The Rise and Fall
Sightings from The Catbird Seat
~ o ~
= = = THE RISE = = =
May 12, 2000
Enters the Call Center Arena
By Rob Kay and Jeff Bloom, Pacific Business News
Over the past two years Tim Bajarin, one of the top analysts in Silicon Valley, has
come to Hawaii advocating that our state focus on developing call centers as an
industry. He understood that Hawaii may not have the infrastructure to support full bore
Silicon Valley companies but we surely did have a chance to grow a call center sector
which didn’t demand the kind of high powered engineers that software companies or
manufacturing facilities depend upon....
One of the most interesting companies to do so is Summit Communications, a 40-person operation that got its start at the Manoa Innovation Center but will soon move
to a 4000 square foot office at 1132 Bishop Street. A telecommunications company,
Summit originally based its business on setting up shared tenant services for office
buildings and hotels. Shared tenant services become possible after the state
deregulated the telecommunications industry. This allowed smaller telecom to provide
and aggregate telephone services, Internet access, long distance calling and other
traditional telecommunications services in large buildings.
Recently Summit has gotten into the call center business in a big way. Early this year
they won a bid to provide a call center that would field all calls for the Hawaii Visitor’s
and Convention Bureau. The three year contract will be worth about $400,000 a year
to Summit and will entail hiring an additional 15 operators and supervisory personnel.
The jobs will pay anywhere from $10-13 per hour, which translates as about $25,000 to
$28,000 per year.
Oddly enough, currently the call center for the HVCB is located in Arizona. However,
the powers that be decided it was time to inject a little more Aloha spirit into the tourism
promotion business by utilizing local people and wisely decided to move the operation
back to the Islands. Multi-lingual operators would be employed with fluency in German,
Spanish, Mandarin, Japanese, Korean and French. The new call center will be web-enabled and have the latest technologies in place such as “click to talk” capabilities.
That means that a web surfer looking at the HVCB site need only click an icon to speak
with an operator.
Summit Communications’ General Manager, Chad Johnston, told us that the
company is not a newcomer to call centers. “We’ve been providing telecommunications
services to Physicians Exchange, a doctor’s call center here in Honolulu since 1998,”
said Johnston, so we have experience supporting mission critical operations.”...
Summit is proving something that we’ve believed in all along.
You don’t need super high tech companies to build our economy and provide
meaningful employment. By making our state more business and technology friendly
we can grow or tattered economy. However, without prior deregulation of the
state’s telecommunications industry, Summit would never have had the
opportunity to expand and eventually branch out into the call center arena.
The key in our estimation is for local companies to leverage available technologies and
enter niches that the larger, stodgier companies would hesitate to attempt. This is
exactly what Summit has done and we wish them the best of luck.
= = = THE FALL = = =
February 15, 2002
The local telecommunications company has debts
between $1 million and $10 million
By Lyn Danninger, Honolulu Star-Bulletin
Summit Communications, a local company that provides telecommunications services
for clients including Hawaii Visitors & Convention Bureau, filed for Chapter 11
bankruptcy protection yesterday.
Summit, founded in 1996, listed debts of between $1 million and $10 million, estimated
assets of between $1 million and $10 million and between 50 and 99 creditors on its
Telecommunications services provided by Summit include alternative local and long-distance telephone services to multi-tenant buildings and call center services.
Company president Grant Johnston said the company does not plan to lay off any of
its 40 employees. Summit reduced its staff by about 20 percent in June 2000.
Management and administration staff also took a 20 percent pay cut, he said.
"Now the plan is to get some temporary relief from creditors to re-group and get back
on track," he said.
With approximately $3 million in annual revenues, Johnston said the company had
been growing. But economic ups and downs in the telecom industry, the fallout from
Sept. 11 and difficulty getting vendor financing hurt the company....
Summit's contract with the Hawaii Visitors and Convention Bureau is worth between
$30,000 and $50,000 per month, depending on the bureau's marketing activities and
the volume of calls handled by Summit, said Barbara Okamoto, HVCB's vice president
of customer trends and communications.
Okamoto said the Bureau plans to retain its contract with Summit.
"Summit has kept HVCB informed of their re-structuring plans," she said.
Okamoto said Summit assured the bureau that it intends to continue to provide
uninterrupted service for HVCB's toll-free number as well as respond to visitor e-mail
February 20, 2002
Local Telecom Reorganizing
Summit Communications files for Chapter 11
By Kelli Abe Trifonovitch
Summit Communications, Inc., a Hawaii-based telecommunications firm has filed for
Chapter 11 protection and has named a president. The company provides local and
long distance service to multi-tenant buildings and call center services. The state of
Hawaii has highlighted Summit in the past as an example of a high technology
company doing business in Hawaii.
Summit was co-founded in 1996 by former GTE Hawaiian Tel executive Harold
Johnston, who still holds a major stake in the company. His son, Grant Johnston,
has been named President. Grant joined Summit in 2001 as general manager of the
call center operation.
Grant Johnston says Summit has had steady sales growth since it was founded.
“Economic conditions within our industry as well as the events of September 11th
negatively affected business, so the filing allows the company some breathing room,”
he said in a statement.
Johnston also said that they are in the process of contacting customers to discuss
Summit’s plans for continuing and expanding the business.
He said, “We are a Hawaii company and will be here for our customers for the long
term since we value our reputations and understand our responsibilities.”...
March 18, 2002
Bankrupt Summit has
$700,000 tax bill
By Tim Ruel, Star-Bulletin
Summit Communications Inc., a local telecommunications firm that filed Chapter 11
reorganization bankruptcy a month ago, is more than $700,000 behind in state and
Summit, which was formed in 1996, owes at least $722,776 in back taxes, including
$415,545 to the state and $307,231 to the federal government, according to a financial
statement the company filed in U.S. Bankruptcy Court last week.
Including penalties and interest, Summit owes $462,579 to the feds, primarily for payroll
and withholding taxes, according to the Internal Revenue Service. "It is large," said
Carol Muranaka, an attorney for the IRS in Honolulu. Summit's total assets are valued
at $474,952, according to the company's statement.
The IRS hit Summit with a $366,290 tax lien on Jan. 25, which was part of the reason
the company filed for bankruptcy protection three weeks later on Feb. 14, said Grant
Johnston, president of Summit and son of firm co-founder Harry Johnston. The lien
covers three quarters of federal tax returns during 2000 and 2001. The state's claim
includes $125,000 in withholding taxes and $280,272 in general excise taxes, covering
the years from 1998 to 2002.
"How are they going to pay this down with both state and federal? $700,000 is really
amazing," Muranaka said. Tax claims take priority over other unsecured claims in a
bankruptcy, and must be paid under any plan of reorganization.
Summit is confident that it can successfully emerge from bankruptcy, in part by paying
its debts with promissory notes, Grant Johnston said. The firm is also trying to
renegotiate some of the tax liability to a lower amount, he said.
Summit provides local and long-distance telephone service as well as call center
services for clients including the Hawaii Visitors and Convention Bureau.
The 6-year-old firm has never produced a profit, and ran into extreme cash flow
problems that were more pressing than paying taxes, said Johnston, who noted that he
took the helm of the firm shortly before Summit filed bankruptcy. The company changed
some management and discovered the tax problem around last summer, then
immediately began discussing it with the government, he said.
"We fully intend to pay whatever tax liabilities we have," Johnston said. The firm's
reorganization plan is primarily based on paying off debt in the future by focusing on
profitability. "We're scrutinizing every single dime that we spend," he said....
Summit is also hoping to grow its revenues with some key projects that lie on the
horizon, said Johnston, who declined to discuss specifics. The intention is to pay 100
percent of all of debts, most likely by issuing notes, he said....
Apart from the Hawaii state government, Summit's largest local creditor is Internet data
storage firm NetEnterprise Inc., which is owed $45,103. Summit also owes a total of
$12,288 to several of its employees for on-the-job expenses.
An official meeting of Summit's creditors is scheduled to take place Friday.
September 10, 2002
State, feds seek Summit trustee
The telecom firm owes more than
$1 million to the state and feds
By Tim Ruel, Honolulu Star-Bulletin
The fate of a million-dollar tax delinquency is coming to blows in the bankruptcy of
telecommunications services firm Summit Communications Inc.
In the past several weeks, the U.S. Attorney's Office, the U.S. Trustee's Office and
the state Department of Taxation have raised the heat in Summit's bankruptcy
proceedings. They support the appointment of an outside trustee to manage and
investigate the firm's finances.
Summit owes $528,603 to the state and $512,315 to the federal government for taxes,
according to claims in Summit's Chapter 11 reorganization bankruptcy case.
In an early August court filing, attorneys for the U.S. government cited Summit's "gross
mismanagement and incompetence" as a justification for the appointment of a
Summit opposes the appointment of a trustee and disputes the government's
assertions. It says the appointment of a trustee will raise the expense of administering
its bankruptcy case, a point the U.S. government concedes. Having a trustee at the
helm would reduce confidence in the firm, potentially warding off customers, and make
it harder for Summit to emerge from bankruptcy successfully, according to a filing by
Summit's attorneys Steven Guttman and James Duca.
Summit is seeking an extension of time to submit its in-house plan for reorganization,
which was due two months ago. The government says Summit shouldn't get an
extension. A hearing on the disputes is scheduled for Monday before U.S. Bankruptcy
Judge Robert Faris.
During a brief hearing yesterday, Summit and its creditors said they would meet outside
court to talk things over. One of the potential topics was whether the government's
desire to appoint a trustee would merit the potential loss of tax dollars, according to
Carol Muranaka, special assistant U.S. attorney.
"We are in a bad place, I think, the state and United States," Muranaka said during
Among the U.S. government's assertions:
>> Summit's current management is related to the management that led the firm to its
tax situation. Shortly before Summit filed bankruptcy, Grant Johnston, the son of a
Summit co-founder and owner, became president;
>> Summit has made a couple major revisions to its financial statements. As such, the
firm's numbers are not reliable.
In response, Summit said the relationship between its management teams is not
relevant. If there's a question of whether the relationship has interfered with efforts to fix
Summit, "no such claim can factually be proven," the company said.
The company blames its erroneous financial statements on disarray in its finances at
the time of filing bankruptcy. Since then, the company says it has hired an outside
In a March interview, Grant Johnston said Summit ran into major cash-flow problems
that were more important at the time than paying taxes. According to Johnston, the firm
discovered the tax problem after it changed management in 2001. Johnston could not
be reached for further comment yesterday.
Unpaid taxes make up about one-third of Summit's $3 million total claims.
In a court filing, Summit noted it is current on its post-bankruptcy financial obligations,
and it has made $38,223 in adequate protection payments to the federal government.
The state Tax Department, which has supported the federal government's case for
appointing a trustee, has its own bone to pick with Summit. In a recent filing, the state
claims Summit has been "tightfisted" with information, hindering a state audit.
Before filing bankruptcy in February, Summit hadn't filed general excise tax returns
since 1997. Also, Summit has refused to file public service company returns, the state
There's a simple reason for that, Summit said: The firm is exempt from public service
company taxes, and hasn't compiled the information needed to compute the tax liability.
The state says Summit has failed to show how it can increase growth to finance a
viable reorganization plan. Summit says the state misread the firm's financial
statements, and understated its June and July earnings.
The firm projects its operations will generate $15,000 each month to pay its tax
obligation over several years. Summit provides long- and long-distance telephone
services and call center services.
September 17, 2002
Bankrupt Summit gets
The telecom firm makes a deal
to avoid an appointed trustee
By Tim Ruel, Honolulu Star-Bulletin
Bankrupt telecommunications services firm Summit Communications Inc. has agreed
with state and federal government officials to appoint an independent accountant to
audit the firm's financial records.
As part of the agreement, the U.S. Attorney's Office is holding off on its request for a
court-appointed bankruptcy trustee to manage and investigate Summit's financial
Summit, which filed for Chapter 11 reorganization bankruptcy in February, will be
allowed to continue running under its current management. Once the auditor's report is
released, the firm will have 30 days to submit a plan of reorganization for approval by
creditors and U.S. Bankruptcy Judge Robert Faris.
Summit must also reduce its annual payroll by $68,000, under the new agreement. The
firm has 34 employees.
The government wants to examine management salaries to see if compensation fits the
job descriptions, according to the agreement.
Summit owes more than $1 million, or about one-third of its total debt, in unpaid state
and federal taxes.
In early August, the U.S. Attorney's Office asked the bankruptcy court to appoint a
trustee to oversee Summit, alleging the firm had been mismanaged, a request that
was supported by the state Department of Taxation and the U.S. Trustee's Office.
In response, Summit says it is recovering from financial disarray caused by outside
accountants and bookkeepers.
"My understanding is they just simply didn't do a good job," said Grant Johnston, who
became president of Summit when the firm filed for bankruptcy protection.
The sheer size of the tax delinquency caused the government to raise an eyebrow,
"I think the size of the tax debt, it was just natural for them to question how it
happened," he said.
Since filing bankruptcy, the firm has submitted major revisions to its court-filed
financial statements, a point seized upon by the government in asking for a trustee.
Summit has made no more accounting errors in recent months, Johnston said. In early
August, around the time the government asked for a trustee, Summit retained a new
outside accountant, Landis Char. Johnston said he sees the firm's accounting cleanup
as a positive step toward its financial rehabilitation.
Summit's tax problem was caused when the firm ran into major cash-flow problems a
few years ago, Johnston said. The firm, founded in 1996, had not yet turned a profit
and faced going out of business if it didn't pay certain bills, Johnston said. If the
company had closed, the government would not have received any tax payments, he
added. New management came in and discovered the tax liability in 2001.
The government wants a financial review to see if it is feasible for Summit to reorganize
its debt under the bankruptcy process, said James Duca, attorney for Summit.
Johnston said he is confident the company can emerge from bankruptcy successfully,
and pay its debts. The firm has been profitable since June, and plans to set aside at
least $15,000 each month to pay its tax debt over several years, Johnston said.
Summit provides local- and long-distance telephone services, and call center services.
Since filing bankruptcy, the firm has not lost any customers, and has added six call-center customers, as well as 150 new phone lines on its share-tenant service.
An independent auditor for Summit has not been named yet.
January 6, 2003
Examiner critical of
The bankrupt telecom firm is a
"mini-Enron," says a bankruptcy trustee
By Tim Ruel, Honolulu Star-Bulletin
An examiner hired to look at the books of bankrupt telecommunications services firm
Summit Communications Inc. says the firm's leaders have benefited to the financial
detriment of creditors.
"It's sort of like a mini-Enron, or mini-WorldCom," said Mark Yee, who was hired to
review Summit's financial condition.
Yee, a bankruptcy trustee, has filed a court report that says Grant Johnston and Harry
Johnston received questionable payments from Summit and from a separate
company owned by Grant Johnston that works closely with Summit.
Summit, which provides call-center and telephone services, filed for Chapter 11
protection from creditors in February 2002. Summit owed more than $1 million in
unpaid state and federal taxes, though the company said it has repaid one-fifth of what
it owes to the Internal Revenue Service.
Grant Johnston is president of Summit. Harry Johnston is Grant's father and is a co-founder and principle shareholder of Summit.
Grant also owns a company, Summit Exchange Inc., which provides similar services
as Summit Communications, and has its work done by the staff of Summit
Communications, Yee's report said. Yee said the companies should be treated as one
and the same. Grant Johnston disagreed.
Grant Johnston also took exception to having Summit Communications labeled a
"(Yee's) comment ... confirms in my mind that he and others are on a fishing
expedition," Grant Johnston said. "They're looking and fishing for wrongdoing."
The Johnstons say Yee's report is inaccurate and misleading, and said they will rebut
any allegations of wrongdoing. The fundamental problem with the report, they said, is
that they were not given a chance to clear things up before it was filed with the court.
When asked to respond to specific accusations within Yee's 17-page report, they
"There is available an explanation to every question that (Yee) may have come across,"
Grant Johnston said Friday. "Whether or not he chooses to believe our answers is up
It may also be up to U.S. Bankruptcy Judge Robert Faris. Last year, the U.S.
Attorney's Office, the state Department of Taxation and the U.S. Trustee's Office all
backed the court appointment of a trustee to replace Summit's current management.
Summit, in opposition, says the appointment of a trustee would only make it harder for
the company to stay in business and pay off debts.
Yee's appointment was a temporary compromise between Summit and the government.
His report supports the appointment of a trustee, as well as further investigation of the
firm's finances. A lawyer for the U.S. government could not be reached for comment
In his report, Yee said Summit's latest financial statements to creditors are not to
be believed, and that the company is not producing the profits that it claims. Plus, he
describes Summit's past records as being in a mess that is so bad, he said, there is no
point in trying to figure it out.
"To get those books in order is going to take a major undertaking," Yee said.
Summit has acknowledged in the past that it had major problems with record-keeping
under previous management, though the Johnstons said the more recent financial
statements are accurate.
Summit recently lost approximately 20 percent of its overall business from one of its
bigger customers, Sandwich Isles Communications Inc. Summit had provided
technical support for Sandwich Isles, which is building a $500 million communications
system that would link all Department of Hawaiian Home Lands residents.
Grant Johnston said that loss will not hurt Summit's plans to reorganize its finances,
stay in business and pay off its debts over time. Summit has pared down expenses and
increased its call-center business and other revenues, he said.
Since filing for bankruptcy, Summit has reduced its work force to 28 employees from
For more, GO TO > > > Act 221; Bank of Hawaii; Confessions of a Whistleblower;
Vultures of the Sandwich Isles
January 13, 2003
U.S. Attorney renews call for
trustee at Summit
The bankrupt telecom firm says the move would hurt
the company by scaring off customers
By Tim Ruel
The U.S. Attorney's Office has renewed its call for a court-appointed trustee to replace
the management of bankrupt telecommunications firm Summit Communications Inc.
The move follows the December filing of an examiner's report that said Summit's
financial situation was worse than company leaders were saying.
A hearing on the appointment of a trustee is scheduled for Jan. 24 before U.S.
Bankruptcy Judge Robert J. Faris.
The examiner, bankruptcy trustee Mark Yee, supported an earlier motion by the
government to appoint a trustee to investigate Summit's finances.
Yee would not be able to serve as a trustee in this case, since he served as examiner.
A trustee is needed, in part, to review and collect questionable payments that went to
Harry Johnston, Summit's former president, and to Harry's son Grant Johnston, who
is Summit's current president, Yee's report said.
The Johnstons say the report contains inaccuracies that could have been cleared up
before the document was filed in court. Grant Johnston said Summit was given the 17-page report only hours before it was filed.
The Johnstons accused the government of going on a fishing expedition for wrongdoing
after revelations about the firm's tax problem.
When Summit filed Chapter 11 reorganization bankruptcy in February 2002, it owed
more than $1 million in unpaid taxes, penalties and interest, according to claims by
the state and federal government. Summit has since paid one-fifth of its bill to the
Internal Revenue Service, the company has said.
Summit plans to respond to and rebut the examiner's report at the upcoming hearing,
Grant Johnston said Friday.
The company strongly objects to the examiner's recent public comparison of Summit's
situation to that of Enron and WorldCom, describing it as "defamatory and damaging."
"His comments may have caused a substantial and irrevocable economic loss to
Summit," Johnston said. Clients and vendors are showing concern, he said.
Even if Yee believed his comments to be accurate, "you don't say something like that
until you have proven they are true," Johnston said.
The appointment of a trustee will only hurt Summit's financial condition, and its
creditors, because it will ward off customers, Johnston said.
* * *
January 25, 2003
Court ousts Summit
A trustee will reorganize the finances of the
Honolulu telecommunications firm
By Tim Ruel, Honolulu Star-Bulletin
A U.S. Bankruptcy Court judge has ordered the management of Honolulu
telecommunications firm Summit Communications Inc. to be replaced by an appointed
trustee who will attempt to reorganize Summit's finances while it remains in bankruptcy.
In a hearing yesterday, U.S. Bankruptcy Judge Robert Faris rejected an assertion by
management that Summit's immediate ability to do business would suffer under a
trustee. Faris said there were big risks in not appointing a trustee.
The decision brings to an end to a growing dispute between Summit's management,
some of its shareholders and its largest creditors - the state of Hawaii and the U.S.
government - over the appointment of a trustee.
The argument goes back to revelations that the company once owed more than $1
million in back taxes, including penalties and interest. Taxes receive a high priority
for repayment in bankruptcy. Since Summit's assets would yield little in a liquidation, the
only way to pay the taxes and other creditors is for the firm to stay in business.
The government has long sought the appointment of a trustee, alleging that Summit's
management is made up of essentially the same people that led the company to such a
major tax problem.
Summit, which provides call-center and telephone services, was founded in 1996 by
Harry Johnston, a former executive of Hawaiian Telephone, and Richard Ichikawa,
a former engineer of Hawaiian Telephone.
The firm's tax problems started in late 1997 and worsened over the next several years,
though Summit's board of directors was not told about the tax liability until late 2001,
according to sworn court declarations by Ichikawa and Alan Brown, who were board
members at the time.
Harold Johnston resigned as president and was replaced by his son, Grant
Ichikawa left Summit's board shortly before the company filed Chapter 11
reorganization bankruptcy a year ago, though Ichikawa still owns one-quarter of
Summit. Ichikawa initially opposed the appointment of a trustee, because he was afraid
the firm would be liquidated, but eventually changed his mind.
The government's call for a trustee was backed by an examiner's scathing report of
Summit in December. The report said the company had kept poor track of its
finances, even in bankruptcy and that several questionable thousand-dollar
payments had been received by Grant and Harry Johnston, which should be
investigated by a trustee.
Following disclosure of the examiner's report, Summit convened a board meeting and
discussed several options, including liquidation, though that was ruled out, Grant
In a court document, Summit said the examiner, Mark Yee, focused on matters that
happened before Harold Johnston stepped down, which provided an inaccurate picture
of Summit's situation.
Summit said Yee's report was based on a superficial review of records, in which the
company was not given a chance to give its side of the story. Summit later deposed
In court yesterday, Summit attorney Steven Guttman said there was no major problem
with how Summit presented its finances after filing for bankruptcy.
Judge Faris noted that the examiner did his job as spelled out in an agreement last
year between Summit and the government.
In court, Summit conceded that it needs investment badly to stay in business, but said it
had found an investor who was willing to put in $500,000.
Judge Faris pointed out that $500,000 would not likely cover the outstanding amount
of the tax claims.
After yesterday's court ruling against the company, Grant Johnston said, "Obviously
we're disappointed because I felt that our argument was compelling."
The U.S. Trustee's Office will appoint a trustee to Summit shortly, after talking
with all sides in the dispute.
For more, GO TO > > > Act 221; Confessions of a Whistleblower
* * *
May 14, 2003
Summit loans questioned
Money loaned to the bankrupt firm's CEO resulted in
improper payments, a new lawsuit contends
By Tim Ruel, Honolulu Star-Bulletin
A politically adept telecommunications company financed primarily by the federal
government has several connections to troubled firm Summit Communications Inc.,
including a $456,793 loan that is being questioned by a bankruptcy trustee.
Sandwich Isles Communications Inc., headed by Al Hee, loaned the money in March
1998 to Summit through Summit's then-chief executive and part-owner, Harold C.
Johnston, according to a lawsuit. In 2001, Harold Johnston received $8,400 in
interest payments from Summit for the loan.
Harold Johnston denied loaning the money to Summit.
Summit filed Chapter 11 reorganization bankruptcy in February 2002, owing more than
$1 million in federal and state taxes, including penalties and interest.
Because of revelations over Summit's tax problem, the company's management was
removed by the U.S. Bankruptcy Court. Now, the trustee in Summit's Chapter 11
bankruptcy case says Summit's dependency upon Sandwich Isles was not
disclosed to the company's board of directors.
The trustee, Derek J. Sakaguchi, filed a lawsuit April 30 in U.S. Bankruptcy Court
against Harold Johnston and his sons Grant Johnston and Chad C. Johnston, who
were all officers of Summit.
The five-count suit said Harold Johnston misled some of Summit's directors,
investors and creditors about the relationship with Sandwich Isles, which allowed
the company to continue to operate under the status quo when it was in trouble.
The lawsuit also accuses the Johnstons of receiving excessive compensation and
Harold Johnston denied the allegations, and accused the trustee of throwing out "the
kitchen sink" in hopes of recovering any funds in Summit's bankruptcy case.
Harold Johnston said the suit was based on erroneous information provided in part by a
dissident Summit shareholder and company co-founder, Richard Ichikawa.
Hee, president of Sandwich Isles, and Harold Johnston confirmed that Sandwich
Isles made a loan to Johnston. "Whatever happened between me and Sandwich
Isles is a private and personal matter," Johnston said.
They declined to answer any questions about the loan, including its status or its
However, the lawsuit said: "A loan for $456,793 to SCI made in March of 1998 was
shown on SCI's financial statements as a loan made by Harold Johnston. In fact the
$456,793 was loaned and funded by Sandwich Isles."
The loan was secured by a pledge of Harold Johnston's stake in Summit, the lawsuit
said. Harold Johnston owned 37.7 percent of Summit as of January 2003, while
Ichikawa owned 25.1 percent.
The Johnstons battled with the federal and state government over various allegations
after the company filed bankruptcy. An examiner appointed by the U.S. Bankruptcy
Court issued a blistering report last year that said questionable payments went to
Johnston family members.
The Johnstons said the report was inaccurate. The lawsuit appears to delve beyond the
examiner's report, although Harold Johnston took issue with the lawsuit as well.
Al Hee noted that Sandwich Isles has not been sued by the bankruptcy trustee.
"They can say whatever they want to say. Obviously, if we were germane to the filing ...
we would have been named in the filing," Hee said.
Sandwich Isles is working on a $500 million fiber-optic cable telecommunications
system that would link all Department of Hawaiian Home Lands residents who lack
telephone service. Of that, $400 million will be paid through a loan from the U.S.
Agriculture Department's Rural Utilities Service, which will be almost entirely repaid
by the Federal Communications Commission.
The federal funds are meant to pay solely for the construction of the
telecommunications network, a Sandwich Isles spokeswoman said.
Al Hee is brother to former Office of Hawaiian Affairs Chairman Clayton Hee.
Robert Kihune, trustee of the Kamehameha Schools, is chief executive of Sandwich
Al Hee said the loan to Johnston did not involve any federal funds.
Claiborn Crain, spokesman for the Rural Utilities Services in Washington, D.C., said
yesterday he was not aware of any problems with the Sandwich Isles' federal loan.
Sandwich Isles has another connection to Summit Communications. Summit,
founded in 1996, began providing technical services to Sandwich Isles around April
1998, the lawsuit said. That was around the same time that Sandwich Isles loaned
the money to Johnston.
Also around that time, Johnston stopped spending time with Summit and became
general manager for Sandwich Isles.
Sandwich Isles soon provided nearly half of Summit's total annual revenue through the
technical services arrangement, nearly $1 million a year, the lawsuit said.
But the money began decreasing "dramatically" in the fall of 2001, a few months before
Summit filed for Chapter 11 reorganization bankruptcy, the lawsuit said.
Summit has other sources of revenue. Another large source was a contract to provide
call-center services to the Hawaii Visitors & Convention Bureau, starting in May
2000, which brought $30,000 to $50,000 in revenue for Summit each month. The
bureau said it is negotiating a new contract with Summit.
Clearly, the loss of income from Sandwich Isles was a blow to Summit. The contract
expired in December 2002, according to previous statements by Summit.
When asked why Sandwich Isles cut back on its business with Summit, Hee said the
decision was handled by his operations people. Hee declined to give their names.
After Harold Johnston began working for Sandwich Isles, Chad Johnston became
responsible for day-to-day operations at Summit.
During this time, the company expanded too quickly, misused corporate funds, failed to
pay bills and didn't keep the board informed, the lawsuit said.
In a letter to Summit shareholders, Harold Johnston said he was not aware until
January 2001 that Summit was not paying its taxes.
Harold Johnston said an outside accountant had been handling those affairs, and
was terminated. He declined to name the accountant.
The court-appointed examiner has described Summit's pre-bankruptcy books as
Today, Summit continues to operate as a company while in bankruptcy, and has about
23 employees. Summit provides local and long-distance telephone services as well as
"We will have our day in court and the truth will come out," Harold Johnston said.
Johnston said he accepts some responsibility for Summit's financial problems, but he
did not commit fraud or other misdeeds.
The lawsuit seeks repayment of the $8,400 in interest that Harold Johnston allegedly
pocketed from the loan to Summit, as well as repayment of a $50,245 loan Summit
allegedly made to Harold Johnston. The lawsuit also seeks actual damages and
For more, GO TO > > > Act 221; Confessions of a Whistleblower; Vultures of the
Sandwich Isles; James B. Nicholson, Trustee vs. Harmon
July 9, 2003
Audit spurs criminal probe
The Attorney General's Office is investigating issues raised
at the Hawaii Visitors & Convention Bureau
By Tim Ruel, Honolulu Star-Bulletin
The state Attorney General's Office has opened a criminal review into points raised by
the critical audit of the Hawaii Visitors & Convention Bureau.
The criminal justice unit of the Attorney General's Office is looking into the matter, said
Linden Joesting, a deputy attorney general. Joesting declined to say what aspects of
the audit are being probed, because it's an internal matter.
The Hawaii Tourism Authority asked the Attorney General's Office to review findings of
the state audit, which was released last week. The audit faulted the authority for lax
oversight of the bureau's $151.7 million in state contracts to market Hawaii to
travelers. The authority was created in 1998 to contract with the Hawaii visitors bureau,
a private agency funded mainly by taxpayer dollars.
On Thursday, bureau officials admitted the organization had done some things wrong,
none intentionally. Tony Vericella, president and chief executive of the visitors bureau,
said he had paid back $670 in state-funded personal expenses, and apologized.
The bureau said it never should have paid invoices forwarded by Joe Blanco, Gov.
Ben Cayetano's tech czar, which bureau Chairman Tony Guerrero described as
"wrong, wrong, wrong." The audit questioned the arrangement as a way of evading
the state procurement code. Blanco denies the accusation.
The bureau will no longer allow Japan Airlines to pay for the benefits of bureau Vice
President Kiyoshi Mukumoto, which the audit said carried the appearance of a
conflict of interest.
And the bureau said that, if it could do things over again, it would have put a Taiwan
promotional contract out to bid, rather than awarding it to a company run by Wei-Wei Ojiri, who was a bureau vice president at the time. The bureau said Ojiri had
technically resigned before the contract was awarded to her company.
Guerrero could not be reached for comment yesterday....
September 4, 2003
Telecom rival gets approval
to buy assets of Summit
Direct Telephone's $307,000 deal will allow it
to carve out a larger niche in Hawaii's market
By Tim Ruel, Star-Bulletin
A U.S. Bankruptcy Judge has approved the asset sale of bankrupt Summit
Communications Inc. to Direct Telephone Co., a Texas telecommunications rival that
has small-scale expansion plans for Hawaii.
Direct Telephone is paying $125,000 and assuming $182,000 in telecom equipment
leases. With the purchase, Direct Telephone acquires Summit's customers, and
gets its own telecommunications network, freeing it from depending on dominant local
telephone company Verizon Hawaii.
Direct Telephone, operating here as Hawaii Direct Telephone Co., is a relatively
young telecommunications firm, in business since 1997, and works in several states as
an exchange carrier offering local- and long-distance calling services.
In the 17 months since getting approval to operate telecommunications in Hawaii from
the state Public Utilities Commission, Direct Telephone has taken on about 1,000
customer lines, and is acquiring roughly 2,200 to 2,300 more customer lines with the
purchase of Summit, said Nik Thomas, president of Hawaii Direct Telephone.
Thomas said the firm's plan is to grow to 50,000 customers in the next two or three
years, by diversifying its telecommunications offerings to include more products. The
company plans to cater to the business market and not to homes.
To give some sense of proportion, Verizon Hawaii has 1.5 million residential and
business access lines around the state.
"We view Hawaii as a market that needs somebody to at least offer choices," Thomas
Summit, founded in 1996, acquired telecom business around town, such as providing
call-center customer service for the Hawaii Visitors & Convention Bureau, and
shared-tenant services for large buildings. Summit's management ran into troubles and
the firm encountered a major tax problem, lost business, then filed Chapter 11
reorganization bankruptcy in February 2002.
At the urging of the taxing authorities, the Bankruptcy Court ousted Summit's
management and appointed trustee Derek Sakaguchi, who quickly found that the only
salvation for Summit and its creditors was to sell the assets.
Summit owes more than $1 million in taxes, including penalties and interest, among
other debts. Direct Telephone's $125,000 purchase price will only pay part of a federal
tax claim, and part of the administrative cost of the bankruptcy case, which receive
priority for repayment.
U.S. Bankruptcy Judge Robert Faris approved the asset sale yesterday, saying it is in
the best interest of Summit's bankruptcy estate. Summit is hemorrhaging money each
month, and other bidders have had opportunities to buy the company. Summit has lost
$406,000 since filing for bankruptcy, on $2.5 million in revenue.
The court did not allow others to make a bid for Summit yesterday. Cuyler Shaw,
an attorney representing Summit's trustee Sakaguchi, said getting a basic
telecommunication certification from the state takes two months, and it was uncertain
whether Summit could keep its doors open much longer. Direct Telephone received a
so-called "certificate of authority" from the state in March 2002.
Prior to reaching agreement to buy Summit's assets, Direct Telephone had been
outsourcing to Summit.
Direct Telephone passed a major hurdle yesterday in getting the court's consent to buy
the assets, though it still has more to do. The Hawaii visitors bureau says it was
overbilled $160,000 by Summit, and has not reached agreement to let Direct
Telephone take over Summit's role.
Thomas said Direct Telephone simply cannot pay for Summit's mistakes, though he
hopes to reach an agreement with the bureau, or at least work for the bureau in an
interim period while the nonprofit tourism marketing agency finds another vendor.
The state Public Utilities Commission has blessed the sale of Summit's assets to
Direct Telephone, and has allowed Direct Telephone to provide the shared tenant
services offered by Summit, but only on a temporary basis. Direct Telephone and
Summit filed their petition for approval Aug. 26 with the PUC, eight days before
The PUC plans to continue its review of the petition. Direct Telephone must notify the
commission and the state consumer advocate of any disruption in service.
Summit's bankruptcy troubles are not over. Sakaguchi has filed a lawsuit against the
family of Summit co-founder Harold Johnston, and is seeking damages from the
Johnstons for mismanaging the firm. The Johnstons have denied wrongdoing, and say
the suit is based on incorrect information.
Damages from the lawsuit may be the only hope for creditors.
Meanwhile, Direct Telephone plans to decide by tomorrow whether to vacate Summit's
office space downtown at 1132 Bishop St., which is owed rent.
Direct Telephone sees itself as having the potential to become a major cellular
telephone player, and hopes to open six retail sites here.
October 17, 2003
Accounting expert to probe
The HTA has contracted with
a special master to look into the
bureau's spending of state funds
By Tim Ruel, Star-Bulletin
The state Hawaii Tourism Authority has named John R. Candon, a forensic accounting
expert, as special master to further probe the operations of the Hawaii Visitors &
Convention Bureau, amid threats from the state Legislature to investigate the bureau.
Candon, who served as fee administrator in the volatile three-year bankruptcy of the
former Liberty House chain, has been contracted to review the bureau's effectiveness
in spending state funds on marketing Hawaii's largest industry, tourism.
Candon is to report back to the authority by the end of the year. Candon Consulting
Group LLC's contract with the state is worth $80,000, including $10,000 for expenses.
The appointment follows a negative state audit of the nonprofit, private visitors bureau
that questioned the bureau's spending practices and the oversight of the state tourism
authority. The audit, called for by the Legislature, prompted the resignation of Tony
Vericella, the bureau's top executive.
The state Attorney General's Office is conducting its own preliminary investigation of
the HVCB. The tourism authority's board has approved spending $300,000 on a more
in-depth audit of the visitors bureau.
And state lawmakers have talked about convening an investigative committee, which
would have subpoena powers.
Most of the bureau's funding comes from a tourism marketing contract with the
authority, worth $129 million between January 2000 and December 2002, plus a $22.7
million state contract to market Hawaii to business travelers.
This year, the tourism authority's board voted to remove the bureau from marketing
Hawaii to international travelers, leaving it to focus on marketing to North America, the
state's No. 1 source of visitors, and to business travelers.
The authority is forging contracts with the bureau and four other marketing groups, and
the agency's board plans to review the contracts next month.
Candon, who is bankruptcy trustee for defunct tour company Trans Hawaiian
Services Inc., has served as director of corporate transactions for accounting firm
KPMG Peat Marwick. He was also vice president of Dollar Rent a Car and senior vice
president of the former Bank of Honolulu in the 1980s, Candon said.
Accountant Clifford Miyashiro, a member of Candon Consulting Group, will assist
Candon. Per the HTA contract, Candon's hourly rate is $255 and Miyashiro's rate is
"We will focus primarily on HVCB and its effectiveness at fulfilling its obligations to the
authority," Candon Consulting Group said.
Candon plans to come up with recommendations to improve the bureau's compliance
with state policies and practices.
As trustee, Candon has sued Trans Hawaiian competitor Robert's Hawaii Tours Inc.
and related companies, which acquired all of Trans Hawaiian's fleet, about 175
vehicles, in December 2000. Trans Hawaiian later filed bankruptcy. Candon wants
compensation for the vehicles to pay creditors.
Candon Consulting Group
Hawaii Visitors and Convention Bureau
November 17, 2003
SKYWAVE BROADBAND LAUNCHES
FIXED WIRELESS BROADBAND
ACCESS NETWORK IN HONOLULU
New high technology company makes waves
in the sky above Honolulu
Skywave Broadband LLC, a new Honolulu-based wireless broadband provider, today
announced the deployment of its network and robust high-speed Internet access
By bypassing the local, wired infrastructure, Skywave provides businesses and
educational institutions with greater flexibility at more cost effective prices than
traditional T1 service.
"The Internet is a critical component to our 24x7 call center operations, and Skywave is
providing us both a primary and secondary wireless link to make sure that our clients
never loose touch with their customers." said Jared Grugett, Vice President of Shared
Tenant Services for Hawaii Direct Telephone.
"Hawaii is a hotbed for high technology, and Skywave is an ideal solution for
organizations that have outgrown their existing cable or DSL connection but cannot
afford to double or triple their monthly costs by purchasing a T1 line," said Joshua Beil,
Skywave Broadband's Director of Business Development....
"Redundancy and throughput is a priority for our online Educational Programs and for
our Internet needs. The service Skywave offers provides the security away from land
based connections that fullfills Chaminade's requirements for failover protection," said
Eddie Pang, Director of Networking and Desktop Services for Chaminade
# # #
FOR A CLOSER LOOK AT SOME MORE
VULTURES OF A FEATHER IN THE SANDWICH ISLES,
JUST FOCUS YOUR FIELD GLASSES BELOW...
Aloha, Harken Energy!
American Savings Bank: Behind the Blinds
The Camouflaged Candon Consulting Group
Confessions of a Whistleblower
A Connecticut Yankee in King Kamehameha’s Court
The Bankruptcy Buzzards
Birds that Drink from Cesspools
The Blackstone Group
Broken Trust: The Book
Buzzards in the Bank of Hawaii
Buzzards of Paradise
Claims By Harmon
Confessions of a Whistleblower
Dirty Money, Dirty Politics & Bishop Estate
Flying High In Hawaii
I Sing the Hawaiian Electric
The Office of Hawaiian Affairs
Pointing the Finger at WorldPoint
Predators in Paradise
RICO in Paradise
The Indonesian Connection
The Morgan, Lewis & Bockius Report
The Puna Connection
The Silence of the Whistleblowers
The Sinking of the Ehime Maru
Tracking The Murdoch Flock
Vampires on Gilligan’s Island
Vultures in the Sandwich Isles
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Yakuza Doodle Dandies
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Originally posted: September 11, 2005
Last update March 30, 2009, by The Catbird