Bobby N. Harmon, CPCU, ARM
December 2, 2000
Employee Plans & Exempt Organizations
Internal Revenue Service
1244 Speer Blvd., Ste 442
Denver, CO 80204-3583
RE: Kamehameha Schools’ Proposed Insurance Settlement Agreement
Dear Ms. Hughes:
This is to provide additional information regarding conflicts of interest involving one of the court appointed mediators in the Kamehameha Schools/Federal Insurance settlement negotiations, James Duffy, Esq., that provides further reasons why the IRS and other involved parties should NOT APPROVE the proposed Settlement Agreement, or close their files on this case.
Most importantly, Duffy was a previous Master for the estate during the time that Nathan Aipa was the General Counsel and head of the Legal Group. It was during this period that the Trustees, managers, employees and outside contractors were involved in many of their most controversial financial deals, including the one for McKenzie Methane.
The following is quoted from my RICO lawsuit, Harmon v. Federal Insurance Company; P&C Insurance Company; Marsh & McLennan, Inc.; PricewaterhouseCoopers LLP; Trustees of Bishop Estate, et al (which was settled earlier this year):
. . . Plaintiff alleges that Aipa’s wrongful acts are multitudinous. These acts include, but are not limited to: . . . Facilitating and concealing co-investments in KSBE deals by the Trustees, employees, family members and business associates.
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 [Nathan] 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. . . .
According the Honolulu Advertiser article, other co-investors included:
Henry Peters (trustee)
William Richardson (former trustee and subsequent consultant, 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 Giacommetti (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 employee, Leeanne Crabbe)
Aipa and others did such a good job of concealing this information, that Plaintiff was unaware of these co-investments until he read about them in the newspaper — even though his job at the estate required him to be informed of the details of mergers and acquisitions for insurance and risk management purposes. . . .
An article in the February 27, 1995 issue of The Honolulu Advertiser, under the headline, “Monitoring Groups Not Told About Deals,” reported: “Both the state Probate Court and the state Attorney General’s Office are required to annually review Bishop Estate operations. Neither agency knew about the personal investments estate trustees and employees made in connection with the estate’s McKenzie Methane investment, according to court records and interviews. . . Peter Trask (the court appointed Master) . . . made no mention of the McKenzie Methane or HAK Partners investments in his report to the court. ‘The investment portfolio appears complete and well-maintained,’ Trask wrote. . . .‘More than adequate information is presented to provide the master with an appropriate understanding of the investments,’ Trask reported. . . James Duffy, who reviewed Bishop Estate operations last year for the state Probate Court, said he was unaware of the McKenzie Methane investment and had never heard of the HAK partnerships. Asked if he thought the personal investments by trustees and estate employees were appropriate, Duffy said, ‘I would rather not comment.’ . . .Benjamin Matsubara, the current court master, also said he was unaware of the HAK Partnerships but intended to look into the matter. . . Deputy Attorney General Kevin Wakayama, who reviews Bishop Estate activities for the state, said personal investments by estate trustees and staffers in estate-related business deals have ‘never be publicly reported by the estate’.” A follow-up article in the February 28, 1995 edition of The Honolulu Advertiser, under the headline, Bishop Estate Tax-Exempt Status Scored, discloses: “. . . Peters (attorney Ronald Peters, not Henry Peters) pointed out yesterday that the estate trustees told James Duffy, court-appointed master for the estate’s 1989-90 fiscal year, that ‘they have not undertaken any transactions with members of their families, business associates, employees of the estate, or member of immediate families of employees of the estate except such as are disclosed to the master. . . The estate had no comment yesterday on questions about why the existence and activities of the HAK partnerships were not reported to court masters since 1989. . . The estate also had no immediate comment on whether it was obligated to report the HAK partnership transactions on its federal income tax returns. . . As reported Sunday, in 1989 then-trustee Matsuo Takabuki, his wife, three children, family corporation and a longtime company employee invested $1.5 million in the HAK Partnerships. . . . Then-trustees Myron ‘Pinky’ Thompson and William Richardson, invested $510,000 and $210,000, respectively. Trustee Henry Peters . . . invested $220,000. . . The estate, as a charitable institution, files a ‘Form 990' federal tax return. One section of that return requires the estate to report whether it has furnished ‘goods, services or facilities’ to any taxable organization in which a trustee or estate principal officer has a management affiliation. . . The estate reported nothing about the HAK partnerships on tax returns filed with the IRS since 1989. . . . The HAK partnerships were organized and administered by Mitchell Gilbert, financial assets manager of the estate from 1988 to September 1994, according to Texas court records. Gilbert and his relatives invested $72,000 in the HAK partnerships. . . The mailing address for all five partnerships was Bishop Estate headquarters at Kawaiahao Plaza. . .”
A second, more obscure reason involves Mr. Duffy being the attorney for Indriati Latief in her divorce action against Sukamto Sia. The connections of Bishop Estate with the Sia scandals are too lengthy to include in this letter; however, additional information can be found in the enclosed newspaper articles and at the following Web Site:
Please feel free to contact me if I can be of further assistance.
Very truly yours,
Bobby N. Harmon
enclosures
cc: Robert K.U. Kihune, Trustee
Ronald D. Libkuman, Trustee
Constance H. Lau, Trustee
David P. Coon, Trustee
Francis A. Keala, Trustee
Federal Bureau of Investigation
Tai K. Lee, U.S. Dept of the Treasury
Dorothy Sellers, Esq., Office of the Attorney General
Robert P. Richards, Esq., Kamehameha Schools Master
Wayne Metcalf, Hawaii Insurance Commissioner
Dr. Randy Roth, University of Hawaii