to her lost money," according to the lawsuit.

Another document, written in August 2004, is included with Lim's lawsuit. The document, which is addressed to Constance Lau and was sent to her office, is signed by Lim and concludes: "I regret any inconvenience this matter has caused and trust that you will not take any adverse action against an employee who has and will continue to be a wonderful asset to your financial institution."

Corniel said when he shared the findings from his investigation with management, he was told the bank "did not want to post losses of this magnitude and did not want to report the fraud" as required by federal law, according to the lawsuit.

The assistant manager was eventually let go by the bank, but her termination came three months after her confession and was for an unrelated employment violation, Corniel said in the lawsuit.

But Lau said in her statement that the employee was "terminated promptly, following our own internal investigation."

Corniel's lawsuit also claims that Abel Malczon, senior vice president of operations, criticized Corniel for reporting the case to bank regulators and law enforcement agencies. According to the lawsuit, Malczon attempted to get Corniel to submit to regulators an amended report, reflecting substantially smaller losses.

Malczon declined to answer questions about those allegations. In her statement, Lau said: "The bank did not in any way, shape or form cover up anything."

www.bizjournals.com/pacific/stories/2006/08/21/story3.html

November 17, 2003

Trustees Celebrate Ruling Upholding
Admissions Policy

The Board of Trustees of Kamehameha Schools today celebrated federal Judge Alan Kay's ruling upholding the Schools' 116-year old policy of offering admissions preference to applicants of Hawaiian ancestry.

"This is an incredible day for Kamehameha Schools," said board chair Constance Lau. "We are ecstatic that what Hawaiians have always felt was right, what we have always felt was pono, has been upheld today in a court of law."

In upholding the preference policy, Judge Kay noted Princess Pauahi's intent as expressed in 1887 by her husband, Charles Reed Bishop, that her schools educate Hawaiian children first. He also agreed that Hawaiians continue to suffer educational and societal imbalances as a result of historical wrongs.

Kay stressed that Kamehameha Schools is a private institution, and said that in its 1993 Apology Resolution, the U.S. Congress determined that the imbalances resulted in part from the overthrow of the Hawaiian monarchy in 1893.

Trustee Douglas Ing noted, "Judge Kay's ruling is important because it recognizes Kamehameha Schools' role in improving the capability and well-being of Hawaiians through education. We understand today's ruling will be appealed and that we face another legal battle in Judge Ezra's courtroom tomorrow, however, we are hopeful that the U.S. judicial system will recognize the importance of Kamehameha to the Hawaiian community and the entire state."

"Kamehameha Schools is a symbol of hope for the Hawaiian community and this ruling is a restoration of that hope," said Trustee Nainoa Thompson. "Today's judgement is one that will further unite the Hawaiian people and all those who care about Hawai`i."

Trustee Diane Plotts expressed gratitude for the overwhelming public support shown over the last few months. "The displays of support from the entire community -- from emails to petition signatures to participation in unity marches and celebrations of Hawaiian culture -- have encouraged us tremendously."

Kamehameha Schools supporters celebrated Judge Kay's ruling with KS trustees by chanting and singing the school song.

Along with his fellow trustees, Admiral Robert Kihune thanked those gathered at court for their unwavering and dedicated support. "I can imagine our beloved Pauahi smiling down on all of us today."

www.ksbe.edu/article.php?story=20050506110634462&mode=print

~ ~ ~

Constance Lau is expected to testify as to the facts and circumstances of the Settlement of Harmon’s RICO lawsuit, and regarding the actions taken by Defendant subsequent to entering into the Settlement Agreement, including Defendant’s alleged breaches of the Agreement through his so-called “letter writing campaign”.

Although she was not one of the three trustees who signed the Agreement, as a trustee at the time of signing, she will be asked to provide evidence that she had the legal authority to agree to the signing the Settlement and Indemnity Agreement on behalf of the former trustees, and had the express written authorization of KSBE’s liability insurance carriers, Federal Insurance Co. (Chubb Group), and XL Insurance Co. to approve the Agreement.

Constance Lau is also expected to furnish written evidence of the appointment of her attorney in Case No. 99-04339, and that this attorney was approved by Kamehameha School’s insurance carrier.

She is also expected to testify regarding her personal, business, professional, financial and social relationships with Kamehameha Schools, Barack Obama, Punahou Schools, Dan Case, Steve Case, Jeffrey Case, Elizabeth K. Lindsey Buyers, Faye Kurren, Judge Barry Kurren, Hawaiian Insurance Companies, George Ariyoshi, Mark Polivka, Goldman Sachs, Russell Lau, Gayle J. Lau, Hiram Fong, Sr., Hiram Fong, Jr., Finance Factors, Ltd., Mercer Human Resource Consulting, Hamilton McCubbin, Dee Jay Mailer, Edwina Clarke, Hawaiian Electric Companies; American Savings Bank; American Savings Insurance Agency; Bishop Insurance Agency; Wayne Minami; Bob Anda; First Insurance Co.; TIG/Crum Forester; Servco Insurance Services; American Insurance Agency; DTRIC; Royal State Insurance Agency; Island Insurance Co.; American Mutual Underwriters, Ltd.; AIG Hawaii; Consuelo Zobel Alger Foundation, Colbert Matsumoto, Jeff Watanabe, Linda Lingle, Ted Liu, Maui County Council, Maui Planning Commission, Charles Ota, Jon Van Dyke, Peter Savio, Bill Mills, Calvin Say, Stanford Carr, Renton Nip, Judith Neustadter Fuqua, Gilbert Tam, Sandwich Isles Communications, Al Hee, Clayton Hee, Summit Communications, Nathan Aipa, Eric Martinson, Randall Chang, Judge Kevin S. Chang, Judge David A. Ezra, Steven Guttman, Susan Tius, Michael Tanoue, Rocco Sansone, Marsh & McLennan, Aon, Oswald Stender, Haunani Apoliona, Office of Hawaiian Affairs (OHA), Bank of Honolulu, Sukamto Sia, Donna Tanoue, Guido Giacometti, Jeremy Harris, John Goemans, Bert Corniel, Dan Mahle, Judge Alan Kay, Judge Lloyd King, Judge Robert Faris, James Nicholson, David C. Farmer, Ed Kubo, Mary Lou Woo, Marilyn DeMotta, and others to be named upon discovery.