Dirty Money, Dirty Politics and
Stealing the Legacy of a Hawaiian Princess
Sightings from The Catbird Seat
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PART IV – The Conspiracy Continues …
* * *
Where we left off in Part III …
Kamehameha Schools’ first CEO, Hamilton McCubbin had been fired for inappropriate sexual activities with a female staff member, and the trustees had just announced that Dee Jay Mailer would be his new replacement; a major real estate development project – the John A. Burns School of Medicine – had begun in cooperation with the University of Hawaii and Kajima Construction; some Kamehameha students had been arrested for making porn movies of their classmates, and the school had been sued by a former student who claimed she had been sexually assaulted over a period of several years by a fellow student; and members of their legal department, under acting CEO Colleen Wong, were hard at work (along with their public relations department and one of their outside law firms, Torkildson Katz Fonseca Jaffe Moore & Hetherington), practicing damage control….
June 22, 2004
Governorship floated on
river of corruption
By Don Michak, Journal Inquirer
HARTFORD – Gov. John G. Rowland’s resignation was forced by an array of questionable dealings with his political cronies and personal friends, who helped him live like the highly paid corporate executives he saw as his rightful counterparts….
While pundits point to Rowland’s belated admission last winter that he had accepted gifts from contractors as the main reason for his resignation, those probing the governor’s finances say it was all but assured a year ago after Rowland’s former deputy chief of staff, Lawrence E. Alibozek, admitted helping to steer state contracts.
Rowland and his top aides for years personally approved all big contracts awarded by state agencies, administration officials told the Journal Inquirer last year.
Aided by Alibozek, federal prosecutors began gunning for the real decision-makers in Rowland’s administration – the governor himself and officials like Peter N. Eilef, who, as the governor’s co-chief-of-staff, presided over the state trash authority’s disastrous $220 million deal with the now-bankrupt Enron Corp….
For more, GO TO > > > A Connecticut Yankee in King Kamehameha’s Court
January 13, 2004
Panel touts doubling
The recommendation for the trustees is based on
“unanticipated” duties the board performs
By Rick Daysog, Star-Bulletin
The annual pay for Kamehameha Schools’ five trustees would nearly double under a plan submitted by a court-appointed panel.
In a Dec. 22 report filed with Probate Court, the Trustee Compensation Committee for the Kamehameha Schools recommended the annual pay for each trustee increase to $180,000 from the current $97,500.
The three-member panel also proposed that the board chairman’s annual pay increase to $207,000 from $120,000.
The new pay requires the approval of Probate Court, which has scheduled a Jan. 23 hearing.
“We are mindful that our determination and recommendation may be viewed by the casual observer on first impression as a significant increase in trustee compensation. However, on balance, during our study we also learned of the unanticipated and substantial demands on the time and talents of the trustees,” the report said.
“Your committee is convinced that presently and for the foreseeable next few years, being a Kamehameha Schools trustees is virtually a full-time job.”
The attorney general’s office, which serves as the estate’s court-appointed guardian, said it plans to raise objections with the court on the pay plan.
A recent study by Philanthropic Research Inc. for the attorney general’s office found that average trustee pay for public charities nationwide with assets of more than $500 million is about $6,500 a year, said Deputy Attorney General Hugh Jones.
Philanthropic Research, which operates the Guidestar.org national database of U.S. charitable organizations, concluded that the proposed increase would make Kamehameha Schools’ trustees among the highest paid in the nation for public charities, Jones said.
Kekoa Paulsen, a spokesman for the roughly $5.7 billion trust, said the board is declining comment on the report until the Probate Court takes action on the matter. One person familiar with the trust said the committee did not consult with the estate’s board when it made its recommendation, although its consultants did interview several trustees about their day-to-day duties….
Trustee pay has been a source of controversy at the Kamehameha Schools, going back to the late 1980s and 1990s when board members were each paid up to $1 million a year. Legislative and court-mandated reforms implemented since then have capped board members’ pay at “reasonable levels” set by an outside trustee compensation committee.
The committee, whose members include local attorneys Allen Hoe and David Fairbanks and Kamehameha Schools graduate Michael Rawlings, said the new pay structure is partly in response to recent challenges experienced by the trust.
Federal court lawsuits seeking to overturn the school’s Hawaiian-preference admission policy, efforts to expand the school’s educational programs and the abrupt resignation last year of the estate’s chief executive officer, Hamilton McCubbin, have forced the estate’s five-member board to spend more time and effort on trust matters, the committee said.
In its 28-page report, the committee noted that trustees Nainoa Thompson, Diane Plotts, Constance Lau, Robert Kihune and Douglas Ing attended more than 130 board meetings, executive briefings and community gatherings during the past fiscal year.
That is nearly three times the 45 yearly meetings the committee envisioned in 1999 when it capped trustee pay at $97,500 a year, the report said.
The committee’s report is largely based on a study by Mercer Human Resource Consulting, which recommended an $180,000 annual retainer for board members and $225,000 annual compensation for the trust’s chairman.
While trustees of many of the nation’s largest public charities serve with less or no compensation, Kamehameha Schools’ board members “spend far greater than double the amount of time spent by most corporate directors and trustees of large foundations,” the Mercer report said.
“The issues confronted by the trustees from expansion of the schools, land use, environmental issues, to litigation concerning admission policies are most significant, complex and time-consuming matters that cannot be delegated or disposed of in a monthly meeting,” the Mercer report said.
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For the complete article – along with a paid advertisement
by Mercer Human Resource Consulting – go to…
January 17, 2004
Trustee Raises Opposed
The state argues that a proposal to double
the Kamehameha board’s pay is flawed
By Rick Daysog, Honolulu Star-Bulletin
A proposal to nearly double the pay of Kamehameha Schools’ trustees relies on “flawed analysis” and could “again endanger the trust’s tax-exempt status,” the state attorney general’s office said.
In documents filed in state Probate Court yesterday, Deputy Attorney General Hugh Jones argued that a court-appointed committee’s recommendation to increase trustees’ annual pay would make Kamehameha’s board among the highest paid in the nation for public charities.
Collectively, the pay raises for the five trustees would be $412,000, which is equivalent to the annual tuition for “231 children at Kamehameha Schools’ Kapalama Heights campus,” Jones said.
“Adoption of the committee’s recommendation would … place the trustees among the most highly compensated trustees of any public charity in the nation and may invite further scrutiny by the (Internal Revenue Service) and possibly again endanger the tax-exempt status of the trust,” Jones said.
Trustee pay has been a source of controversy for the for the $6 billion Kamehameha Schools, going back to the late 1980s and 1990s when board members paid themselves up to $1 million a year each. The excessive pay of the estate’s former trustees Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Gerard Jervis and Oswald Stender prompted the IRS in 1990 to threaten to revoke the estate’s tax-exempt status.
Legislative and court-mandated reforms implemented since then have capped board members’ pay at “reasonable levels” set by an outside trustee compensation committee….
The compensation committee, whose members include Kamehameha graduate Michael Rawlins and local attorneys Allen Hoe and David Fairbanks, relied in large part on a report by Mercer Human Resource Consulting, a mainland executive pay consultant hired by the committee for $50,000, Jones said.
The Mercer report said trustees spend more than double the amount of time on trust business than board members and trustees of other large foundations do. The abrupt resignation of the estate’s first chief executive officer, Hamilton McCubbin, last May combined with last year’s lawsuits challenging the schools’ Hawaiian preference admission policy have turned the trustee post into a full-time job, the committee said.
According to Mercer, Kamehameha Schools trustees’ pay compares with that paid to board members and directors of native Hawaiian trusts and local nonprofit organizations. The report stated that the Liliuokalani Trust, which provides services for native Hawaiian orphans and destitute children, paid its trustees more than $195,000 in 2001 and that the Queen’s Medical Center paid its board members about $100,000 that same year.
Jones said “it is illogical” to raise trustees’ pay based on last year’s experience. He noted that the board recently named former health-care executive and 1970 Kamehameha Schools graduate Dee Jay Mailer to succeed McCubbin as chief executive.
He added that Mercer erred in reporting pay at Queen’s and Liliuokalani. The Queen’s Medical Center and its nonprofit parent Queen’s Hospital do not pay board members, while the Liliuokalani Trust has sharply reduced the compensation paid to its trustees since 2001 to about $93,800 this year, he said.
Retired Circuit Judge Patrick Yim, a trustee of the Liliuokalani Trust, said the trust’s board changed its pay structure several years ago from a commission-based system to a flat salary at the recommendation of its outside consultants.
Yim added that the $195,000 pay figure for 2001 was skewed because some of that included trustees’ pay authorized for the year 2000, which was not paid until 2001.
Jones said Mercer’s study is also flawed because it includes data from smaller organizations such as the $500,000-in-assets Alu Like and the $14 million Lunalilo Trust, which are not directly comparable to the Kamehameha Schools.
Alu Like, which provides social services for more than 17,000 native Hawaiians, does not pay its directors, and the Lunalilo Trust, which cares for elderly Hawaiians, paid its trustees between $2,000 and $5,000 a year.
January 23, 2004
Maximum pay of Kamehameha
By Vicki Viotti, Honolulu Advertiser
A state Probate Court judge today increased the number of paid meetings Kamehameha Schools trustees are allowed, effectively raising their maximum pay from $97,500 to $165,000, with the chairman receiving a maximum of $210,000….
Judge Colleen Hirai rejected the proposal of the court-appointed Trustee Compensation Committee that the annual salary of each trustee rise to $180,000. But under the judge’s order, the chairman’s raise would be even higher than the panel’s recommended $207,000, up from $120,000 a year.
She also rejected the counterproposal by the state attorney general, who argued Kamehameha Schools could keep trustee pay where it is, which is already higher than what trustees earn at 98 percent of public charitable trusts.
Hirai instead decided to go with an alternative option presented by Martin L. Katz, an executive compensation consultant with Mercer Human Resources Consulting.
In this option, each of the trustees receives a $30,000 retainer. Additionally, the chairman is paid $2,000 per meeting and the remaining four trustees earn $1,500 per meeting. The number of meetings would be capped at 90 per year, double the number of meetings in the current pay structure.
Hugh Jones, the deputy attorney general who wrote the state’s proposal, said today that “the attorney general’s position is still that the trustees are reasonably compensated.”
“If they are going to be paid per meeting, then the allowable meetings should be only official board meetings,” he added.
Attorneys Michael Rawlins, Allen Hoe and David Fairbanks were on the court-appointed compensation committee. After the hearing, Hoe said the ruling “was better than what the state wanted: no compensation.”
That was a reference to a 1999 position taken by the previous administration that has since been rescinded, Jones said.
This is the first raise for trustees since the reorganization of the $4.3 billion trust in 1999. Before that, trustee pay was based on a percentage of the estate’s gross receipts. For the fiscal year ending June 1998, the five trustees each received more than $1 million.
Nainoa Thompson is the current board chairperson. Other trustees are J. Douglas Ing, Constance Lau, Robert Kihune and Diane Plotts.
In its court filings, the compensation committee had maintained that “for the foreseeable next few years, being a Kamehameha Schools trustee is virtually a full-time job.” But Jones argued that the workload being analyzed had been especially heavy because the trust lacked a chief operating officer. A chief operating officer has since been hired.
Hirai said that raising the number of paid meetings would allow for some flexibility in trustee compensation, with the new chief executive officer, Dee Jay Mailer, taking office this week.
According to the panel’s report, Mercer surveyed national data, interviewed the trustees, staff with the state attorney general’s office before submitting his report in November. The committee decided that the compensation should be a “service-based” retainer fee, without regard to the number of meetings the trustees attend.
Jones said the Guidestar report indicated the national average for compensation to boards on public charities is $6,190. The Kamehameha board already is paid more than 98 percent of public charities, he added….
For more, GO TO > > > The Marsh Birds; Marsh & McLennan’s Mercer Consulting; The Harmon Arbitration
February 18, 2004
The Kamehameha Schools newsletter “Imua” refuses to print
this op-ed by one of their alums.
It is especially important that KS graduates see this article.
The Trouble with Kamehameha’s Support of Federal Recognition
by Randall Kekoa Quinones Akee
Hawaiian Independence Weblog (http://blog.hawaiiankingdom.info/ )
A recent Kamehameha Schools CEO alert dated Feb 3, 2004 by Dee Jay Mailer states that Kamehameha Schools fully supports federal recognition efforts for Native Hawaiians.
This effort, undertaken by Hawai`i’s Congressional delegation, governor, state agencies, and a small number of federally-funded non-profit agencies, has done little to foster input and dialogue with the average Native Hawaiian.
Indeed, the process as of late has been primarily state-driven, with OHA, DHHL, and the governor taking the lead in these lobbying efforts. When has the will of the Hawaiian people, let alone the will of ke ali`i Pauahi, ever been well-represented by the State of Hawai`i?
It is important to note that federal recognition will not safeguard any of Kamehameha School’s assets, nor will federal recognition ensure the continuance of the institution or end the potential for other legal challenges. Federal recognition deals with the political status of Native Hawaiians as a whole in relation to the federal government of the United States; this legislation does nothing to solidify or establish a relationship between private Native Hawaiian trusts or any other privately-held Native Hawaiian organizations.
Particularly disturbing is the fact that Kamehameha Schools, as a trust in perpetuity, is not taking the long-run view of this situation. Endorsing federal recognition, as the Akaka bill now stands, is clearly taking the short-run perspective on Native Hawaiian self-government. The bill neither guarantees a permanent revenue stream or resource base for a Native Hawaiian governing entity, nor does it establish explicit protection of Native Hawaiian rights.
The current legislation really seeks to protect two state agencies and their public trust assets. While this is an important effort, the question still remains: what long-run benefits and opportunities are we giving up in exchange? The reality is we don’t know. We haven’t discussed the alternatives thoroughly enough to really get a sense of what could be or what is desired by the Native Hawaiian community. Instead, Native Hawaiians and other state residents have been told that federal recognition is the ultimate solution to the problems for Native Hawaiian programs, services, and funding.
As a leading Hawai`i educational institution, Kamehameha Schools could have taken
the lead in fostering community input and voice; instead, like the other institutions
that are behind federal recognition, they have sought to endorse the Akaka Bill
with no justification or sharing of their research and analysis of the bill. Why
would a private, non-profit trust undertake such an obvious political stance on such
a poorly-formed piece of legislation?
The short-sighted view taken by Kamehameha Schools really stems from a misunderstanding about the funding of Native Hawaiian programs. The CEO alert cites the fact that federal recognition will serve to secure services and programs for Native Hawaiians. Unfortunately, this is not exactly true.
An important distinction must be made between Native Hawaiian entitlements and Native Hawaiian appropriations.
Most, if not all, of the federal programs and legislation established for Native Hawaiians are simply appropriations. This means that funding occurs at the will of Congress.
An entitlement, on the other hand, refers to funding or programs that are immune to Congressional dictates — a good example of this is Social Security.
Individuals who have participated in the Social Security system are automatically entitled to receive their Social Security payments once they reach eligibility age. This program funding does not fluctuate according to political power plays or Congressional appropriations. Most Native Hawaiian programs do not enjoy this luxury. Hence, without a solid funding guarantee or resource base, a Native Hawaiian governing entity established under the current federal recognition legislation would be forced to seek federal appropriations on a continual basis.
Kamehameha was founded by Princess Bernice Pauahi Bishop to foster industrious Native Hawaiian men and women.
There’s nothing industrious about begging for federal funds for a Native Hawaiian nation for the rest of eternity.
Randall Kekoa Quinones Akee
Kamehameha Schools Alumni Class of 1990
< < < FLASHBACK < < <
August 11, 2000
State deal with former trustees reported
By Rick Daysog, Honolulu Star-Bulletin
The attorney general’s office has agreed to settle its multimillion dollar lawsuit against the five former trustees of the Kamehameha Schools, according to a lawyer for former trustee Richard “Dickie” Wong….
In a sworn affidavit filed in the Hawaii Supreme Court yesterday, Wong’s lawyer Eric Seitz said he has been informed that the attorney general’s office reached a “global settlement” on Aug. 4 with ex-board members Wong, Henry Peters, Gerard Jervis, Oswald Stender and Lokelani Lindsey that resolves the pending probate, tax and civil litigation against the former trustees. The plan, which requires approval from the state Probate Court, represents a major milestone in the three-year controversy that has dogged the $6 billion charitable trust.
If approved, the deal would avert a costly, one-year trial that is scheduled to begin Sept. 18. Details of the proposed deal remain under seal but Seitz, who represents Wong in the criminal actions brought by the state, said some of the attorney general’s civil claims against the former trustees will be covered by the estate’s $25 million insurance policy with Federal Insurance Co.
It is not clear whether the former trustees will be personally liable for any of the surcharges sought by the attorney general’s office. Seitz added that the insurance company will not cover the outstanding legal for the criminal proceedings against his client and Peters, who were indicted by an Oahu grand jury on theft charges. The criminal theft charges have been overturned by Circuit Judge Michael Town, but the state is appealing those decisions.
Seitz, who is owed about $20,000 in legal fees for his work in Wong’s criminal case, criticized the proposed settlement, saying it uses the insurance company’s resources to pay for the civil cases at the expense of the criminal cases involving former trustees Wong and Peters. Until now, the insurance policy had been covering Wong’s and Peters’ criminal defense costs.
“It’s not only unfair but it’s an outrage, because it takes away … the criminal protection that he’s entitled to,” Seitz said.
Seitz’ affidavit was in response to a request by the attorney general’s office for records relating to Federal Insurance’s payments for Wong’s legal costs, a subject of the state’s surcharge suit. Seitz argued that state attorneys shouldn’t be entitled to the insurance records since they have settle the surcharge suit.
Deputy Attorney General Hugh Jones had no comment on Seitz’ affidavit, saying the mediation process is subject to a confidentiality order.
Glenn Sato, a lawyer representing Wong in the Probate Court proceedings, also declined comment of Seitz’ filing, citing the court’s confidentiality order.
An attorney for Stender also had no response, while lawyers for Peters and Jervis could not be reached.
Michael Green, Lindsey’s lawyer, took issue with Seitz’ affidavit, calling it irresponsible given the sensitivity of the settlement talks.
“The discussions at this point are fragile at best,” Green said. “For any lawyer, including Mr. Seitz, to say this case is settled is irresponsible.”
A spokesman for the estate said there is no settlement at this time. He declined further comment.
In its lawsuit, the state is seeking multimillion dollar surcharges against the former trustees for allegedly taking excessive compensation, mismanaging the trust’s educational programs and incurring more than $200 million in investment losses….
According to Seitz, the global settlement was reached by all of the parties, including Federal Insurance, during an Aug. 4 closed-door conference with Probate Judge Kevin Chang. Seitz said the plan was placed on the record, making it enforceable.
But others familiar with the talks said that while there may be tentative agreement, there are outstanding issues.
They noted that the attorney general’s office and lawyers for the former trustees continue to hold discussions with the court-appointed mediators, David Fairbanks and James Duffy.
Minutes to the Aug. 4 meeting in Chang’s chambers are under a court-ordered seal….
For more, GO TO > > > RICO in Paradise; The Harmon Arbitration
June 12, 2000
Insurance disputes hit Bishop Trust
Companies threaten to reject coverage if the estate takes a role in a suit against former trustees
By Rick Daysog, Honolulu Star-Bulletin
The insurance companies for the Kamehameha Schools are threatening to reject up to $75 million in coverage, in a development that could have far-reaching consequences on the litigation surrounding the $6 billion charitable trust.
In court papers filed on Friday, the estate’s interim board of trustees said that Federal Insurance Co. is reserving its right to deny $25 million in coverage if the trust takes an active role in the attorney general’s surcharge lawsuit against former trustees Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis.
Separately, Bermuda-based XL Insurance Co. also reserving its right to deny $50 million in reinsurance coverage purchased by the trust’s captive insurance subsidiary, P&C Insurance Co. over a dispute over warranties provided by the estate, several people close to the trust said.
The insurance is supposed to protect the estate from damages such as alleged in the state’s lawsuit. In that suit, the state is trying to show that the former trustees took excessive compensation, mismanaged the Kamehameha Schools’ educational programs and incurred more than $200 million in investment losses during their tenures.
Denial of the insurance coverage could mean the trust gets stuck with millions of dollars in legal costs arising from the attorney general’s surcharge suit, which is set to go to trial on Sept. 18. It also could affect the size of any potential settlement in the case.
Federal Insurance, which has been paying for the legal defenses of the embattled former trustees, is taking the position that unless the former board members take part in court-mandated mediation in the surcharge proceeding, any role in that mediation effort by the current interim board could be a basis for denying coverage, the trust said.
The trust’s policy with XL has a similar clause that allows the reinsurer to deny coverage for legal actions against the trust’s former trustees if the Kamehameha Schools interim board actively participates in the case, the estate said.
However, XL put the trust on notice that it may pull its coverage more than two years ago, people familiar with the estate said. XL, which collected $3.9 million in premiums from the trust during the past several years, told the trust back in February 1998 that it was reserving its right to deny coverage due to an August 1997 warranty by a P&C official.
The warranty – which is a statement by the insured customer that a certain condition or risk exists – noted that the trust was not a subject of any significant claims.
At the time the warranty was made, the attorney general’s office and the Internal Revenue Service had already launched their separate investigations of the estate’s former board members while retired Judge Patrick Yim had begun his encyclopedic fact-finding investigation of the Kamehameha Schools.
XL is a unit of Hamilton, Bermuda-based Excel Ltd., which previously had financial ties with the estate. Back in 1998, Exel merged with Mid Ocean Ltd., a reinsurance company in which the estate was a co-founder and once held a 5 percent stake.
Elizabeth Pitrof, XL’s Chicago-based attorney, declined response.
A trust spokesman, the attorney general’s office and the court-appointed special master for the trust’s insurance matters, attorney Michael Tanoue, also had no comment on the XL dispute, citing a protective order issued by the probate court.
As for its court filing on Friday, the estate’s interim board is asking Probate Judge Kevin Chang for guidance on its insurance matters, saying the state’s legal action places them in a bind.
While the trust would benefit from the attorney general’s surcharge suit, the estate’s involvement in such a suit could void their insurance coverages, the interim board said.
In particular, the estate’s interim board is asking Judge Chang whether they must take part in the court-mandated mediation for the surcharge proceeding or whether they must assist the attorney general in preparing their case against the former trustees.
Deputy Attorney General Hugh Jones said the interim board’s obligations in this case are crystal clear: It’s their fiduciary duty to pursue the former trustees for alleged breaches of trust or assist the state’s case even if their insurance policies won’t pay for those costs.
Just because an insurance polity doesn’t cover potential surcharges against the former trustees doesn’t discharge the board from its unabiding duty, said Jones, who recently asked for a one-year delay for the surcharge trial due to the interim board’s alleged delays in turning over pertinent documents.
“An insurance policy should not dictate a trustee’s fiduciary duty,” Jones said.
August 12, 2000
State deal with trustees rumored
By Sally Apgar, The Honolulu Advertiser
The state Attorney General’s Office has not yet reached a final settlement with the former trustees of the Kamehameha Schools, designed to avert a complicated civil trial in which the state seeks to recover more than $300 million from the former trustees on claims they mismanaged the charitable trust.
Lawyers for the five former trustees and the attorney general’s office have been meeting behind closed doors since last month with mediators, Honolulu attorneys David Fairbanks and James Duffy to settle and avoid a costly year-long trial that was scheduled to begin Sept. 18. The attorneys and trustees have been ordered by the court to keep their discussions confidential.
However, Eric Seitz, one of the attorneys representing former trustee Richard “Dickie” Wong in related criminal matters, filed a sworn statement in the Hawaii Supreme Court on Thursday that said a settlement had been reached Aug. 4 and put under seal with the court….
Seitz has represented Wong on criminal matters and has not been a participant in the negotiations to settle the civil surcharge suit.
But the negotiations could affect Seitz, because the outcome could determine whether he gets fully paid for past legal work. The payment would be made from a $25 million policy the estate has with Federal Insurance Co.
Yesterday Seitz said Federal Insurance has paid him $60,000 and he is still owed $20,000….
Seitz wrote in his statement filed at the Supreme Court that also on Aug. 4, Attorney General Earl Anzai was requested to inform the court of the settlement and withdraw the petition to surcharge the former trustees for alleged mismanagement of the trust. He wrote that “the attorney general’s knowing and deliberate failure” to inform the court of a settlement “is contemptuous and sanctionable.”
Seitz also wrote that just after the Aug. 4 meeting, Deputy Attorney General Jones informed him that the issue of producing certain documents, including ones concerning how much Federal Insurance had paid him for Wong’s criminal case, was “moot” because of the settlement.
The insurance policy has been paying criminal defense costs for ousted trustees Wong and Henry Peters. The attorney general wanted documents from Seitz showing how much of the insurance money had paid Wong’s legal fees, as that was one subject of the September surcharge trial.
Seitz successfully defended former Bishop Estate Trustee Richard S.H. “Dickie” Wong on theft charges last year, and is suing the state Attorney General’s Office in federal court for alleged malicious prosecution for reindicting Wong in December 1999.
The surcharge trial has created tensions between the attorney general’s staff and the trust. As parens patriae, the attorney general is responsible for protecting charitable trusts. Typically, when the attorney general pursues such litigation using state money, it is seeking repayment to the state. In this case, the attorney is seeking repayment from the trustees to the $6 billion charitable trust for alleged financial mismanagement and other alleged misdeeds.
Further complicating the situation is the issue of the insurance money that would be used to pay for the trial and some of the damages. Terms of the $25 million insurance policy with Federal Insurance are an ongoing subject of debate.
However, the interim trustees have been advised that legally they cannot help the attorney general gather evidence for the trial because it would nullify the insurance policy.
The Honolulu Advertiser
September 25, 2000
Kamehameha Schools gets decent settlement
An Editorial in The Honolulu Advertiser
None of the parties to the settlement finalized last week between the state and the five former Bishop Estate trustees hit a “home run,” but all sides received substantially more in settling than they risked in taking the case to trial:
> The Former trustees, Richard Wong, Henry Peters, Lokelani Lindsey, Oswald Stender and Gerard Jervis, are spared admitting any wrongdoing – not a minor consideration in light of the names they’ve been called – and from having to pay any restitution to the estate from their pockets.
> The trust supporting Kamehameha Schools receives $14 million, its share of the $25 million insurance policy that covered the former trustees. Had the case gone to trial, that $14 million likely would have been consumed by legal costs, leaving the trust to collect – assuming a judgment were winnable – from the former trustees, who may or may not have recoverable assets remaining after their many months of legal wrangling.
> The state and the taxpayers are spared the great expense of an extended trial, which might have produced a Pyrrhic victory in nailing the hides of the former trustees to the wall while recovering no money from them. More important, the state now has in place, as a result of this case, a far less politically disruptive mechanism for the selection of new trustees.
> The Kamehameha Schools ‘ohana receives, as Gov. Benjamin Cayetano put it, a new start. After all, this case wasn’t so much about punishing former trustees as it was about giving the schools a new governance structure, expanded educational programs, a more stable investment policy, more reasonable compensation for trustees and preservation of the schools’ tax-exempt status. All of that is happening.
If there is a loser in the settlement, it might be the Internal Revenue Service, which appears quietly to have agreed to let the former trustees off the hook for substantial penalties for their “excessive compensation,” which approached $1 million a year. The IRS may have decided it needed a more solid case with which to make its first court test of the new intermediate sanctions law.
With that possible exception, all of the parties to the settlement owe a debt of thanks to mediators Clyde Matsui, David Fairbanks and James Duffy for discerning common ground in a swamp of disagreement, and to circuit Judge Kevin Chang, who forced serious negotiating by refusing to further delay the trial….
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– Catbird Note: What this Honolulu Advertiser Editorial overlooks is the big winner in this case: XL Insurance Company, a Bermuda Company, which carried a $50 MILLION Excess Liability Policy for Kamehameha Schools. It appears that XL may have paid $ZIP in this case. Wonder WHY? The Million Dollar answer may be in the following letter:
April 27, 2000
Hamilton I. McCubbin, CEO
Robert K.U. Kihune, Chair
David P. Coon
Francis A. Keala
Constance H. Lau
Ronald D. Libkuman, Esq.
Kamehameha Schools Bernice Pauahi Bishop Estate
567 South King St., Suite 200
Honolulu, Hawaii 96813
Dear CEO McCubbin, and Trustees Kihune, Coon, Keala, Lau, and Libkuman:
I am writing about the excess lines reinsurance agreement between P&C Insurance Company and X.L. Insurance Co., Ltd. (the Agreement).
The Agreement encompasses association liability, has an inception date of September 1, 1997, and, as to association liability, has limits of $50 million excess of $25 million. The policy premium was approximately $1.3 million annually and has always been timely paid.
X.L contends that there is no coverage for the claims asserted in the AG Surcharge Petition, primarily because of alleged misstatements in representations and warranties by trust employees Christine Lee and Louanne Kam.
It is beyond argument that the Interim Trustees have a fiduciary duty to redress the breaches of trust of the former trustees. It may be that any dispute with X.L. will create embarrassment for trust employees. It may also be that, because the arbitration provision of the X.L. Agreement combines New York law and the United Kingdom Arbitration Act 1996, the claim against X.L. will be more difficult to pursue than if it were strictly a Hawaii matter. Nonetheless, what is at stake here is $50 million for the education of Hawaiian children. There is no reason for the Interim Trustees to walk away from $50 million.
On behalf of the trust beneficiaries, I request that the Interim Trustees discharge their duty to redress the breaches of trust by the former trustees by initiating action against X.L. to enforce the Agreement. I also request that you put J&H Marsh & McLennan (MM) on notice and ensure their participation in the mediation. MM set up the P&C integrated risk program and installed American Re as the reinsurer for the first two years. Yet at the critical juncture in late summer 1997, MM assisted the trust in applying to X.L. for reinsurance rather than simply renewing with American Re. WE understand that MM was instrumental in preparing the application for reinsurance, that the trust relied on the professional expertise of MM, and that MM may have an ownership or other interest in X.L.
Time is of the essence here and a failure to act by the Interim Trustees will only exacerbate existing problems.
Very truly yours,
<s> Earl I. Anzai, Attorney General
cc: Colleen Wong, Esq.
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… and in the following OBJECTION OF ATTORNEY GENERAL in EQUITY NO. 2088 in the Matter of the Estate of BERNICE P. BISHOP… filed in the Circuit Court of the First Circuit on June 20, 2000, to be heard by Judge Kevin S.C. Chang on June 23, 2000:
OBJECTION OF ATTORNEY GENERAL TO
INTERIM TRUSTEES’ PETITION
FOR INSTRUCTIONS RE: SURCHARGE CLAIMS
The Interim Trustees assumed office fourteen months ago. At the instant of assuming office, they assumed all fiduciary duties owed to the Beneficiaries of Kamehameha Schools. The primary fiduciary duty is of course the duty of loyalty, defined as the duty to administer the Trust solely in the interest of the Beneficiaries….
The duty of loyalty to the Beneficiaries encompasses both the duty to enforce and collect claims and the duty to redress the breaches of trust committed by the former trustees….
The Interim Trustees have failed their duty of pursuing claims (including surcharge claims) against the former trustees. Rather, the Interim Trustees have unilaterally and without seeking prior court approval accorded priority to an insurance contract with Federal Insurance Company.
Now, in June 2000, the Interim Trustees are before the court seeking retroactive validation of their fourteen-month course of allegiance to an insurance contract rather than to the trust Beneficiaries.
The court should deny the petition. The court should not countenance having trustees at the helm without the polestar of immutable fiduciary duties. And, there is a serious question whether the court, whose duty by virtue of separation of powers is to enforce the law rather than to write it, is empowered to grant the relief requested of exempting trustees from fiduciary duties.
The former trustees purchased (with trust funds) from Federal Insurance Company an association liability policy for the period July 1, 1997 to July 1, 1999 (the Policy).
The Policy defines “loss” to include “defense costs,” and hence the defense costs continuously deplete the limits of liability ($25 million each loss; $25 million each policy year).
The Interim Trustees base their refusal to pursue claims against the former trustees or even to cooperate with the Attorney General in his Surcharge Petition on behalf of the Beneficiaries on one specific provision of the Policy. It is a coverage exclusion that applies to any loss in connection with any claim made against any insured “by or on behalf of an Insured for an Insured For-profit Organization…” (The insured versus insured exclusion) and does not apply to any claim that is “a derivative action on behalf of an Insured Organization by one or [more] persons who are not Insured Persons and who bring and maintain the claim without the solicitation, assistance, or participation of any Insured Person.” (Policy [Ex.B] at Endorsement 4).
In 1994, at the recommendation of J&H Marsh & McLennan, Inc. (Marsh), Kamehameha Schools formed a captive insurance company, P&C Insurance Company (P&C). P&C was entirely operated by Marsh pursuant to management agreement. As of September 1, 1997, P&C issued an excess lines policy, including the excess for the association liability policy issued by Federal Insurance Company. At the same time, P&C reinsured its excess lines policy by purchasing from a joint venture of Cigna and XL Insurance companies an integrated risk financing policy covering P&C’s entire excess policy risk. As to association liability, the risk was $50 million excess of $25 million.
XL takes the position that no coverage is available under the reinsurance policy based on an allegedly incorrect “warranty of no known loss” at the inception of the reinsurance policy, an alleged continuing failure to give timely notice of claims (including the Surcharge Petition), and an alleged failure to cooperate with XL’s investigation of the claims that were tendered for coverage.
B. Prior Proceedings
Two prior proceedings bear on the petition before the court. First, on November 2, 1999 the Interim Trustees filed a petition for instructions concerning estate liability insurance and related matters (the Insurance Petition).
The Insurance Petition was referred to a master on the day of filing. The master has never filed a report, and the hearing has been continue seven months. As matters now stand, the report is due July 14, and the hearing is scheduled for August 11, 2000. Prior to the most recent extension of the report date and the hearing date, the parties to the Insurance Petition were ordered to mediation.
In the Insurance Petition, the Interim Trustees sought instruction on the vague question: “What are Petitioners’ [Interim Trustee] fiduciary obligations with respect to the Estate Insurance?”… Of course, the fiduciary obligations of the Interim Trustees run to Beneficiaries, not to insurance policies. As the Attorney General pointed out in response to the Insurance Petition, the Interim Trustees “have the same duties to the Beneficiaries as would exist if there were no insurance.”… In any event, the prior petition did not mention Endorsement 4 or, for that matter, anything more specific than “estate insurance.”
The second proceeding is the Attorney General’s petition, joined by the Interim Trustees and granted by the court, for an order reserving any surcharge claims relating to the Interim Trustees’ petition for removal of the former trustees (Pet. Sept. 8; Joinder, Sept. 13; Order, Nov. 2, 1999). That petition did not address, much less resolve, the question of the Interim Trustees’ ultimate responsibility for pursuing the reserved claims. Indeed, the order states:
In their petition, the Interim Trustees expressly reserved the right to intervene in the Attorney General’s pending petition for permanent removal and to prosecute in the future any surcharge claims they may have against the Incumbent Trustees. Essentially, the present petition filed by the Attorney General confirms the Interim Trustees’ reservation of rights and claims…
After the court announced its intention to order mediation and pursuant to the court’s direction, the Attorney General and all five former trustees submitted to the court on March 2, 2000 a proposed stipulation and order for mediation of the Surcharge Petition. The proposed order did not include the Interim Trustees as a party to the mediation….
The interim Trustees seek instruction concerning the mediation order and concerning the Interim Trustees’ duties to pursue surcharge claims against the former trustees and to keep the Beneficiaries informed as to the administration of the Trust.
The Attorney General does not know what, if any, positions have been taken by Federal Insurance Company or the Interim Trustees or any of the former trustees concerning the participation of the Interim Trustees in the mediation…
[T]he court entered its mediation order fifteen weeks ago and no mediation has commenced…
B. Breach of Fiduciary Duties
1. Duties to Pursue Claims against Former Trustees
The Surcharge Petition was filed in September 1998, when the five former trustees were still in office. The five former trustees are the target of the surcharge claims. The Attorney General filed the surcharge claims on behalf of the trust Beneficiaries solely because the former trustees were obviously conflicted in pursuing surcharge claims against themselves.
The situation change dramatically of May 7, 1999 when the five former trustees were removed from office (permanently as it turns out) and were replaced by the Interim Trustees, who remain in office. The Interim Trustees are not the target of the Surcharge Petition and are not conflicted or otherwise legally disable from pursuing it.
The duties of the Interim Trustees with respect to breaches of trust by the former trustees are clear. The Interim Trustees have an affirmative duty to use reasonable care to preserve the Trust property and protect it from loss and damage… The Interim Trustees have an affirmative duty to enforce and collect claims belonging to the Trust…
The Interim Trustees especially have the affirmative duty to redress the breaches of trust committed by the Former Trustees…
For fourteen months, the Interim Trustees have simply failed their duties to the Beneficiaries by taking no action to enforce and collect the surcharge claims (other than agreeing to preserve their right to someday take action) and by steadfastly adhering to a policy of non-stop non-cooperation with the Attorney General on the Surcharge Petition…
It is true that the Policy was purchased by the former trustees, not the Interim Trustees. But if Endorsement 4 is an impediment to the proper discharge of the Interim Trustees’ duties to the Beneficiaries, the solution is neither to breach those duties for fourteen months nor to annually file vague petitions for instruction in proceedings in which Federal Insurance Company is not a part (and is not even on the service list of the Interim Trustees)…
We ask the court to view the situation from the vantage point of the Attorney General. Unlike the former trustees, the Interim Trustees are not legally disabled from pursuing the surcharge claims. The Interim Trustees have multiple affirmative duties to pursue those claims. They have not pursued any surcharge claim, covered or uncovered. They have, by determined non-stop non-cooperation, negatively affected the Attorney General’s efforts in the Surcharge Petition on behalf of Hawaiian children.
The Interim Trustees apparently believe that, to preserve the common fund of the insurance money, they may impose on the good offices of the Attorney General to discharge what is rightfully their own responsibility of seeking redress from the former trustees. It is fair for the Attorney General to question why the already overburdened taxpayers of Hawaii should provide legal services to the richest organization in Hawaii (and one that is already taxpayer subsidized in the form of the tax exemption)…
DATED: Honolulu, Hawaii, June 20, 2000.
<s> DOROTHY SELLERS
Deputy Attorney General
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… and, in the following letter from Kamehameha Schools’ former Risk/Insurance & Safety Manager, and President of P&C Insurance Company:
October 10, 2000
Janet S. Hughes, Mgr.
Employee Plans & Exempt Organizations
Internal Revenue Service
1244 Speer Blvd., Ste 442
Denver, CO 80204-3583
RE: Reasons the IRS Should Not Approve Kamehameha Schools’ Insurance Settlement
Dear Ms. Hughes:
According to recent news articles, the insurance settlement reached between Kamehameha Schools, the State of Hawaii and Federal Insurance Company is dependent upon approval by the Internal Revenue Service. Because the terms of the agreement are under Court seal, and thus hidden from the taxpaying public, I feel compelled, once again, to comment on this matter. And because the settlement negotiations were held in secret, my comments must necessarily take a “shot-gun” approach rather than zeroing in on particular issues.
To keep things as brief as possible, however, these comments will be limited to certain entities and individuals involved in activities which resulted in “excess compensation” as defined under the “interim sanctions” regulations, and which, apparently, are still continuing under the current management:
I. Attorneys and Law Firms
Nathan Aipa, Louanne Kam, Lyn Anzai and Colleen Wong directly engaged the following firms to handle insurance claims without the required authorization of the insurance companies, including P&C:
Cades Schutte Fleming & Wright (Michael Hare)
Chee & Markham (Kevin Chee)
Devens Lo Nakano & Youth
Watanabe Ing & Kawashima (Douglas Ing and James Kawashima)
Goodsill Anderson Quinn & Stifel
Law Offices of Stanford Manuia (Stanford Manuia)
Torkildson Katz Jossem Fonseca Jaffe Moore & Heatherington
Carlsmith Ball Wichman Murray Case & Ichiki
Once the firms were engaged, the named KSBE employees “controlled” and “managed” the claim directly with outside counsel, deliberately disregarding insurance company guidelines regarding the use and payment of these firms.
Nathan Aipa, as principal executive of the Legal Group, had ultimate approval of all legal bills including P&C Insurance Company‘s, which violated “arms-length” guidelines. Aipa would frequently pay these legal fees and costs from his General Counsel Account, without approval from the insurance companies. Often the amounts billed by the law firms exceeded allowable fees and costs provided in the insurance company guidelines. When, if ever, KSBE submitted the legal bills to the insurance company, many of the charges were disallowed. This practice led to the loss of millions of dollars that were never recovered from the insurance companies.
In the case of claims under P&C Insurance Company policies, Nathan Aipa, Louanne Kam or other KSBE attorneys directed that P&C pay the bills even though the outside firms flagrantly disregarded P&C’s written guidelines.
These outside legal firms reported directly to in-house counsel, rather than to the insurance companies. In-house attorneys, including Aipa, often would not disclose critical information to the insurance carriers in these “sensitive” claims, resulting in further millions lost to the estate due to “non-cooperation”.
This situation became particularly suspect and troublesome when these same KSBE employees handled claims in which they had also participated in the original activity which led to the claims. They may have been potential witnesses– even defendants– in resultant lawsuits. These were extremely serious “conflict of interest” situations.
With P&C this became even more critical due to the obvious violation of “arms-length” principles, which potentially exposed the estate to unlimited losses beyond the actual insurance policy coverages and limits of liability.
During my years at KSBE, the following are just some cases in which KSBE and P&C funds were misused in the handling of insurance claims which resulted in “excess benefits” to outside attorneys:
Robert Trent Jones Golf Club
McConnell vs. KSBE
From all public accounts, these corrupt practices appear to have continued–unhindered and unabated–from the time of my departure until the present, under both the ex-trustees and the interim trustees, and under present top management.
II. Accounting Firms/Representatives
The roles that these two firms played are well-documented in my own RICO lawsuit against the estate, and will not be repeated here:
Coopers & Lybrand LLP (Dennis Tsuhako)
Price Waterhouse (Mark McConoghy)
These two firms, as you no doubt are aware, have since merged and the single entity is now PricewaterhouseCoopers.
III. Insurance Companies and Agent/Brokers
The roles of the following firms are also detailed in my RICO lawsuit:
Marsh & McLennan (Hawaii) (Rocco Sansone, Christine Lee)
M&M Insurance Management Services (Peter Lowe)
Federal Insurance Company
My estimate of excess payments to Marsh & McLennan by Kamehameha Schools and P&C Insurance Company during the term of my employment with them would approach one million dollars.
From all indications, these excessive payments to Marsh & McLennan have continued unabated during the nearly four years since my termination, under both the ex-trustees and the interim trustees.
IV. Other Subsidiary Companies and Independent Contractors
In my letter dated November 11, 1997, addressed to Carolyn Woods of the IRS, I provided information regarding what were suspected to be fraudulent tax returns filed by Bishop Estate, P&C Insurance Company, and Pauahi Holdings Corp. Among other things, I reported that:
1. There was a failure to disclose conflicts of interest and other financial information in federal tax returns as regards personal investments by certain trustees, executives, managers and employees in related for-profit companies controlled by KSBE.
2. IRS rules regarding the maintaining of “arms-length” relationships between a tax-exempt charitable organization and its for-profit subsidiaries were apparently being breached.
For example, at the direction of Henry Peters, Nathan Aipa, Louanne Kam, Eric Martinson, and others, KSBE paid premium charges, legal fees and claims costs that should have been paid by the for-profit subsidiaries (e.g. Kukui, Inc., Sino Finance, Unison Pacific, SoCal, AFCO, Paradise Petroleum, etc.), or by individual trustees, officers, directors or employees.
Services were being provided by KSBE employees to P&C and other for-profit entities at no cost to the subsidiaries. In effect, KSBE was subsidizing these for-profit entities, which resulted in larger profits for the subsidiaries (and larger commissions for the Trustees).
The operations of P&C, including claims and investments, were being controlled by Henry H. Peters, Nathan Aipa and Louanne Kam. This included directing the payment of “excess benefits” to independent contractors for non-bid or non-existent contracts. . . .
Insurance premiums and loss costs were being improperly allocated to lessees and tenants of KSBE properties. Many of the insurance policies for KSBE and its subsidiaries combine coverages for all entities under the same “blanket” policies. These insurance premiums, as well as the claims costs which were paid under self-insured retentions and deductibles, were allocated to the Kamehameha Schools, to Bishop Estate, and to covered subsidiaries. These charges, in turn, were further allocated to specific commercial projects, such as Royal Hawaiian Shopping Center, Windward Mall, Keauhou Shopping Village, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), etc. . . . Costs which were allocated to the commercial projects were nearly 100% recovered from the lessees and tenants through their monthly maintenance fees. Due to directives of Nathan Aipa, Louanne Kam, Eric Martinson and others, these insurance costs were being improperly allocated, resulting in unfair charges to the tenants and lessees of these projects.
The “overcharges” being made by M&M would also be included in these insurance costs that were passed through to tenants and lessees.
A portion of these improperly allocated insurance costs were also paid from the millions of dollars of Federal grant funds….
Several of P&C’s claims were being directed by Louanne Kam or other KSBE in-house attorneys. An example was the Larry Ching flood damage claim. Kam, in conjunction with Aipa, wanted to hire an outside attorney and an expert to handle this claim.
In keeping with P&C’s “arms-length” guidelines and its Operations Manual, only P&C’s contracted independent adjuster, John Mullen & Co., was authorized to hire attorneys….
Bank of Hawaii‘s involvements were de and experts. Furthermore, this involvement by Aipa and Kam was ,,, at the direction of Trustee Richard Wong who wanted to see what we could do to “settle this claim”, which had previously been denied by Mullen…
3. Annual financial statements for KSBE and P&C, which were prepared by Coopers & Lybrand, failed to disclose large claims, and to show adequate financial reserves for these claims (e.g., the McKenzie and Kona Enterprises, claims).
4. It was reported that KSBE guaranteed several large bank loans (including loans from Bank of Hawaii) to “insider partners” in several investments.
5. It was reported that an “insurance policy” was issued to Robert Rubin to protect his financial interests in Goldman Sachs while he is serving as U.S. Treasury Secretary. … to my knowledge, no actuarial studies were made, no reinsurance was obtained, and no reserves were established to cover this substantial financial guarantee. …
6. There was coercion of employees, by means of threats of discipline or termination, to violate laws or to “look the other way” while superiors engaged in illegal or unethical acts, such as: the altering and/or falsifying of staff reports, board minutes and contracts; directing notaries public to notarize documents without their witnessing the signatures or personally signing the notary logs; collusion with independent contractors to conceal and cover-up wrongful acts; and misuse of the “attorney-client privilege” to prevent the disclosure of these acts.
7. In my capacity as president of P&C, I refused to sign the annual financial statements prepared by Coopers & Lybrand for the fiscal period July 1, 1995 to June 30, 1996. The basic reasons that I declined to sign was due to the attempts by Henry Peters, Nathan Aipa and Louanne Kam to direct all areas of P&C’s operations and investments, including the improper awarding of contracts and settlement of claims. I discussed these irregularities with Cary Okawa and Dennis Tsuhako of Coopers & Lybrand on October 18, 1996, and followed-up with a letter dated November 20, 1996, in which I enclosed documents that provided evidence of these wrongful acts. A copy of this letter was sent to the Hawaii Insurance Commissioner….
A basic scheme with P&C Insurance Company involved having KSBE employees provide free services to P&C’s operations while being paid by KSBE. Then Marsh & McLennan would invoice P&C for the services which were actually performed by KSBE’s employees (myself included). During my tenure, the amount billed by M&M to P&C was $200,000 a year.
A second scheme probably cost KSBE even more in dollars, but is more difficult to prove and to determine an exact amount: the premium overcharge for various insurance coverages that were handled by Marsh & McLennan as KSBE’s broker.
From all indications, this subsidizing of P&C Insurance Company by Kamehameha Schools is still continuing. According to the Attorney General’s office, the latest annual report for P&C showed Henry Peters as Chairman of the Board, and Louanne Kam as an officer. Rodney Park was President.
A more recent indication: On October 8, 2000. Kamehameha Schools ran a Help Wanted advertisement in The Honolulu Advertiser for a “Risk Management Claims/Safety Administrator.” The listed qualifications included: “Bachelor’s degree in Business Management and more than ten years with Independent Adjusters license. Demonstrated ability to prepare reports & analysis of loss ratios, experience modifications, and market trending of the P&C industry and apprises appropriate parties of findings. … Ability to work with extremely sensitive and confidential information.”
From what I know of the job descriptions for employees of Kamehameha Schools and P&C, this position would more appropriately fall under the operations of the insurance company (P&C) rather than the insured (Kamehameha Schools and its subsidiaries). Normally, only insurance companies (and independent claims adjusters) would require someone with more than ten years of experience and an Independent Adjuster’s license. This strongly suggests that the tax-exempt entity is continuing to subsidize a for-profit subsidiary.
Kamehameha Schools even lists one possible reason for their keen desire for this arrangement — so that their legal department can continue to control and hide “extremely sensitive and confidential information.”
This is again reminiscent of KSBE’s improper involvement in handling the McKenzie Methane, Kona Enterprises, William Rosehill, Ted Fields, McConnell, and Robert Trent Jones claims during my tenure.
A number of other outside contractors and entities that were allegedly involved in “kick-backs” and other schemes were described in detail in various Masters’ Reports and Attorney General Reports. They are too numerous to describe here. However, I would like to mention a few entities which seem to have escaped unscathed:
Stay and Sons
Bank of Hawaii
Xiamen International Bank
The scheme involving Stay and Sons was detailed in my RICO lawsuit. The alleged kick-back scheme with National Housing, Jeff Stone, Henry Peters and Richard Wong was revealed in the Attorney General’s investigations and Master’s Reports. I have previously reported to the IRS the connections between WCI Communities, Orion Partners, the MacArthur Foundation, Adele Smith, Charles Harmon, Marsh & McLennan and Bedford Properties (in connection with the Paul Silvester and Connecticut scribed in my RICO lawsuit.
To my knowledge, no agency has yet officially reported on the suspicious relationships with the other entities listed above. In my opinion, someone should– before letting the insurance companies off-the-hook with a global settlement.
V. Kamehameha Schools’ Executives and Employees
It is clear that the ex-trustees did not operate alone in the alleged theft of hundreds of millions of dollars from the estate. It takes the consent and cooperation of key executives and managers to facilitate such a broad misuse– even embezzlement– of trust funds. Details were given in documents which were previously provided to your office by a third party.
VI. P&C Insurance Company, Inc.
The following individuals were involved in the alleged schemes to defraud P&C Insurance Company, and its insureds (including commercial lessees,) and to provide excess compensation to the ex-trustees (in the form of commissions) and to independent contractors:
Henry H. Peters, Chairman, Board of Directors
Gilbert Tam, Director
William Richardson, Director, Secretary/Treasurer
Peter Lowe, Vice-President
Nathan Aipa, Asst. Secretary/Asst. Treasurer
Rodney Park, President
Louanne Kam, Officer
Marsh & McLennan, Inc.
Bank of Hawaii
William M. Mercer, Inc.
Details of the culpability of these various entities are provided in my RICO lawsuit.
VII. Individual Co-Investors in KSBE For-Profit Businesses
According to newspaper reports, in 1989 the four KSBE Trustees, Peters, Takabuki, Richardson and Thompson approved of the investment of approximately $85 million in a Houston-based energy venture with McKenzie Methane. (Trustee Lyman had recently passed away and a fifth trustee had not been appointed.) This same venture also received more than $3 million in personal funds from all four trustees and employees and business associates of the estate.
The Honolulu Advertiser reported in their February 26, 1995 issue that: “The troubled deal may cost the estate as much as $65 million in lost capital and at least twice that much in lost earnings and tax benefits. . . Honolulu businessman Desmond Byrne. . . called the personal investments by estate trustees and staffers ‘an absolutely improper conflict of interest. It raises the appearance that their official decisions are affected by their own personal financial interests’. . . The current board is almost completely different from that of 1989. Only one trustee, Henry Peters, remains.
But the current board still holds that the old one did nothing wrong, according to Aipa. ‘There was no conflict of interest,’ Aipa said.
The Texas court files clearly show, however, that the trustees, their employees and associates relied on estate reports and financial data when they decided to put their own money in the deal. Estate personnel have immediate access to the high-priced and sophisticated financial expertise of such firms as First Boston Bank and Goldman, Sachs & Co.
The estate, a non-profit, tax-exempt institution . . . must be very careful in structuring its investment activities so it won’t imperil its tax-exempt status. The Houston investment was particularly tricky because one of the principal benefits was that the estate would receive federal energy tax credits, which the tax-exempt estate intended to sell.”
This same news article went on to describe other personal investments in estate-related business deals: “According to court records, the estate board of trustees was told in April, 1989 by Aipa, that ‘no conflict (of interest) exists in the personal investments.’
The personal investments were made ‘only after careful review of the issues and advice from the law firm of Rush Moore Craven and Stricklin,’ Aipa said.
But current trustee Oswald Stender . . . said under oath in a 1993 deposition that he would not have made such a personal investment . . . that he would not invest in activities … that I had self-dealing in…
Takabuki, his wife, three children and family company, Magba Corp., invested $1.5 million….
According the Honolulu Advertiser article, other co-investors included:
Henry Peters (trustee)
William Richardson (former trustee and Sec./Treasurer of P&C)
Myron Thompson (former trustee)
Matsuo Takabuki (former trustee and subsequent consultant)
Dave Thomas (owner of Wendy’s restaurants and co-investor with KSBE on several other projects)
William E. Simon (former U.S. Treasury Secretary, and co-investor with KSBE on several other projects, including HonFed Savings & Loan, Sino Finance, Xiamen Bank (China), and SoCal Holdings)
Wayne Rogers (the actor, who later brought suit against KSBE for the Kona Enterprises deal)
Bruce Nelson (treasurer of the Rockefeller Group)
Raymond Pettit (CFO of the Rockefeller Group)
Frederick “Ted” Field (three Field employees also invested… Field was the estate’s partner in the corporate takeover of European conglomerate DRG, Inc. Field later brought suit against the estate in a co-investment deal involving The Pantry)
Mark McConaghy (Bishop Estate’s principal tax lawyer and lobbyist. McConaghy, who works for the Price Waterhouse accounting firm’s national headquarters in Washington, D.C., was a finalist on last year’s state Supreme Court list of nominees to fill the latest vacancy on the estate board of trustees)
Michael Chun (President of Kamehameha Schools)
Gilbert Tam (at the time Director of Administration, KSBE; currently, an officer of Bank of Hawaii and director, P&C)
Guido 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 Budget Dept. employee, Leeanne Crabbe)
Many important questions remain unanswered (or at least hidden from the public) regarding these co-investment deals:
Were special deals made whereby “insiders” gained excess financial benefit at the expense of the estate or its subsidiaries? Did KSBE improperly guarantee the loans of any of these individuals with the Bank of Hawaii or other lending institutions? Did KSBE or any of its subsidiaries illegally “bail out” the individual co-investors when McKenzie Methane, Accessory Place, and other subsidiaries declared bankruptcy? Did the insurance companies and the individual investors pay their fair share of the millions in legal costs involved in the many suits and countersuits–or were they borne in their entirety by the estate? Will the recovery of funds from outside legal firms, as recommended by Special Master Robert Richards, be pursued by current or future management and trustees?
To summarize, then, some of my major concerns:
1. The undisclosed settlement agreement. With the settlement documents sealed, how are the beneficiaries and the general public to know whether the final settlement was fair and reasonable? Have the current trustees and CEO, for example, pursued legitimate fidelity insurance claims against Milton Holt, Yukio Takemoto, Rodney Park, Nathan Aipa, Henry Peters and others for their roles in the illegal scheme to pay Holt’s campaign finance debts, and the illegal lobbing activities in which Holt used a KSBE credit card to entertain politicians at local “strip” clubs.
2. According to my understanding of the “interim sanctions” legislation, the ex-trustees, Marsh & McLennan, and all others who improperly received “excess benefits” are supposed to return the excess portion to the estate, plus a healthy penalty. My understanding is also that these excess benefits and penalties are NOT COVERED BY ANY INSURANCE POLICY. Therefore, a waiver of these sanctions should NOT be a requirement in any insurance settlement agreement!
3. Many of the same breach-of-trust activities which led to the long, hard-fought and expensive ouster of the old trustees appear to be continuing under the watch of the interim trustees. A majority of the “old” managers and independent contractors which facilitated, and personally benefitted from, the illegal activities are still in place (with the exception of Nathan Aipa* who is on PAID leave pending the outcome of an “internal” investigation).
For further information which is too extensive to include in this letter, I refer you to the following Web site:
As this matter hopefully nears its end, I wish to personally thank you for all your efforts on behalf of the many concerned citizens who hope to see that justice is ultimately achieved and “pono” is restored to this worthy institution.
If I can be of any further assistance, please feel free to contact me.
Very truly yours,
<s> Bobby N. Harmon
cc: Robert K.U. Kihune, Trustee
Ronald D. Libkuman, Trustee
Constance H. Lau, Trustee
David P. Coon, Trustee
Francis A. Keala, Trustee
Dorothy Sellers, Esq., Office of the Attorney General
Dr. Randy Roth, University of Hawaii
Trustee Screening Committee
Robert P. Richards, Esq.
* * *
* For the latest poop on Nathan Aipa in a TRUST position, GO TO > > > The Queen Liliuokalani Trust
For the latest in the long-running saga of Bobby Harmon, GO TO > > > Office of the United States Trustee vs. Harmon
THE CATBIRD CHRONICLES
THE KAMEHAMEHA SCHOOLS CONSPIRACIES
January 1, 2004 – Present
2004 – Jan 13 – A Court-appointed “independent” committee, whose members include local attorneys Allen Hoe and David Fairbanks and Kamehameha Schools graduate Michael Rawlings, recommends doubling trustees’ pay. They say the new pay structure is partly in response to recent challenges experienced by the trust.
2004 – Jan 16 – The Attorney General’s Office files objections in state Probate Court arguing that a court-appointed committee’s recommendation to increase trustees’ annual pay would make Kamehameha’s board among the highest paid in the nation for public charities, and may invite further scrutiny by the IRS and possibly again endanger the tax-exempt status of the trust. The compensation committee reportedly relied in large part on a report by Mercer Human Resources Consulting, a mainland executive pay consultant hired by the committee at a cost of $50,000.
2004 – Jan 19 – Dee Jay Mailer begins job as Kamehameha’s new CEO.
Take a peek now, if you wish, at some of the old and new
birds who may have flocked together at
~ o ~
Allen Hoe – Attorney Hoe is in private practice involving transactional matters before governmental regulatory agencies. He has served on Hawaii’s State Land Use Commission as its chair and he has lectured on the historical perspective of Hawaii’s land regulatory scheme and the importance of maintaining a Hawaiian cultural identity. He is one of three court-appointed Trustee Compensation Committee members who recommended that the annual pay of Kamehameha Schools Trustees be doubled.
* * *
LUC Chairman, Bishop Estate Manager are Allied As Founders of Political Party
© Environment Hawaii, Inc.
Attorney Allen K. Hoe has been a member of the Land Use Commission for eight years. Since September 8, 1994, he has served as its chairman. His second and last term on LUC ended June 30.
Recently, Hoe, who is part-Hawaiian, has become closely involved with a new Hawaiian political party called Hui Kalai`aina, which describes itself as a “Hawaiian political societe.” The name is taken from the party that stood behind Queen Lili`uokalani at the time of the 1893 overthrow of the monarchy.
Among other founding members (all men) of the party are two men who were closely involved in the Ka`upulehu proceedings: Bob Lindsey of Kamehameha Schools/Bishop Estate and Francis Kauhane….
At times, statements of Hoe and Lindsey in the LUC hearings on the Ka`upulehu petition follow closely statements made in the political ads of Hui Kalai`aina….
On Bishop Estate
At times, Hoe sounded almost fawning in his effusive comments about Bishop Estate and Lindsey, its Big Island land manager….
At the end of the hearing, following the vote to approve the Ka`upulehu petition, Hoe offered to “share with the audience here my support of the rationale for compelling the Hawaiian landowner to do what it must do to address these Hawaiian issues. One reason I have supported this project is because I sincerely believe that we have come to a crossroads.
“The ali`i landowner possesses greater rights, greater interests to this specific property given its tenure in this property. Unless the landowner can clearly demonstrate its commitments to its obligations as an ali`i landowner to the Hawaiian community, then they have to be responsible.
“They have to answer to that community. They should not have to answer to a non-Hawaiian entity who has created processes that are completely non-Hawaiian….”
For more, GO TO > > > Paradise Paved; The Harmon Arbitration
* * *
Court Says LUC Can’t Delegate Rights
of Hawaiians to Developer
The Hawaii Supreme Court has sent back to the state Land Use Commission its approval of a 1,000-acre high-end residential resort development at Kaupulehu, in the Big Island district of North Kona.
As Environment Hawaii reported in its July 1996 edition, the LUC’s decision was noteworthy in that it entrusted the developer, Kaupulehu Developments, with the authority to ensure that Native Hawaiian rights enshrined in the famous PASH decision (Public Access Shoreline Hawaii) were protected. Kaupulehu Developments is now known as Hualalai Development Company, based in Delaware.
The owner of the land to be developed is Kamehameha Schools/Bishop Estate. Going on nothing more than the word of Bishop Estate’s representatives that it would make sure that Kaupulehu Developments complied with the letter and spirit of PASH, the Land Use Commission gave the green light to the planned $350 million development, which includes golf courses totaling 36 holes, a commercial center, and more than 1,000 residences on land that was largely covered by lava in flows as recent as 1801.
In a decision issued on September 11, the Supreme Court soundly rejected the argument of then-LUC Chair Allen Hoe, who time and again in the Kaupulehu contested case hearing expressed his view that the “ali`i” trusts should be given deference in determining how Native Hawaiian rights would be exercised on their lands.
Hoe did not see this as violative of PASH in any way….
The court rejected strongly the notion that the LUC could delegate this duty….
The parties appealing to the Supreme Court were Ka Paakai o ka Aina (salt of the earth), several of its member groups, and Plan to Protect…. All participated in the LUC’s two-and-a-half-year-long contested case hearing on the development. Representing Ka Paakai was Kona attorney Mike Matsukawa, while Robert Kim and John Powell represented Plan to Protect.
The two were up against some of the highest-priced attorneys in the state, including notably Ben Tsukazaki, of Menezes Tsukazaki Yeh & Moore, and Michael W. Gibsen and James Mee of Ashford & Wriston….
For more, GO TO > > > The Office of Hawaiian Affairs (OHA); Paradise Paved; The Harmon Arbitration
Alston Hunt Floyd & Ing – A biggie law-firm with clients like Hawaiian Electric Industries, Kaiser Development Company, Kaiser Aluminum Properties, Kacor Realty, Mokuleia Land Company, Victoria Group Limited, The Prudential Locations, Koko Marina Shopping Center, Market Place at Coconut Plantation, Temple Valley Shopping Center, Hawaii Kai Towne Center (Kamehameha Schools/Bishop Estate), Sheridan Ing Partners Hawaii, Kaiser Foundation Hospital, The Queens Health Systems, `Oleo: The Corporation for Community Television, Hawaii Conference Foundation, Family Planning Centers of HI, Inc., Aetna Insurance Company, Commercial Union, Fireman’s Fund, Mission Insurance, St. Paul Insurance Company, The Travelers, Otis Elevator Company, Carrier Corporation, Chevron U.S.A, Eaton Corporation, Georgia Pacific, Keene Corporation, Pittsburg Corning Corp., Chicago Title Insurance Co., Commonwealth Land Title Insurance Co., First American Long & Melone Title Company, Ltd., Lawyers Title Insurance Corp., Safeco Title Insurance Co., Security Union Title Insurance Co., Stewart Title Guaranty Co., TICOR, Title Insurance Company of Minnesota, and not last nor least, Japanese billionaire businessman Gensiro Kawamoto.
For more on Alston Hunt Floyd & Ing, GO TO > > > How to Pluck a Billionaire; The Vultures of Maunawili Valley; The Harmon Arbitration; Paradise Paved
Benjamin A. Kudo – CFO and Director of the law firm of Imanaka Kudo & Fujimoto LLC. He practices in the areas of land use, real estate development, natural resources and administrative law and is the manager of the firm’s land use, administrative and environmental law groups.
Bishop Estate Fined For ‘Unfair’ Actions
(c) 1996 Environment Hawai`i, Inc.
In the Waiahole contested case, the state Water Commission has issued a ruling granting the petition of the Waiahole-Waikane Community Association to have Bishop Estate pay fees associated with the expert testimony of one of WWCA’s expert witnesses, Dr. Robert Livingston.
Livingston is the only witness whose fees have been paid by an opposing party in the Waiahole contested case, which concerns the fate of water conveyed by the Waiahole ditch from the windward side of O`ahu to the leeward side.
The commission’s decision on the petition for Livingston’s fees was issued on October 25. In the four-page ruling (Order Number 38), Bishop Estate’s attorney, Benjamin Kudo, is described as having filed expert witness testimony, “but withholding disclosure of the exhibits upon which their expert’s testimony was based until after the deadline to file rebuttal testimony.”
This practice, the commission found, “deprived WWCA et al. of the opportunity to prepare or submit rebuttal testimony within the established time limits. Waiahole-Waikane Community Association’s extra costs in retaining Dr. Livingston for additional rebuttal testimony was a direct result of Kamehameha Schools/Bishop Estate’s actions.”
The report continues: “The commission finds no just cause for this departure from the commission’s ordered deadlines. Kamehameha Schools/Bishop Estate’s counsel’s reading of the commission’s procedural orders was undertaken to secure an unfair tactical advantage and violated the commission’s orders. These actions improperly disadvantaged an opposing counsel and undermined the commission’s own process.”
The commission ordered Bishop Estate or its counsel, Kudo, to pay $3,015 to Environmental Planning Analysis, Inc., to cover Livingston’s fees.
The fee since has been paid — by Bishop Estate….
David Fairbanks – Partner in the law firm of Cronin, Fried, Sekiya, Kekina and Fairbanks; one of three court-appointed Trustee Compensation Committee members who recommended that the annual pay of Kamehameha Trustees be doubled; husband of Sharon Fairbanks, a Punahou graduate who once taught English at Kamehameha Schools.
September 16, 2000
Ex-trustees settle with Kamehameha
The charitable trust will get most of an
insurance policy worth $25 million
By Rick Daysog, Honolulu Star-Bulletin
Signaling the end of a three-year legal battle, the attorney general’s office and the five former trustees of the Kamehameha Schools have reached an agreement calling for the charitable trust to receive a huge chunk of a $25 million insurance policy.
Yesterday, the state and ex-board members Henry Peters, Richard “Dickie” Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis signed a so-called global settlement, averting a costly trial which was scheduled to begin Monday and paving the way for continued reforms at the 116-year-old trust.
“This is about going forward. We recognize the need to hold people accountable, but we need to go forward,” said Jan Dill, vice president of the 3,000-member Na Pua a Ke Ali`I Pauahi, a parent and alumni group that protested the former trustees’ stewardship of the trust.
“This is not about vindication; this is not about getting back with anybody.”
Many of the details of the settlement remain under seal and will not be available until next week. But Clyde Matsui, probate court-appointed discovery master for the state’s suit, confirmed previous news reports that the trust’s entire $25 million insurance coverage will be consumed by the pact.
The deal also will provide about $1.3 million for the attorney general’s office for its costs and up to $4 million in legal fees that have already been paid for by the ex-trustees. The estate will receive more than $15 million to cover the alleged mismanagement of trust assets.
Matsui said the settlement will not pay the legal bills for the criminal cases involving former trustees Peters and Wong. Both Wong and Peters were indicted on theft and related charges for their alleged personal involvement in a trust land deal. The theft charges were overturned but have been appealed. Wong also faces a perjury charge.
Matusi would not say whether the settlement will cover any potential claims sought by the Internal Revenue Service against the former board members.
The agreement – which will be submitted to the state Probate Court for approval – was disclosed after a one-hour chamber conference involving Matsui, Probate Judge Kevin Chang, Circuit Judge Eden Elizabeth Hifo and lawyers for the estate, the ex-trustees, the attorney general’s office and estate insurer Federal Insurance Co.
Two interim trustees of the estate – retired Adm. Robert Kihune and attorney Ronald Libkuman – and lawyer David Fairbanks, the court-appointed mediator in the legal dispute, also attended the meeting.
All referred questions to Matsui.
In its surcharge suit, the state alleged that the former board members took excessive compensation, mismanaged the trust-run Kamehameha Schools and incurred more than $200 million in investment losses. All five resigned last year in the wake of an IRS threat to revoke the estate’s tax-exempt status….
Earlier this year, the trust hired longtime educator Hamilton McCubbin as its first chief executive officer and implemented a single-voice management system to replace an often-criticized lead trustee system in which each board member operated like a chief executive.
“The situation is vastly improved and seems to be headed in the right direction, and there’s every reason to be optimistic,” said Randy Roth, University of Hawaii law professor and co-author of the 1997 “Broken Trust” Star-Bulletin article which prompted the state to open its investigation.
“This is an important milestone and shows that the legacy of Pauahi is in good shape today.”
For Dill, a 1961 Kamehameha School’s graduate, the past controversy underscores the continued need by members of the Kamehameha community to critically examine the trust’s direction. Many of the reforms, he added, will not work unless the trust rids itself of the culture of controversy that has blanketed it for the past four or five years.
“History has taught us that without a clear and persistent questioning of what’s going on, the legacy gets thrown in the back seat,” Dill said….
* * *
December 5, 2001
On Pearl Harbor’s 50th anniversary, a look back at asbestos, the silent killer of legions of Pearl Harbor shipyard workers
By Angela Rickabaugh Shears, Honolulu Weekly
On December 7, 1941, Tristan Nobriga and his wife, Fannie, were sipping coffee on their back porch in Kalihi while four of their five children were attending Sunday morning church services. Their infant son John was with them.
“We heard all these planes coming, going around, and I looked up and a plane was right above me,” 91-year-old Fannie Nobriga recalled in a recent interview. “The pilot had these big goggles, and he was looking down at me.”
The phone rang and her husband rushed to respond to the call for help at the Pearl Harbor Naval Shipyard, where only months earlier he had landed a job as an electrician. He returned home two days later.
“A lot of them were helping take out bodies from the water,” said John Nobriga about his father and other shipyard workers who were called in that day. “For two months the shipyard was secured – only workers and military were allowed in. You saw what happened in New York on Sept. 11, so you can imagine in ‘41 when all those ships were attacked.”
Tristan Nobriga encouraged his son to apply for work at the shipyard, hoping he would be “one of the lucky ones who gets in.” But that was before the elder Nobriga learned he had mesothelioma, a cancer caused by exposure to the deadly microscopic fibers of asbestos. He died in 1979, 11 months after the diagnosis.
Nobriga was one of 4.5 million shipyard workers nationwide who were exposed to asbestos during World War II. About 25,000 civilians worked at Pearl Harbor Naval Shipyard during the peak year of 1945, with some 40,000 employed during the course of the war. In addition to a flood of workers from the Mainland, Pearl’s workforce during that time included thousands drawn from Hawaii’s multi-ethic population – except for Japanese Americans, considered a security threat at the time.
Unlike most shipyard workers on the Mainland, who built ships with new, intact materials, Pearl Harbor was a ship-repair facility, where workers were in harm’s way every day as they handled damaged and aged asbestos that crumbled upon touch, became airborne and was inhaled.
Pearl’s shipyard workers described grim working conditions, according to lawsuits filed against manufacturers of asbestos-containing materials, including Johns-Manville, Owens-Corning Fiberglas Corp. and Raybestos-Manhattan.
Owens-Corning’s defense attorney, David Fairbanks, recalled court testimony of workers who described electricians, pipefitters and journeymen crammed into very tight spaces to make repairs. Wartime required fast turnaround.
“They said it was like a snowstorm,” Fairbanks said. “It was like a blizzard … no can see, no can breathe. No mask or respirator. Nothing.”
Asbestos has killed an estimated 257,250 since the mid-1960s – with an additional 151,150 expected to perish before the national epidemic winds down in the year 2030. This chilling information comes from medical experts at the Mt. Sinai Medical center in New York City.
Most statistics about asbestos are based on the 30 years of study by Irving Selikoff, who was head of the Environmental Science Laboratory at Mount Sinai. Selikoff was instrumental in exposing the dangers of asbestos. If Selikoff’s projections are correct, the total number of U.S. deaths from asbestos will equal those of World War II – over 400,000….
Although the link between asbestos and mesothelioma was made in the 1930s, manufacturers of asbestos-containing products denied knowledge and responsibility until they were hit with thousands of lawsuits by workers claiming personal injuries. In August 1982, a full-page statement appeared in major East Coast newspapers announcing that Johns-Manville, a top Fortune 500 company with $2 billion in assets, was “overwhelmed by 16,500 lawsuits related to the health effects of asbestos.”
Johns-Manville estimated the $40,000-per-case settlement would bankrupt the company and filed a petition for reorganization and protection under Chapter 11, thereby skirting the potential $2 billion liability….
– Go to the following for more related to asbestos claims for:
Owens Corning > > > Owens Corning Files Voluntary Chapter 11 Petition
Johns-Manville > > > The Marsh Birds
Kamehameha Schools > > > Office of the United States Trustee vs Harmon; RICO in Paradise
Dee Jay Mailer – Kamehameha’s new CEO.
January 4, 2004
Estate’s new CEO no stranger to upheaval
By Rick Daysog, Honolulu Star-Bulletin
When Dee Jay Mailer was appointed chief executive officer of Kaiser Permanente Hawaii* in 1995, the nation’s health care industry was experiencing unprecedented turbulence. Cost pressures, mergers and acquisitions and legislative changes were transforming the way managed care organizations delivered services.
But through it all, Mailer brought a “healing hand” to the Kaiser organization, recalled Chris Pablo, Kaiser’s director of public relations. “She came at a time when there was a lot of changes and upheaval in the health care industry and Kaiser,” Pablo said. “Dee Jay brought a lot of calm and peace to the organization.”
Mailer’s crisis management skills will be put to test again as CEO of the Kamehameha Schools, a post she will assume on Jan. 19. The 1970 Kamehameha Schools graduate’s predecessor at the $6 billion trust, Hamilton McCubbin, abruptly resigned from his $350,000-a-year position in May in the wake of an internal investigation into an alleged improper relationship with a female employee.
Mailer also inherits a lawsuit by a non-Hawaiian student who is challenging the estate’s century-old policy that limits admission to native Hawaiian children.
“I think the trustees who selected her were mindful of the needs of the Kamehameha Schools,” said Patrick Yim, a trustee of Liliuokalani Trust and former state judge.
Mailer previously served as chief operating officer of The Global Fund, a multibillion-dollar Swiss trust set up to fight AIDS, tuberculosis and malaria.
Before that, Mailer, whose two daughters attended Kamehameha Schools, served as chief administrative officer of Health Net Inc.*, a California-based health plan serving 2.3 million members.
“I don’t think there’s a Hawaiian or a Hawaiian at heart who doesn’t offer a silent prayer that she will be successful at the school,” Yim said….
For more, GO TO > > > Arbitrate This!; Office of the US Trustee vs. Harmon
James T. Paul – A principal of the law firm Paul Johnson Park & Niles, concentrating his practice on commercial litigation and dispute resolution. He has been an adjunct professor for over 10 years at the William S. Richardson School of Law.
For more, GO TO > > > How to Pluck a Billionaire; The Vultures in Maunawili Valley
Judith Neustadter Fuqua – She has been in private practice on Maui as the Law Office of Judith Neustader, A Law Corporation, since 1992, concentrating her practice on consumer law, business law, real property, securities, insurance, construction, employment. She acts as an arbitrator, mediator, and fact-finder in association with the American Arbitration Association. She is also the Vice President/Secretary of Hana and Kipahulu Land Company, Ltd and Vice President/Secretary of Manawa, Inc.
From 1989-92, she was an associate of Paul Johnson Park & Niles (formerly Paul Johnson Alston & Hunt). She acts as court-appointed Commissioner in Maui county foreclosures; Guardian Ad Litem for minors; Director/advisor to Maui Humane Society, Pacific Primate Sanctuary, and East Maui Animal Refuse Center; and member of Animal Control Board, County of Maui. She is Secretary, Kumu Ao, Inc., a non-profit corporation promoting and perpetuating Hawaiian culture and education. She has represented the counties of Maui, Hawaii, and Kauai in Integrated Resource Planning facilitation, Public Utilities Commission; handled over 300 cases as arbitrator/mediator for the Prudential Policyholders Remediation plan administered by the American Arbitration Association.
Judith Neustadter is also the Hearing Officer for the Maui Planning Commission, named in lawsuits involving discrimination in denial of a Special Use Permit for the Hale O Kaula Church. (See: UNITED STATES OF AMERICA, Plaintiff v. MAUI PLANNING COMMISSION, Defendant.)
Judith Neustadter has also been appointed by the American Arbitration Association as the “neutral” arbitrator in the case of Trustee Mary Lou Woo, Complainant v. Bobby Harmon, Respondent.
For more, GO TO > > > Office of the U.S. Trustee vs Harmon; Paradise Paved
Hawaii Kai – A large real-estate development on Bishop Estate lands conceived by industrialist Henry J. Kaiser.
For more, GO TO > > > How to Pluck a Billionaire; Paradise Paved
Lea O. Hong – A shareholder and director at Alston Hunt Floyd & Ing where she chairs the Environmental and Cultural Resource Law Practice Group. She is also currently an adjunct professor at the William S. Richardson School of Law.
For more, GO TO > > > Arbitrate This!; How to Pluck a Billionaire; The Vultures in Maunawili Valley
Mercer Human Resource Consulting – “The world’s largest consulting firm in their business.”
See also: Synhrgy HR Technologies
For more, GO TO > > > Marsh & McLennan’s Mercer Consulting Services
Michael Chun – Kamehameha Schools president; formerly employed by Park Engineering; central figure in the Bishop Estate controversies.
March 7, 2001
Circle of Friends
Kamehameha Schools’ five former trustees
and their dirty laundry
By Robert M. Rees, Honolulu Weekly
Antipathy for trustees of the Bishop Estate, now otherwise known as Kamehameha Schools, stems first and foremost from economics, and specifically from land-reform legislation that forced the estate to sell its land to leaseholders. By 1989, because of the high prices for lease-to-fee conversion that the estate was asking of those who sometimes had no choice, an estate-commissioned poll had the disapproval rating for the five trustees running at 89 percent. It didn’t help that the trustees were taking annual fees of close to $1 million, or that the trustees had become so powerful that then Gov. John Waihee described being a trustee as the second-best job in town.
There was a built-in and hostile audience lusting for revenge when petty infighting broke out among the trustees, particularly between Lokelani Lindsey and Oswald Stender….
Stender, the Hawaiian darling of the haole establishment, had never liked Lindsey, and he made it a point not to greet her when she became a trustee in 1993. This arrogance was a mistake. Within two years, Lindsey was at Stender’s throat, questioning his apparent self-dealing in his negotiations to buy Maui Land & Pineapple Company. Stender seemed to be negotiating for himself and for the estate at the same time, and Lindsey informed him there might be “a direct conflict of interest.”…
The battle between Stender and Lindsey escalated when Lindsey was asked by the board to “clean-up” Kamehameha Schools, heretofore the exclusive domain of Stender friends, school president Michael Chun and his wife Bina.
Lindsey began her assigned task by questioning the expenses being run up by the Chuns: Michael’s total compensation at the time, including entertainment expenses, was $500,000 a year.
Bina Chun, widely referred to as “the queen of the school,” had her own rewards. In 1992, for example, Bedford Properties paid her a cool million just for negotiating the purchase price of the Kalele Kai condo project with the trustees.
Lindsey also questioned Michael Chun’s educational expertise. After all, he was an engineer, not an educator. The former president of Punahou School, Rod McPhee, later testified that Chun shouldn’t have been even among the top five candidates for the job when he was hired in 1988.
Asked Lindsey, “Why do we continue to allow 25 percent of our students to read and compute below the 50th percentile without someone being accountable?”
For Stender, the last straw arrived on April 29, 1997, when the board voted not to approve Chun’s taking on yet another outside paid directorship, this one for Hawaiian Airlines, on the grounds that Chun already had too much on his plate.
On April 30, Stender fired off a memo to the board: “To say that the school needed to be ‘cleaned up’ is not so and is an affront. … Part of the problem as I see it is that the ‘talk’ of micromanagement is true.”
The “‘talk’ of micromanagement” referred to by Stender had originated with Stender himself. In late 1996, he had enlisted the compliant aid of Honolulu Star-Bulletin columnist Bud Smyser in the assault on Lindsey. Citing “people I trust” as his source, Smyser wrote, “What seems beyond doubt is that the schools are being micromanaged by the estate trustees, represented on campus by Trustee Lokelani Lindsey.”
Stender, on the same day he sent his memo, went to Kamehameha Schools to visit the student body president, Kamani Kualaau, in the student’s room. The two had met in Kualaau’s dorm room before, sometimes for hours, to discuss board matters, and had a close relationship. In fact, Stender kept a photo of Kualaau in his office.
This time, the purpose of Stender’s visit was to tell Kualaau, falsely, that Chun was about to be fired. Stender encouraged Kualaau to develop an open letter on Chun’s behalf, and said he would pay to run it as an advertisement in The Honolulu Advertiser. Stender later recalled that he even “suggested [Kualaau] send the letter also to the justices of the Supreme Court.”
Kualaau read his letter aloud to classmates on the morning of May 1. It was pure Stender, and addressed Lindsey’s management style. Lindsey heard about this almost immediately. Making a terrible mistake, she summoned the student to her office.
Even Lindsey’s strongest proponents acknowledge that summoning the student was nearly insane, but even her severest critics acknowledge that what transpired got blown out of proportion. Soon it was all over the campus and then town, that Lindsey had tried to intimidate the student. It wasn’t true. When Kualaau was driven back to school, he reportedly seemed more perplexed than intimidated. Turning to Kamehameha Schools Principal Tony Ramos, who was driving, the student asked,
“If Uncle Oz said they are going to fire Dr. Chun, and Mrs. Lindsey said they have never discussed the issue, then who is telling the truth?”…
On May 15, an alumni group called Na Pua e Ke Alii Pauahi marched on Bishop Estate’s headquarters at Kawaiahao Plaza. Comprised of 700 marchers, Na Pua presented its concerns to the trustees. Not surprisingly, given Stender’s role, its “No. 1 concern” was “the micromanagement of our schools.”
The conflict could have ended that day had all the trustees met with Na Pua and agreed to even cosmetic changes. Instead, Stender waved to the protesters from his well-lit office while Lindsey supervised the taking of covert photos, for identification purposes, from her darkened office. The personal battle between the two was out of control.
As Stender later reflected, “I never thought it would go this far.”
The wayward press
The city’s press corps became part of Stender’s anti-Lindsey campaign beginning with Stender’s use of Bud Smyser in 1996. By July 1997, the daily newspapers had fully allied themselves with the offensive to remove Lindsey.
In July, encouraged to do so by Na Pua’s attorney, Beadie Dawson, student body president Kualaau met with reporter Greg Barrett of the Advertiser…. While Kualaau’s first reaction to his encounter with Lindsey had been benign and friendly, even to the extent that he hugged her as he left and said he would never do anything to harm her, the student provided a different and damning account to Barrett.
It was during this period of protective sensitivity, presumably in exchange for stories, that the Advertiser went out of its way to assure us what a good person Michael Chun is….
Also in July, even though he had agreed to talk only to an appointed fact-finder, Stender provided Barrett and the Advertiser with his own indictment of Lindsey, one that described the “Gestapo atmosphere on the board.”
Meanwhile, UH law professor Randy Roth, an expert on estate law, and four Hawaiian co-authors were working on an essay aimed at the trustees called “Broken Trust.” In early August 1997, trustee Stender, ostensibly a target, clandestinely met with the group at the apartment of co-author Gladys Brandt to add what he could about the evil wrought by Lindsey.
With the essay finally finished on Aug. 4, Roth and the co-authors wanted it published right away, and met with the Advertiser on Aug. 7 to discuss doing so. Publisher Jim Gatti asked for a week or two more to check six facts, and Roth agreed.
However, Roth’s co-authors, no doubt acting on information from Stender, believed that Chun might be fired if the essay wasn’t published immediately. Roth, according to Gatti, “reneged” on his commitment to publish the op-ed piece in the Advertiser, and the next day Roth took it over to the Star-Bulletin. Two editors … agreed to run the article without so much as checking a single fact.
“Broken Trust” ran on Aug. 9, and added considerable fuel to the already blazing fire. Believing itself to be a real newspaper at last, the Star-Bulletin from that moment on prostituted itself to a vendetta against Lindsey, and to the protection of Chun and Stender. For example, in just the next 12 months, the Star-Bulletin published over 40 cartoons that depicted Lindsey as Frankenstein’s monster, as a witch doctor, as an octopus, as someone surrounded by evil attack dogs, as a devil, as a whining feminist and as a bawling child.
When the Star-Bulletin headlined that the estate had hired the notoriously well-connected Larry Mehau of the Big Island for its security, the paper did not mention that Chun had been responsible for the contract. When a state judge dismissed criminal indictments against trustee Dickie Wong, the Star-Bulletin headlined, “Wong is off hook in land case – for now.” The coverage, in a word, was dishonest.
This dishonesty has continued right to the present day….
Catbird Note: Dr. Michael Chun is also on the Board of Directors of Alexander & Baldwin
* * *
February 18, 1999
Kamehameha’s Chun testifies
about climate of fear
Schools’ president is a central figure
in efforts to remove Lokelani Lindsey
By Rick Daysog, Star-Bulletin
For nearly two years, Kamehameha Schools President Michael Chun has held his tongue as the campus turmoil devastated student, parent and teacher morale.
Yesterday, Chun spoke publicly for the first time about the controversy that has rocked the Kapalama Heights campus and divided the Kamehameha Schools ohana.
In testimony before Circuit Judge Bambi Weil, Chun described a climate of fear and intimidation that has cast a cloud over teachers’ and administrators’ day-to-day duties.
“There is a feeling that you don’t want to attract attention to yourself even if there is something wonderful that you would like to share because you don’t know what the consequences will be,” said Chun, a 1961 graduate of the Bishop Estate-run school.
“When you attract attention to yourself, you become a nail and it’s viewed that trustees walked around with a hammer.”
Chun, Kamehameha Schools’ president since 1988, is a key witness for Bishop Estate trustees Gerard Jervis and Oswald Stender, who are seeking to oust Lokelani Lindsey from the multibillion-dollar charitable trust’s five-member board.
In a removal petition now in its fourth month of trial, Jervis and Stender allege that Lindsey breached her fiduciary duties, usurped Chun’s authority and micromanaged Kamehameha Schools.
Lindsey believes Chun is a well-liked person who doesn’t have the proper educational background to run the Kamehameha Schools.
She has argued that campus programs and students’ academic performances have declined under Chun’s management, forcing her to take a more hands-on role at the Kamehameha Schools.
Uncertainty over Chun’s tenure has become a rallying point for advocates seeking to reform Kamehameha Schools and the 114-year-old Bishop Estate.
Under questioning by Stender’s attorney Doug Ing yesterday, Chun said that before 1993 when Lindsey was named lead trustee for educational programs, he reported directly to the full, five-member board of trustees.
After Lindsey became lead trustee, Chun said he reported to Lindsey, who served as a new layer of management between him and the full board.
Chun’s authority was reduced further in 1995 when the estate hired Rockne Freitas as vice president of operations. Whereas principals of Kamehameha’s neighbor island campuses previously reported to Chun, they now report to Freitas, adding yet another layer of management….
“Prior to 1993, I had responsibilities and authority,” Chun said. “After 1993, I had responsibilities.”…
* * *
March 4, 1999
Wong says Chun to blame at schools
The top trustee comes to Lokelani Lindsey’s
defense in her removal trial
By Rick Daysog, Star-Bulletin
Bishop Estate Chairman Richard “Dickie” Wong yesterday came to the defense of fellow trustee Lokelani Lindsey, saying Lindsey had been unfairly criticized for her labors at the estate-run Kamehameha Schools.
In testimony in the 4-month-old trial to remove Lindsey from the Bishop Estate board, Wong said Lindsey worked hard to improve academics at Kamehameha School, and blamed problems at the Kapalama Heights campus on schools President Michael Chun.
“I’m sorry for where she is at today because she tried to change the school,” said Wong, former president of the state Senate. “We were entrusted with the care to educate these children. I thought that we failed.”
Wong’s testimony is key to Lindsey’s defense team, who are eager to show that Lindsey was following the board of trustees’ directives to improve Kamehameha Schools. Lindsey took a more active role in the management of the school after board members lost confidence in Chun, her attorneys have said.
Fellow trustees Oswald Stender and Gerard Jervis are seeking to remove Lindsey from the charitable trust’s board, alleging she breached her fiduciary duties, mismanaged Kamehameha Schools and intimidated students and teachers.
Yesterday, Wong said Chun is responsible for morale problems among faculty members at the Kamehameha Schools….
“I think that Dr. Chun is a fine individual,” said Wong, under questioning from Lindsey’s lawyer David Gierlach. “I think he lacks the leadership to lead the Kamehameha Schools into the 21st century.”
See also: Park Engineering
For more, GO TO > > > Predators in Paradise
Nathan Aipa – A partner of Suemori & Aipa, concentrating his practice in the areas of trusts and estates, estate planning, real estate, risk management, and native Hawaiian rights.
He was also general counsel and COO of the Kamehameha Schools from 1985-2001.
For more, GO TO > > > Office of U. S. Trustee vs Harmon; RICO in Paradise
Park Engineering – Politically-connected engineering firm; headquartered in Bishop Estate’s Kawaiahao Plaza; former employer of Kamehameha Schools’ Dr. Michael Chun; recipient of numerous Bishop Estate and government non-bid contracts.
April 20, 2004
Contractor indicted over donations
Larry Matsuo’s firm is linked to more than $115,000
in dubious political contributions
By Rick Daysog, Star-Bulletin
City prosecutors have filed criminal charges against the former head of one of the state’s largest engineering firms, which is linked to more that $80,000 in questionable political contributions to Mayor Jeremy Harris’s campaign.
In a complaint filed in state Circuit Court yesterday, prosecutors charged Larry Matsuo, former chief executive of Park Engineering, with one count of money laundering and one count of making a political contribution under a false name.
Matsuo’s attorney, Darwin Ching, had no immediate comment.
Money laundering is a Class C felony punishable by up to five years in prison. Making a political donation under a false name is a misdemeanor punishable by up to a year in jail.
The complaint was filed about a month after Honolulu police arrested Matsuo on suspicion of money laundering and making false-name donations.
Matsuo joins a list of top local engineering executives targeted by Prosecutor Peter Carlisle’s two-year investigation into the Harris campaign….
Until recently, Matsuo headed Park Engineering, a government contractor linked to more than $115,000 in political donations to Harris, former Gov. Ben Cayetano and ex-Maui Mayor James “Kimo” Apana….
The donations have also attracted the attention of the state Campaign Spending Commission, which started investigating the firm in 2002….
Founded in 1958, Park Engineering is one of the state’s largest engineering firms, receiving more than $5.5 million in non-bid consulting work from the city during the past eight years.
The city projects include a $1.5 million contract for sewer facilities in Kalihi Valley and a $300,000 engineering contract for the Ted Makalena Golf Course.
See also: Michael Chun
For more, GO TO > > > Predators in Paradise
Susan Tius – Attorney with Rush Moore Craven Sutton Morry & Beh; wife of Guido Giacometti.
For more, GO TO > > > More Claims By Harmon: Rush Moore LLP; Office of the United States Trustee vs Harmon
Synhrgy HR Technologies – A company you may not have heard of (unless you happen to have been an employee of Enron).
For more, GO TO > > > Marsh & McLennan’s Mercer Consulting
Stanford Carr Developers – One of Hawaii’s newest and largest developers.
For more, GO TO > > > Paradise Paved
Zurich Financial Services – One of the world’s largest insurance companies. Companies include Farmers, Kemper. Engaged in mega-deals with Kamehameha Schools Bishop Estate.
For more, GO TO > > > Zeroing In On Zurich Financial Services
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For more of the story on …
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
Part I – Part II – Part III – Part IV – Part V – Part VI
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A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT
KAJIMA: BLOOD, BRIBES & BRUTALITY
THE KAMEHAMEHA SCHOOLS’ RETIREMENT FUND
THE MYTH & THE METHANE
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I SING THE HAWAIIAN ELECTRIC
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MARSH & McLENNAN: THE MARSH BIRDS
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OFFICE OF THE UNITED STATES TRUSTEE VS. HARMON
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Last updated July 31, 2006, by The Catbird