William Simon Says…

Take the money and run!

Sightings from The Catbird Seat

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Rules for Playing the Game –

Simon Says

Players form a line facing the leader and perform any action that “Simon says” do this. If he doesn’t say “Simon says” before an action, then anyone who imitates the action is out of the game. Continue until one person is left.

The last person who is standing can then be “Simon”!

Brief Descriptions of our previous and current game leaders –

William E. Simon – Financier, businessman, and Secretary of the Treasury during the Nixon and Ford administrations. He was also a member of the secretive and select Committee of 300.

A partial business career listing: Partner, Solomon Brothers (1964); Deputy Sec of the Treasury (1973); Secretary of the Treasury (1974-77); Sr Consultant, Booze Allen & Hamilton (1977-79); Consultant, Allstate Insurance Co.; Pres, John M. Olin Foundation; Director, Kissinger Associates; Founding Board Member, Robert Trent Jones International Golf Club; Senior Trustee, University of Rochester; Director, Xerox Corp.

William Simon died on June 3, 2000 of heart and lung ailments. He was 72.

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William Simon, Jr. – William Simon, Jr. was the unsuccessful Republican gubernatorial candidate, State of California, in the 2002 election.

Executive Director of William E. Simon and Sons, and co-chairman of the WES&S Investment Group.

Previously, Simon was an Assistant United States Attorney for the Southern District of New York, working under Rudolph Giuliani. He was also a foreign exchange trader and an assistant treasurer in the Municipal Bond Department of Morgan Guaranty Trust Company.

Simon serves on the Board of Trustees of Newark Academy and Williams College, where he is also a member of the Executive Committee, he is chairman (Emeritus) of Covenant House California, co-chairman of the William E. Simon Foundation, a family foundation that focuses on educational scholarships, physical fitness and opportunities for young people to improve their own circumstances, vice chairman of Catholic Charities, a director of the Criminal Justice Legal Foundation and the Heritage Foundation, and the Board of Regents for the Children’s Hospital Foundation. Simon earned his JD at Boston College Law School.

Now, let’s play the game ! ! !


April 11, 2003


Accused woman was prominent Republican activist

By Erica Werner, Associated Press

LOS ANGELES – If the FBI is right, one of its own agents carried on an affair with a prominent Republican activist who happened to be a Chinese double agent.

The affair allegedly gave the spy, nicknamed “Parlor Maid,” access to classified documents while she wined and dined some of California’s top politicians and businessmen.

“Basically you see her everywhere,” said Paul Zee, a businessman and former mayor of South Pasadena who is active in the Chinese-American community.

Authorities said Katrina Leung, 49, was recruited to work for the FBI in the early 1980s and soon began an affair with her handler, former supervisory Special Agent James J. Smith, 59.

She would copy classified documents he left unattended when he came to debrief her at the posh home she shared with her husband and their son in wealthy San Marino, according to a prosecution affidavit.

Attorneys for both have denied the accusations.

The FBI alleges it paid Leung $1.7 million over 20 years to act as an informer, and during that time she allegedly had an affair with a second agent, whom officials did not identify. The second agent learned of Leung’s unauthorized contacts with officials in Beijing and alerted Smith, but Smith continued his relationship with Leung, authorities said.

Leung was charged Wednesday with obtaining a classified national security document for purposes of aiding a foreign nation, Smith was charged with gross negligence for allowing Leung to obtain the documents. They could face up to 10 years in prison if convicted.

Prosecutors said they found FBI documents at Leung’s home, including phone directories and a secret 1997 memorandum about Chinese fugitives that contained “national defense information.” The affidavit said that an FBI agent secretly searched her luggage when she left Los Angeles for China in November and found six photographs of current and former FBI agents. The photos were not found when the luggage was secretly searched again upon her return….

The house Leung and her husband, Kam, own has four stone lions around a fountain, and a pool and guest house. The two worked as consultants, and Katrina Leung brought neighbors cookies and cake at Christmas.

Leung worked with many Chinese-American groups, and her former posts included secretary of the National Association of Chinese Americans.

A naturalized American citizen and a registered Republican, she donated money to Republicans including Rep. David Dreier and failed GOP gubernatorial candidate Bill Simon, as well as some Asian-American Democrats including Chu, records show. She raised money for Simon and former Los Angeles Mayor Richard Riordan.

She accompanied Riordan on a trip to China in 1998 and joined Mayor James Hahn’s delegation when he went to China last year.

Leung and her husband donated about $25,000 last year to candidates for state office, including a $10,000 donation to Riordan.

According to the federal affidavit, Leung has admitted setting up bank accounts in Hong Kong to which she pretended to make mortgage payments on the home she bought about 12 years ago for $1.4 million, though she was actually paying herself.

That enabled her to claim mortgage interest tax deductions after she had actually paid off her mortgage….

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For more on THE FBI, GO TO > > > The Secret Nests – Part II

For more on the China Connection, GO TO > > > Crouching Dragons ~ Hidden Rats

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March 31, 2002

Simon has millions in oil stocks as California fights offshore drilling

DON THOMPSON, Associated Press

SACRAMENTO —- As California battles the Bush administration over plans to drill for oil off the state’s coast, Republican candidate for governor Bill Simon has millions of dollars invested in companies that would benefit if drilling is allowed.

If drilling starts, the companies in which Simon owns stock could gain drilling contracts, ship the oil pumped from beneath the sea and then sell that oil. As governor, Simon could end California’s legal efforts to stop drilling.

A Los Angeles millionaire and former oil company vice president, Simon has said repeatedly he opposes additional drilling off California’s coast, but has defended his vast investments.

“Just because you’re against offshore drilling in certain areas doesn’t mean you’re against offshore drilling worldwide,” Simon said in January.

But his extensive ties to offshore oil interests don’t comfort drilling opponents.

“To have someone heavily invested in the oil industry overseeing California’s coast is a little scary,” said Carl Zichella, the Sierra Club’s regional director. “If he waffles (on offshore drilling) at all, it will be to his political detriment.”

The Bush administration wants a federal appeals court to allow drilling off San Luis Obispo, Santa Barbara and Ventura counties. Democratic Gov. Gray Davis used the courts to block attempts to build the first new oil platforms off California’s coast since 1994, rejected settlement offers and has sworn he will take the case to the U.S. Supreme Court if necessary.

Simon has at least tens of thousands of dollars invested in companies with direct interests in the dispute, financial disclosure documents show, and owns millions more in companies that drill, sell and ship oil by tankers and pipelines.

For example, he owns up to $100,000 of SeaRiver Maritime Financial Holdings Inc., a subsidiary of Exxon Mobil Corp., which is one of the companies holding the 36 leases at issue in the federal drilling case. It also owns currently producing leases. A SeaRiver subsidiary, formerly Exxon Shipping Co., operated the Exxon Valdez that ran aground and spilled oil off Alaska in 1989.

Through family trusts, Simon owns up to $100,000 of stock in USX-Marathon, an Exxon Mobil partner, and Occidental Petroleum, a Shell partner. The trusts own between $4,000 and $20,000 worth of stock in Royal Dutch Petroleum/Shell Oil Co. and ChevronTexaco; both hold California offshore leases.

While Simon owns some oil stock, campaign strategist Jeff Flint said, Davis has accepted hundreds of thousands of dollars in campaign contributions from companies including ChevronTexaco and Occidental, including $176,000 last year alone.

Simon also owns hundreds of thousands of dollars of stock in Seacor Smit Inc., a Houston-based drilling and shipping company, and its former subsidiary, Chiles Offshore Inc., which specializes in offshore drilling.

U.S. Securities and Exchange Commission documents indicate that one-third of Chiles Offshore’s business comes from Shell. Seacor Smit, meanwhile, established what its chairman called a “toehold” on the California coast last year when it bought a West Coast supply vessel.

SEC documents and the Simon campaign indicate that South Street Capital LLC, an investment firm controlled by the Simon family, sold about $4 million in Chiles stock last year. Simon declared no income from the stock sale in the financial disclosure report he filed with the Fair Political Practices Commission, but reported owning a maximum of $1 million invested by South Street in the company.

Campaign finance reports and Simon’s disclosure forms show some offshore oil money may have gone to his campaign. He sold hundreds of thousands worth of energy stocks last year as he poured more than $4 million of his own money into his campaign. Meanwhile, Simon’s siblings, who share in family trust profits, have given him at least $750,000.

Last year, Simon sold as much as $100,000 worth of stock in Diamond Offshore Drilling of Houston, which engaged in three drilling projects off California’s coast in the 1980s….

His father, William E. Simon, was President Nixon’s “energy czar” through the Arab oil embargo of the early 1970s before becoming treasury secretary. In 1988, Simon and his brother joined their father in William E. Simon & Sons, an investment firm with substantial holdings in the energy industry.

Corporate records from Florida, Louisiana and Mississippi show Simon was a vice president and director through the mid-1990s in Paramount Oil Co. of Baton Rouge, La., and Shore Oil Co. of Houston, oil and exploration companies that had extensive holdings in the Gulf of Mexico region.

Paramount merged into Shore, which later merged with a firm that eventually became 3TEC Energy. Simon sold up to $100,000 in 3TEC shares last year; family trusts own as much as $1 million in 3TEC stock.

Those companies drilled off the Gulf of Mexico coast, Flint said, so it’s not “fair to tie Bill’s investments” to California.

Oil, gas and other energy company executives have also donated thousands to Simon’s campaign, state campaign finance records show.

They include $5,000 from Tesoro Petroleum, a Texas-based company active in offshore drilling, and $22,000 from people and firms connected to Alvin V. Shoemaker, former chairman of First Boston Corp. and a director of Shore Oil and Paramount. Occidental contributed $10,000.

Davis this month accused Simon of profiting from California’s energy crisis through business dealings with El Paso Natural Gas, which regulators alleged helped drive up gas and electricity prices last summer.

A Simon family investment company owns between $10,000 and $100,000 in El Paso stock. Simon also sold as much as $100,000 worth of stock last year in 3TEC Energy Corp., 20 percent of which is owned by an investment arm of El Paso.

Simon is a major investor and former board member of Houston-based Hanover Compressor Co., which does business with companies such as El Paso and the bankrupt energy giant Enron.

Davis himself is defending his acceptance since 1996 of $119,500 in campaign funds from Enron.

Simon’s charitable foundation also benefits from extensive oil and gas investments, primarily Hanover Compressor.

While Simon was a board member, Hampton joined Enron in a Venezuela-based partnership, SEC records show, before Enron’s collapse. After Simon left the board, Hanover ran into Enron-style accounting problems this year over its involvement in the Hampton Roads gas project off the coast of Nigeria with California leaseholder Shell Oil Co.

Though the California Coastal Commission and the state attorney general also are parties to California’s suit against the Bush administration, Simon if he became governor could use his legal and budgetary power to end the state’s efforts.

“He could make it not just difficult —- impossible” to continue, said Nathan Barankin, spokesman for Democratic Attorney General Bill Lockyer.

Eleven environmental groups have joined the state’s suit, arguing that most Californians want to defend their world-famous coastline.

Simon agrees “there should not be any new exploration or drilling off the coast of California,” Flint said. However, he said Simon has taken no position on what he would do with existing contracts such as are at stake in the California suit.

“He would have to take a look at it,” Flint said.

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August 05, 2002

Business credentials lose political luster

Corporate scandals create voter distrust

By Daniel B. Wood and Abraham McLaughlin | Staff writers of The Christian Science Monitor

LOS ANGELES AND BOSTON – Where American voters are concerned, a political candidate’s once-sterling tagline of MBA is morphing into the ignominious acronym, BTA: “Better Think Again.”

Thanks to the freefall of the stock market and the corporate scandals of Enron, WorldCom, Adelphia, and others, the political aspirant with a business background — promising to clean up government mismanagement — is running head-on into a new level of public distrust….

Bipartisan distrust

While typically thought of as a bigger minus for Republicans than Democrats, the new climate of business distrust is hurting both parties simultaneously.

“To run for office as a businessman right now, Democrat or Republican, … may be as bad a strategy now as during the Depression of 1929,” says Joe Cerrell, a California political consultant.

Perhaps the highest-profile example of a businessman-candidate running into trouble is Bill Simon, who won the GOP primary in March at least in part because he said his business credentials could help get California, currently struggling with economic and budgetary woes, back on track.

But Mr. Simon, son of former US Treasury Secretary William E. Simon Sr., has stumbled since the primary, including refusals to publicize his tax returns, releasing them, but then raising suspicions by refusing to answer key questions about them.

His candidacy entered an even darker period last week with a jury’s multi-million dollar civil fraud verdict against his family investment firm. The Los Angeles Superior Court jury found that the firm, William E. Simon & Sons LLC, saddled the plaintiff — Pacific Coin, a private, pay-telephone company — “with excessive amounts of debt” after acquiring controlling interest in 1998.

The jury awarded Pacific Coin $13.3 million in compensatory damages, plus $65 million in punitive damages….

“The current trial finding is a blow to the very reputation Simon has been trying to push, namely that he is the business outsider that can set this state straight economically,” says Mark Di Camillo of the California Poll.

Simon says the verdict is “fatally flawed” and that he’s confident it will be overturned.

But Simon presents a dilemma for President Bush — himself an MBA holder — who only recently backed Simon and is scheduled to visit the state Aug. 24.

“Part of the problem for Bush is that he is also trying to be seen as someone who is trying to clean up the climate of corporate corruption in America,” says Mr. Cerrell.

“So how do you go about associating yourself with someone who was just found guilty of fraud and ordered to pay $78 million?”…

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August 23, 2002

Bush campaigns for embattled California candidate

PORTLAND, Oregon (Reuters) – One day after calling for corporate crooks to serve “hard time” in jail, President George W. Bush on Friday will campaign in California for a Republican gubernatorial candidate whose company was fined almost $80 million in July for fraudulent business dealings.

Bush plans three appearances on Friday and Saturday to raise about $3 million for the embattled Bill Simon Jr., son of President Nixon’s Treasury Secretary William Simon….

With scandals affecting blue chip icons like Enron and WorldCom, confidence in American business has been rocked badly, sending stock markets plunging during the summer months and threatening to derail the nascent U.S. economic recovery.

Indeed, corporate scandal is such a hot topic on the American political landscape that Bush has made a point of talking about it at almost every recent public appearance.

On Thursday in Oregon at a stop to promote his new forest policy, Bush portrayed himself as hard on corporate crime.

“We’re going to find those who cheat, and we’re going to prosecute them, and they’re going to find out that instead of easy money, they’ve got hard time ahead of them,” Bush said to rousing applause from the audience.


Earlier, Bush was asked if he saw any conflict between his tough rhetoric on corporate crime and his support for Simon.

“Bill Simon assures us that when the courts look at this case, he’ll be innocent,” Bush said.

“I take the man at his word.”

Bush and his vice president, Dick Cheney, themselves are no strangers with corporate problems. Both men are under fire from Democrats for their own business practices before taking up their current positions….

At the end of July, the investment firm co-owned by Simon and another company was ordered to pay $97.2 million to a man who said the two firms financially wrecked his company.

A Los Angeles civil court jury returned a $75 million punitive damages award against Simon’s family firm, William E. Simon & Sons, and B-R Investors, another investment firm.

A day earlier, the same jury had found the two firms guilty of fraud, breach of fiduciary duty and other claims and awarded $22.2 million in actual damages to Edward Hindelang Jr. and his company, which distributes and manages pay phones.

Simon’s company, which he founded with his father and brother, was ordered to pay about $79 million of the total. The Republican candidate, whose financial dealings have come under question in the campaign, called the decision “fundamentally flawed” and predicted it would be overturned on appeal. …

The Bush visit comes a week after Cheney visited California and mentioned Simon’s name only once in two speeches and took no photos with him at all — something interpreted by many political commentators as a sign the White House might try to distance itself from the candidate.

As Simon seeks to win the election, perhaps the best hope is how unpopular the current governor, Gray Davis, is.

Davis has been blamed for his handling of California’s energy crisis — a debacle that caused blackouts, electricity shortages, massive utility bills and economic disruption for the state.

The last public polls showed Davis and Simon close while private polls give Davis an 8 to 16 percentage point edge. But that was before a Los Angeles jury on July 31 found the Simon family investment company guilty of fraud.

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Bill Simon’s Enron Ties

by Jason Leopold

California GOP gubernatorial candidate Bill Simon Jr. has portrayed himself as a savvy businessman who can deal successfully with the state’s financial woes. But Simon’s ties to Enron, the bankrupt energy company that has been charged with manipulating the electricity market in California and is under federal investigation, raise questions about his business acumen and his fitness for the state’s top post.

Former business associates of Simon say that he personally persuaded Enron to invest in Hanover Compressor, a Houston company he founded in 1990 and on whose board he sat between 1992 and 1998. Hanover makes pumps that move natural gas and oil through pipelines and from wells.

According to several people at Enron and Hanover involved in the transaction, the Enron investment was made in 1995 through an Enron partnership called Joint Energy Development Investments, or JEDI, which is now at the center of the federal investigation into Enron’s collapse.

Simon held a 1.4 percent stake in Hanover, which after the JEDI investment was worth tens of millions of dollars. His father, William Simon, the former energy czar and Treasury Secretary under Richard Nixon, ran a private investment firm, William E. Simon & Sons, which owns more than 4 percent of Hanover. The younger Simon declined requests for an interview. He has previously dodged questions about his relationship with Enron.

JEDI was at one time Hanover’s second-largest shareholder, with an $84 million stake in the company, according to a Securities and Exchange Commission filing. Last June, JEDI shifted most of its shares to another off-balance-sheet Enron partnership. JEDI’s stake in Hanover allowed the Enron executives who managed JEDI to attend Hanover board meetings. Hanover executives said Simon and Enron came up with several joint-venture ideas.

Simon was also involved in Hanover in matters separate from the Enron deals that could raise legal concerns. Hanover said in February that it would have to restate its financial results beginning in January 2000 because of improper accounting for a partnership that–as with Enron–made the company appear more profitable than it was.

Over several years during this time, according to the Wall Street Journal, Hanover officers sold millions of shares of stock–again much like Enron, where officers who were allegedly aware of the company’s accounting practices were encouraging employees and others to buy shares even as they were selling their own. Hanover is now the target of at least four class-action lawsuits by shareholders who have alleged the company misled investors; and it is also under investigation by the SEC.

Simon wasn’t a member of Hanover’s board at the time of the improper accounting, but a week before Hanover made the announcement, the company reported that every annual report it has issued since going public in 1997 contained errors. Simon, as a member of Hanover’s audit committee, was responsible for approving the company’s annual reports. The audit committee, according to Hanover’s investor relations department, was held responsible by Hanover for the error.

Simon helped Hanover set up a partnership in the Cayman Islands, Hanover Cayman Limited, as a tax shelter. In addition, he assisted Hanover in setting up a joint venture with Enron and JEDI to construct a natural-gas compression project in Venezuela.

Jamie Fisfis, Simon’s campaign spokesman, said Simon has been forthcoming about his business dealings with Hanover and Enron. But when asked about JEDI’s investment in Hanover and what role Simon played, Fisfis said he did not know and would only confirm that Simon was a member of the Hanover board at the time. Moreover, he could not offer an explanation when asked about the other joint ventures with Enron that Simon’s former business associates said he had a hand in creating.

Simon has told reporters on the campaign trail that he was barely involved in Hanover’s business activities, but Hanover executives say Simon was intimately involved during his six years on the board. When Simon left the board in 1998, he sold most of his 430,000 shares in the company. However, he still has more than $1 million invested in Hanover, according to the Associated Press.

Sherry Bebitch Jeffe, senior scholar of the University of Southern California’s School of Policy, Planning and Development, said Simon has to start answering questions about his dealings with Enron, “whether it be good or bad,” or risk alienating voters.

“The symbol that Enron has become is negative, cheating and ruthless.”…

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September 16, 2002

Documents spell out Simon’s tax deal


By Laura Kurtzman, Mercury News

Gubernatorial candidate Bill Simon employed an aggressive accounting technique using an offshore corporation to create paper losses that may have saved him millions of dollars in taxes, according to documents obtained by the Mercury News.

The extent of the tax benefits, if any, Simon accrued in 1997 could not be determined. But the financial means are laid out in intricate detail in an Internal Revenue Service suit against KPMG, the accounting firm that sold Simon the strategy.

While Simon is not a target of the legal action, his use of the accounting device places him in a select group of wealthy Americans who can massage the law to minimize their tax obligation. And the episode illustrates that, despite Simon’s firm’s recent exoneration in an unrelated fraud case, the contrivances that make a successful business career can also make for a vulnerable campaign.

The KPMG procedure — involving a Cayman Islands corporation, Swiss bank stock, stock options and warrants — is complex by any measure. It relies on the accounting maneuver of “basis shifting,” under which credit for an investment by one entity “shifts” to another. In the KPMG plan, the credit ultimately evaporates, and can be claimed as a loss.

“I think the American public should be morally outraged at these kinds of deals,” said David Weisbach, a University of Chicago Law School professor who worked in the Treasury Department under former presidents Bush and Clinton.

Simon, a Republican lawyer and investment banker, said only that the tax plan involved bank stock and foreign exchange.

“It was an investment transaction involving investments in a bank and investments in foreign currencies,” he said. “It was recommended to us by KPMG. We looked at it together with our accountants, and we decided to enter into it.”

Simon participated through a family partnership in 1997, according to an aide, and says he has not been audited.

KPMG would not comment.

It was not until July that Simon was connected to the KPMG arrangement when the IRS took the unusual step of identifying in its suit dozens of wealthy taxpayers thought to have used the strategy. Besides Simon, the IRS names his brother J. Peter Simon and their late father, William E. Simon.

The lawsuit and confidential KPMG marketing materials for the shelter, which were obtained by the Mercury News, show for the first time publicly how Simon’s tax deal worked.

One beneficiary

In its suit, the IRS included a description of how one KPMG customer had benefitted from the shelter.

Joseph Jacoboni of Lake Mary, Fla., used the strategy — actually intended for corporations owned by married couples — when he earned a $28 million profit by selling his share of Software Support, a tech support company. He saved $5.6 million in federal taxes.

Experts familiar with the KPMG shelter and the IRS lawsuit say it is clear from the court documents that Jacoboni’s deal was fundamentally the same as Simon’s.

Using the dollar amounts for Jacoboni’s deal, here are the shelter’s six steps:

�� Step One: A taxpayer buys $1.7 million in stock in the Union Bank of Switzerland.

�� Step Two: A Cayman Islands corporation provided by KPMG buys $35 million in Union Bank stock. The corporation borrows the entire purchase price amount from the bank.

�� Step Three: The taxpayer purchases a warrant for the right to buy 85 percent of the Cayman corporation’s shares. This allows the taxpayer to claim a controlling interest in the corporation and its investment.

�� Step Four: Union Bank buys back the $35 million in stock from the Cayman corporation. Simultaneously, the taxpayer purchases an option to buy $35 million of Union Bank stock.

�� Step Five: Soon after, he sells the option back to Union Bank and relinquishes all interest in the Cayman corporation.

�� Step Six: The taxpayer sells the $1.7 million in Union Bank shares bought at the beginning of the deal.

In the end, both the taxpayer and Union Bank got back virtually all the money they spent on the bank stock. But the taxpayer was able to claim a $33.3 million loss — the difference between the corporation’s $35 million stake in Union Bank and his own $1.7 million share.

The reason: The corporation’s $35 million stake “shifted” to the taxpayer because the taxpayer had a controlling interest in the corporation and because he briefly owned an option for the same amount of Union Bank shares — $35 million worth.

But because he owned only $1.7 million in stock at the end of the investment, the rest could be considered a loss.

IRS claims fraud

To the IRS, the deal is not a loss but a fraud, and Jacoboni now seems to agree. He sued KPMG for fraud after the IRS audited him, alleging that KPMG misled him about the risks by representing the shelter as a “no lose proposition” and a “clean deal, never audited.”

Some tax experts think the maneuver may be upheld in court because there was an element of economic risk when the taxpayer bought the Union Bank stock. The stock price could have risen or fallen while the taxpayer held it.

Others contend that this was a minuscule risk when compared with the total value. In Jacoboni’s case, he could have lost part of his $1.7 million stake. But the largest sum of money in the deal — the $35 million put up by Union Bank — was never in any danger.

However a court decides, the tax breaks are not what the IRS intended when it wrote the tax rule, said Joseph Bankman, a professor at Stanford Law School who has studied the KPMG shelter and others like it.

“For a lot of us, this is really about respect for the law,” Bankman said.

“People don’t realize how phony these transactions are.”

Contact Laura Kurtzman at lkurtzman@sjmercury.com or (408) 920-5608.

Catbird Comment: For some of you returning visitors, this might seem like déja vu, but you probably just have Bill Clinton’s deal with the Arkansas Financial Development Authority and AIG in the back of your mind.

To refresh your memory, GO TO >>> The Un-American Insurance Group

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Industrial and Commercial Bank of China – From The Straits Times-Asia, 10/31/00:


China’s chief auditor plans to take his fight against corruption to almost the top of the country’s political system, according to state media.

This follows the discovery of US$11 billion in mismanaged funds at Chinese government offices and businesses.

The astounding sum, reported by Mr. Li Jinhua, Auditor-General of China’s National Audit Office, is one of the strongest indications of how mismanagement is in China….

“Corruption thrives under a lack of efficient supervision,” the paper said….

According to earlier official reports, the auditing led to the discovery of misuse of funds at the Industrial and Commercial Bank of China, and the Construction Bank of China, causing losses worth more than 10 billion yuan (S$2 billion)….

Mr. Li’s auditors found that individual officials and managers had misappropriated 590 million yuan. But this marked only a fraction of the 96.17 billion yuan mismanaged, if not embezzled, by offices and firms, the China Daily said.

The reports did not give details of how the funds were misused . . . But in previous reports over the past 18 months, Mr. Li has criticised officials for diverting government subsidies and spending lavishly on offices. There has also been talk of speculation in stocks….

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Asia 2000, 11/8/00, by Jeremy Page:


China sentenced 14 people to death on Wednesday, including senior police and customs officials, in the first verdicts of a multi-billion dollar smuggling scandal, the biggest corruption case of the Communist era.

Those sentenced to death included the former customs chief and deputy mayor of the southern port of
Xiamen, and the former deputy police chief of southern Fujian province . . .

But state media said the mastermind of the smuggling scam, businessman Lai Changxing had fled overseas after being tipped off by police. …

Lai’s Yuanhua Group smuggled more that $6 billion worth of cars, luxury goods, oil and raw materials in the early 1990s, paying off city and provincial officials to facilitate and cover up duty evasion, Xinhua said.

“The group also used money and women to seduce a number of government officials for the convenience of their smuggling activities,” Xinhua said.

The smuggling “caused serious damage to the normal economic order, brought huge financial losses to the state, led to rampant corruption, and impaired the social, political and economic life in China,” it said. . . .

The death sentences included Xiamen’s former customs chief Yang Qianxian and former vice mayor Lan Pu, and former Fujian deputy police chief Zhuang Rushun, Xinhua said.

Ye Jichen, head of the Industrial and Commercial Bank of China in Xiamen, was also given a death sentence . . .

See also: Xiamen International Bank

Lee H. Henkel – A Republican, was Treasury Dept. & IRS Counsel in the Nixon Administration; later a tax attorney and real estate developer in Atlanta.


Lee H. Henkel, Jr., Managing Director, has over 40 years experience in the tax, merger and acquisition fields both as a lawyer and broker representing primarily the owners of closely held businesses. He is widely known as a dealmaker and is comfortable discussing the various elements of selling a business. . . .

In 1971 he was appointed by President Nixon as the ranking Assistant General Counsel of the U.S. Treasury Department and Chief Counsel for the Internal Revenue Service, Washington, D.C. In this position, he served under Secretaries of the Treasury John B. Connally, George P. Schultz, and William E. Simon . . .

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From www.jailhurwitz.com/beebe.html :

In 1980, Lee Henkel and the infamous Charles Keating were the East & West Coast financial chairs for ‘John Connally for President’.

Henkel was Keating’s attorney.

In October 1983, ACC buys the infamous Lincoln Savings with DBL issued junk bonds.

In 1984, Lincoln makes $70,000 loan to Connally on a land deal near Austin, TX and $134,000 loan to Henkel; Connally defaulted leaving Lincoln (and not the taxpayers) holding a $70,000 loss (Nation 11/19/90).

In February 1987, WSJ reports Lincoln S&L made at least $619,000 in loans to corporations & partnerships in which Lee Henkel had an interest. In mid-August 1987 the records of the records of Southmark, San Jacinto SA, Strauss, Barnes, Connally and about 200 others were seized according to the Dallas Times Herald. . . .

In 1988, SEC v. MDC Holdings; MDC (has close ties with Silverado), is caught in shady deal with Lincoln S&L. Neal Bush is loaned $550,000 for a house. Connally was elected to Maxxam BOD.

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From The Daisy Chain: How Borrowed Billions Sank a Texas S&L, by James O’Shea:

A lot of money went into Tony Coelho’s DCCC.

More than $200,000 flowed in between early 1985 and mid-1986 from Vernon, other high-flying thrifts, and their supporters. The contributions to senators and House members came in as the donors were having trouble with regulators and felt threatened by pending legislation. The political body also added to the S&L losses, meaning that half the American taxpayers eventually picked up the tab by funding a massive government bailout designed to restore solvency to thrifts such as Vernon.

Of course, Lowery, Kemp, Wright, Coelho, DeConcini, Riegle Cranston, Glenn, McCain, and many others say they did nothing wrong. If contributions were somehow illegal, they say they didn’t know it. Some, such as DeConcini and Riegle, have given the money back….

But none of these public-spirited refunds came until the lawmakers got caught….

Indeed, when he was asked whether he thought the campaign money influenced any of the lawmakers, Keating replied, “I certainly hope so.”

Keating was right. The S&L executives did get something for their money. Barnard held hearings and gave Keating a forum from which he could criticize the bank board. The Treasury legislation that the industry and high-fliers opposed went nowhere, either. When powerful congressmen such as Majority Leader Wright and senators such as Cranston want a bill passed they can get the job done. Obstacles don’t stop the Congress when powerful leaders want legislation.

The administration’s bill started working its way through the bureaucracy in mid-1985. It was introduced into the Congress in early 1986, just before the start of the primary season for mid-session elections. . . .

Although both the Senate and House played a role in blocking the legislation, the House Democratic leadership played a crucial role in the developments that led to the abandonment of the legislation. During the same time frame in which the Democratic leaders stalled the bill, Dixon, Vernon employees, and the thrift’s major borrowers gave Coelho’ DCCC $48,000.

Another $62,500 flowed in from other high-flying S&L’s and developers in Texas. An additional $56,500 landed at the DCCC courtesy of Michael Milken and his company, Drexel Burnham, and $29,100 flowed in from Columbia Savings and Loan, the California thrift and big advocate of Milken’s junk bonds. Keating and his employees chipped in another $8,000, and people associated with Silverado gave $4,000….

To ordinary working folks, the contributions may seem like a lot of money. But to the Dixons and Keatings of the world, it was peanuts. What were a few hundred thousand dollars in political contributions if the money bought access to politicians who helped protect S&Ls with billions of dollars in federally insured savings deposits? Vernon had assets of close to $2 billion; Lincoln more than $3.5 billion. . . .

As the S&Ls tossed money around Washington, the impact of their influence peddling fell unevenly on their customers. . . .

But the parties that really paid the price were the American taxpayer and the honest S&L operator. By delaying the legislation, the Congress and the Reagan-Bush administrations simply increased the cost of eventually resolving the industry’s problems. Deposit-insurance premiums remained high for the honest and dishonest segments of the industry alike. Good thrift operators, who were the majority of the industry, paid for the insolvencies generated by the bad. . . .

The losses of the thrifts such as Vernon widened every day as they took in more federally insured deposits to compensate for the plunging value of their assets….

Reagan’s White House displayed an astonishing tons of indifference to the problems. Donald Hovde’s October 1986 resignation from his $72,500-a-year-job as a board member left Gray without any authority to take any kind of official action. Mary Grigsby had resigned from the three-member board two months earlier, and Gray couldn’t act unless he had at least one other board member. Yet the White House left him alone and without power for nearly a month as more and more S&Ls hit trouble.

In November, at the request of Sen. Mack Mattingly, a Georgia Republican who had received more that $10,000 in campaign funds from Keating and his associates, Reagan filled one of the bank board vacancies with Lee Henkel, an Atlanta attorney and real estate developer who had done more than $60 million worth of business with Keating’s S&L….

Henkel wasted no time showing the flag. Reagan made Henkel a recess appointment after Congress had adjourned, meaning he could take his seat immediately. Once the Senate reconvened, Henkel would have to be confirmed. In one of his first actions in December, though, he proposed a rule that would have immunized Lincoln Savings from any enforcement actions in a dispute with the bank board over $615 million worth of direct investments that Lincoln had made in real estate and other risky deals.

By January, incoming Senate Banking Committee chairman William Proxmire of Wisconsin announced that he would oppose the Henkel nomination, when it came before the Senate. Proxmire also asked for a Justice Department investigation of Henkel’s actions.

Henkel asked Reagan to withdraw his nomination a few months later….

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From www.dcia.com/settlement.html


The Arizona Republic

Damages and out of court settlements won by investors in Charles H. Keating Jr.’s American Continental Corp. who filed a $1.2 billion fraud and racketeering lawsuit in U.S. District Court in Tucson:


Defendants will share in a judgement of $1.8 billion in compensatory damages returned by a jury Friday against:

Charles Keating, former chairman of American Continental, who also owes $1.5 billion in punitive damages.

Editor’s note: Now that really sounds wonderful but what does it mean? Since Keating says he is broke that $1.5 billion just disappears form the equation. Now there is just chicken feed left for the investors. This headline is a lie. Notice (burried at the very end of the article!) the amount Michael Milken had to pay and remember he was making $550 million per year when he was stopped. That is what it means to have attorneys like the Dershewitz brothers, Melvin McDonnald, and John Dowd. I can think of about 200 million people who would think serving a few years in the pen and keeping all that loot was a pretty good deal!!

Saudi European Investment Corp. of Paris, was a financial partner.

Conley Wolfswinkel of Tempe, was a borrower from Lincoln Savings and Loan Association, an American Continental subsidiary.

Continental Southern Inc., Atlanta, was a Lincoln borrower.


Former executives of American Continental and Lincoln Savings, $4.75 million.

Law firms and individual lawyers

Jones, Day, Revis & Pogue, Cleveland: helped Lincoln prepare for a 1986 federal examination, $24 million.

Kaye, Scholer, Fierman, Hays & Handler, New York: represented Lincoln in its disputes with federal regulators, $20 million.

Parker, Miliken, Clark, O’Hara & Samuelian, Los Angeles: worked with American Continental’s Lincoln subsidiary in connection with investigations by California regulators, $5.65 million

Sidley & Austin, Chicago: represented Lincoln in dealings with federal regulators, $4 million.

Mariscal, Weeks McIntyre & Freidlander, Phoenix: represented Lincoln in dealings with federal regulators, particularly in disputes over appraisals of properties, including the Phoenician Resort, $2 million.

Barbara Thomas, New York, $90,000.


Arthur Young & Co. (succeeded by Ernst& Young); audited Lincoln and Continental’s financial statements for 1986 and 1987, $63 million.

Arthur Anderson & Co.: audited Lincoln and American Continental’s financial statements for 1984 and 1985, $22.8 million.

Touche, Ross & Co.: audited Lincoln and American Continental from November 1988 until April 1989, $7.5 million, plus $1 million in services for accounting and distribution of payments to investors.

Lincoln borrowers

MDC Holdings, Denver, $1 Million

Isaac Heimbinder, US Homes president, Houston, $1 million.

C.V. Nalley, Atlanta, $750,000

Lee H. Henkel Jr., Atlanta, $100,000

E.C. Garcia & Co., Phoenix $90,000


Offerman & Co., Minneapolis, investment bankers, $1.5 million.

Lexecon Inc., Chicago Financial Consultant, $1 million in services for investors.

Jeffery C. Patch, PHX, appraiser, $500, 000

Richard Fenn, former vice chairman of Saudi European Investment Corp. a financial partner, $16,000


Drexel Burnham Lambert Inc. Investment bankers, $40 to $50 million

Michael Milken, former head of junk bond sales for Drexel, $35 million to $50 million.

Emerald Homes, PHX, Lincoln borrower, $200,000

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For more on Harken Energy and Aloha Petroleum, SIMON SEZ, GO TO > > > Aloha, Harken Energy!

For more on Charles Keating and Investors Equity Life Insurance Co., SIMON SEZ, GO TO > > > Vultures in the Meadows


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From the RICO lawsuit, Harmon v. Trustees of Bishop Estate, et al.:

. . . Plaintiff alleges that Aipa’s wrongful acts are multitudinous. These acts include, but are not limited to: . . . Facilitating and concealing co-investments in KSBE deals by the Trustees, employees, family members and business associates.

In 1989 the four KSBE Trustees, Peters, Takabuki, Richardson and Thompson approved of the investment of approximately $85 million in a Houston-based energy venture with McKenzie Methane. (Trustee Lyman had recently passed away and a fifth trustee had not been appointed.)

This same venture also received more than $3 million in personal funds from all four trustees and employees and business associates of the estate. The Honolulu Advertiser reported in their February 26, 1995 issue that: “The troubled deal may cost the estate as much as $65 million in lost capital and at least twice that much in lost earnings and tax benefits.” . . .

Honolulu businessman Desmond Byrne … called the personal investments by estate trustees and staffers ‘an absolutely improper conflict of interest. It raises the appearance that their official decisions are affected by their own personal financial interests’. . .

The current board is almost completely different from that of 1989. Only one trustee, Henry Peters, remains. But the current board still holds that the old one did nothing wrong, according to [Nathan] Aipa. . . . There was no conflict of interest,” Aipa said.

The Texas court files clearly show, however, that the trustees, their employees and associates relied on estate reports and financial data when they decided to put their own money in the deal. Estate personnel have immediate access to the high-priced and sophisticated financial expertise of such firms as First Boston Bank and Goldman, Sachs & Co.

The estate, a non-profit, tax-exempt institution … must be very careful in structuring its investment activities so it won’t imperil its tax-exempt status. The Houston investment was particularly tricky because one of the principal benefits was that the estate would receive federal energy tax credits, which the tax-exempt estate intended to sell.”

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 & 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….

The investments were made through a series of five partnerships, called the ‘HAK Partnerships’, that were organized and administered by Mitchell Gilbert, Bishop Estate financial assets manager from 1988 to September 1994….

Gilbert and members of his family invested nearly $72,000 in the five partnerships, the court records show. And he invited various influential ‘investment affiliates’ of the estate to invest in the HAK Partnerships. . . In ‘marketing’ the deal to potential investors, he was acting individually and not as a representative of the Bishop Estate, Gilbert said in his deposition… But the letters he wrote were on estate stationery and he signed them as Bishop Estate’s financial assets manager….

A Texas lawyer for Bishop Estate said in Houston bankruptcy court last month that the estate can only hope to recover $20 million at most of its $85 million investment….

According to the Honolulu Advertiser, other co-investors included:

Henry Peters (trustee)

William Richardson (former trustee and subsequent consultant; Sec./Treasurer of P&C)

Myron Thompson (former trustee)

Matsuo Takabuki (former trustee and subsequent consultant)

Dave Thomas (owner of Wendy’s restaurants and co-investor with KSBE on several other projects)

William E. Simon (former U.S. Treasury Secretary, and co-investor with KSBE on several other projects, including HonFed Savings & Loan, Sino Finance, Xiamen Bank (China), and SoCal Holdings)

Wayne Rogers (the Mash actor, who later brought many suits against KSBE for the Kona Enterprises deal)

Bruce Nelson (treasurer of the Rockefeller Group)

Raymond Pettit (CFO of the Rockefeller Group)

Frederick “Ted” Field (Big-time movie producer. Three Field employees also invested. Field was the estate’s partner in the corporate takeover of European conglomerate DRG, Inc. He 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 the state Supreme Court list of nominees to fill the latest vacancy on the estate board of trustees, losing out to Gerard Jervis.)

Michael Chun (President of Kamehameha Schools)

Gilbert Tam (then-Director of Administration, KSBE; currently, an officer of Bank of Hawaii and director, P&C)

Guido Giacommetti (then Director of Asset Management, KSBE; now court-appointed trustee for the Sukamto Sia mega-bucks bankruptcy)

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 Dir, Administration Group, and President, P&C)

Wally Chin (then Deputy Controller; currently Controller, KSBE)

Donald K. H. Pang (father of KSBE employee, Leeanne Crabbe)

AIPA and others did such a good job of concealing this information, that Plaintiff was unaware of these co-investments until he read about them in the newspaper — even though his job at the estate required him to be informed of the details of mergers and acquisitions for insurance and risk management purposes. . . .

For example, in March 1993, B. M. McKenzie and McKenzie Methane Corporation filed a lawsuit for $2.3 billion against the trustees and KSBE. Additional defendants were the HAK Partnerships I, II, III, IV and V; Smith-Gordy Methane Co.; SG Methane Co., Inc.; Gordy Oil Co.; L. H. Smith; R. D. Gordy; D. A. Barras; Lee H. Henkel, III; Mitch Gilbert; Royal Hawaiian Shopping Center, Inc.; Maralex, Inc.; M. O’Hare; Kukui, Inc.; JGI Resources, Inc; and Northwestern Mutual Life Insurance Co.

AIPA initially did not report this lawsuit to the insurance company, United Educators. Plaintiff learned of this lawsuit several months after it was filed, and only as a result of his inquiring about unreported claims in preparation for the renewal of this policy. When Harmon did report this claim to the insurance carrier, Aipa immediately took control and directed that all correspondence to or from the carrier would be made by him.

AIPA repeatedly refused to furnish information to the insurance company regarding the claim, despite frequent and urgent requests. Eventually, the insurance company closed its files on the case due to Aipa’s failure to respond to the carrier’s request for information. The actual cost to the estate is unknown, but Plaintiff estimates that the loss of legal defense costs alone could easily have been in excess of a million dollars….

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See also: Lee H. Henkel

For more on the infamous McKenzie Methane Deal, GO TO > > > The Myth and the Methane

Panin Group – From The Honolulu Star-Bulletin, 10/29/97, by Rick Daysog: Bishop, partners alter Chinese bank plan. . . . The turmoil in Hong Kong’s stock market may hamper plans by Bishop Estate and its partners to take a mainland Chinese bank public….

With the benchmark Hang Seng index losing more than a fifth of its value during the past weeks, analysts said that a proposal to list shares of Xiamen International Bank on the Hong Kong Stock Exchange could be put on hold.

The development underscores Bishop Estate’s growing exposure to global economic trends. It also calls attention to the $10 billion trust’s high-risk, high-reward investment strategy….

Bishop Estate, the state’s largest private landholder, owns nearly 5 percent of Xiamen, which last year applied with the People’s Bank of China to list its shares on the Hong Kong Stock Exchange.

Henry Peters, a Bishop Estate trustee and a member of Xiamen’s board of directors, conceded that the volatile Hong Kong market may delay Xiamen’s initial public offering. But he said the bank’s partners are committed to taking it public, which would greatly enhance the estate’s investment….

Critics say the trust should not be investing in exotic companies such as Xiamen. They argue that the nonprofit foundation — which finances Kamehameha Schools — should avoid high-risk ventures in emerging markets such as China….

The list of Xiamen International Bank’s investors reads like a who’s who of Wall Street and Pacific Rim finance. They include former U.S. Treasury Secretary William Simon, Manila-based Asian Development Bank and Long-Term Credit Bank of Japan Ltd….

The largest shareholder is Min Xin Holdings Ltd., formerly the Panin Group, which owns 36.75 percent of the bank. An affiliated company, Panin Bank, formed Xiamen in 1985.

Panin was founded by Indonesian businessman Mu’min Ali Gunawan, a brother-in-law of Indonesian banking tycoon Moshtar Riady….

Riady, who heads the Lippo Group, is at the center of the campaign finance scandal plaguing the Clinton administration….

Peters said he was unaware of the relationship between Panin Bank and the Riady family. …but investments of Simon, Panin and the estate have been linked for years. The estate was a big shareholder in First Interstate Bank of Hawaii Inc. when Simon sold the local bank to First Hawaiian Inc. in 1991.

Simon, in turn acquired much of his stake in First Interstate in the mid-1980s from Panin Bank executives….

Peters was a director of the local affiliate Panin North America Inc. in 1983 when he was a legislator, according to filings with the state Ethics Commission….

Paradise Petroleum – A subsidiary of Autofuel Company (AFCO) which was a subsidiary of Kukui, Inc., which was a subsidiary of Pauahi Holdings Corp.

April 27, 1999

From the RICO lawsuit, Harmon v. Trustees of Bishop Estate, P&C Insurance Company, et al.:

. . . During his employment with KSBE and P&C, Plaintiff became aware of various activities of certain individual trustees, directors, officers, and employees of these entities that appeared to be illegal and/or breaches of their fiduciary duties. The following is only a small sample of some of these wrongful activities witnessed by Harmon:

a. There was a failure to disclose conflicts of interest and other financial information in annual financial statements and in federal tax returns for KSBE regarding personal investments by certain trustees, executives, managers and employees in related for-profit companies controlled by KSBE.

b. IRS rules regarding the maintaining of “arms-length” relationships between a tax-exempt charitable organization and its for-profit subsidiaries were being breached.

For example, at the direction of Henry Peters, Nathan Aipa, Louanne Kam, Eric Martinson, and others, KSBE paid salaries, premium charges, legal fees and claims costs that should have been paid by for-profit subsidiaries (e.g. Kukui, Inc., Sino Finance, Unison Pacific, SoCal, AFCO, Paradise Petroleum, etc.), or by individual trustees, officers, directors or employees, or by persons outside of these organizations.

Despite recommendations from its tax advisors, Price Waterhouse, the official written policy of Trustees, and the policies and procedures of P&C, services were being provided by KSBE’s 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; larger commissions for the Trustees; larger compensation to “insider” officers, directors and employees of these entities; and larger payments to independ contractors such as attorneys, auditors and claims adjusters….

For more, GO TO > > > Aloha, Harken Energy!

Sino Finance Group – Subsidiary of Bishop Estate, with William Simon and others as co-investors. Sino Finance owns nearly 5% of Xiamen International Bank of China.

From Kamehameha Schools Bishop Estate Form 990 for FYE June 30, 1999:

Part IX Information Regarding Taxable Subsidiaries:

Sino Finance Group L.L.C. – Percentage of ownership: 90.48%; Total Income: $0; End-of-year assets: $6,308,000

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From Harmon’s letter to the IRS:

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….

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:

McKenzie Methane

Kona Enterprises

Ted Fields

Robert Trent Jones Golf Club

McConnell vs. KSBE

William Rosehill

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, Louann 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….

A portion of these improperly allocated insurance costs were also paid from the millions of dollars of Federal grant funds….

See also: Xiamen International Bank

SoCal Holdings – Original name of a southern California bank in which major investors were William E. Simon and Kamehameha Schools Bishop Estate.

From Harmon’s letters to the Hawaii Insurance Commissioner:

Deceptive Business Practices; Conflicts of Interest; Mail Fraud.

At the direction of Henry Peters and other managers for KSBE, premiums that should have been charged to subsidiaries were actually paid by KSBE. One example is Eric Martinson’s memorandum of September 24, 1996 to Ramona Hinck regarding the reallocation of premiums for the SoCal, AFCO, Unison and SINO subsidiaries. As a result of this directive, premium charges that had been previously allocated by me to these subsidiaries were transferred to KSBE.

Eric Martinson was the Financial Assets Manager for KSBE, and was also the Secretary/Treasurer, Sino Finance Group LLC, and Vice President, Unison Pacific Investment (US) Limited.

Under the lease agreements for various commercial properties that are owned and managed by the estate, insurance costs are directly passed on to the lessees and tenants through monthly maintenance fees. As a result of the overcharges by M&M, and the improper allocations of premiums and claims costs to the various subsidiaries, these lessees and tenants were wrongfully and deceptively billed a share of these higher costs.

The various commercial properties would include Royal Hawaiian Shopping Center, Windward Mall, Bishop Commerce Center (Georgia), Desert Springs Marketplace (California), and Velvet Cloak Inn (North Carolina), among others.

These monthly maintenance billings and payments are normally done by mail and involve interstate commerce since many of KSBE’s properties, and the home offices of various lessees, are located on the mainland. As a result, these acts may be subject to the 1994 Federal Insurance Crimes Act, which covers crimes by persons engaged in the business of insurance whose activities affect interstate commerce….

Western Federal Savings & Loan – Another collapsed California S&L.

September 18, 2002

Simon team opens fight in U.S. court

By David Whitney — Bee Washington Bureau

WASHINGTON — The latest chapter in GOP gubernatorial candidate Bill Simon’s legal battles opened Tuesday in a Washington courtroom, as the U.S. Justice Department argued that mismanagement and a slowing economy caused the 1993 collapse of a California thrift in which Simon’s family invested.

The Simon family and other investors in Western Federal, a Marina del Rey savings and loan, contend in a lawsuit before U.S. Court of Federal Claims Judge Emily C. Hewitt that they lost their investments because the federal government reneged on its commitment to waive capital reserve requirements, sending the savings and loan into a financial tailspin.

They seek more than $750 million, including the Simon family’s $40 million investment.

The federal government argued in opening statements Tuesday, however, that other economic factors were responsible for the thrift’s demise.

Jane Peterson, heading the Justice Department’s legal team, told Hewitt that what scuttled the thrift’s solvency was a combination of lousy timing and poor management. Just after the investment was made, she said, the California economy took a dive, while the thrift continued to make bad loans because of weak oversight and internal controls.

“Internal problems, the California recession and large losses caused it to fail,” she said.

The case probably would not have attracted much attention were it not for the fact that Simon is the Republican candidate for governor. Democratic incumbent Gray Davis has sought to cast Western Federal’s collapse, which cost federal taxpayers about $122 million, as one of Simon’s biggest business failures.

After a state judge last week threw out a fraud verdict against William E. Simon & Sons over a failed pay phone company in which it had invested, the Davis campaign launched ads proclaiming that Simon was “back in court again,” this time over the failed thrift.

Simon, who served on the thrift’s board of directors and later on the board of its holding company, Westfed, has been subpoenaed to testify in the lawsuit three days after the Nov. 5 election. Also subpoenaed as one of the final witnesses is Gerald Parsky, another investor who now serves unofficially as the liaison between the Bush administration and California Republicans.

Simon’s name did not come up in opening statements Tuesday.

“I don’t expect this trial will have any impact on my campaign except to prove that another of Gray Davis’ attacks against me is completely without merit,” Simon said as he campaigned in Los Angeles.

Simon has previously said that one of his tasks in William E. Simon & Sons, which he joined in 1988, was to monitor his father’s holdings in Western Federal as a board member.

He also said he wasn’t “running” the company, telling The Bee in February that board members typically had little day-to-day management responsibility.

The case is scheduled to continue two weeks into October and then break until after the election, when it will wind up after Simon’s and Parsky’s expected testimony.

A key question for the judge is whether the investors are entitled to recover losses because the federal government breached its deal with them after Congress, reacting to an ever-rising number of savings and loan failures, substantially increased the amount of cash they were required to hold in reserve in 1989.

Hewitt already has ruled that the tougher law amounted to a breach of contract. The trial will determine whether investors are entitled to any money as a result.

In opening statements before Hewitt, lawyers for the investors said the Simon group headed by the Republican candidate’s father, former Treasury Secretary William Simon Sr., had envisioned the acquisition as part of a larger plan to capitalize on the growing Pacific Rim economy.

Ultimately, a deal was put together to buy two thrifts — Western Federal, based in the Los Angeles area, and Bell Savings & Loan of San Mateo, which regulators had taken over in 1985 — that would give them broad reach in the state’s most populous centers.

As was typical of such acquisitions at the time, the Federal Savings & Loan Insurance Corp. provided inducements to attract buyers for sick thrifts. These included paying off debts and waiving or relaxing other federal requirements, such as how much capital had to be held in reserve against bad loans.

Rowan Wilson, one of the Simon group’s attorneys, told Hewitt that when the capital reserve promise was suddenly yanked, Western Federal lost the “cushion of time and capital” that investors had counted on to make the acquisitions work.

The Justice Department has told a different story in papers filed with the court, citing “risks within the institution” that led to Western Federal’s takeover.

Western Federal’s “focus on volume rather than quality resulted in marginally underwritten loans in its portfolio,” the Justice Department said.

It said a large part of the thrift’s income property loans were in “undesirable areas or those areas harder hit by the economic downturn.”

“WFS&L’s mortgage banking operation was inefficient and included high loan-servicing costs,” the Justice Department said.

“Its core earnings were weak; Westfed’s ownership structure was awkward; and the Simon interests, including a wholly owned holding company with significant assets, were unwilling to place additional capital into WFS&L.”

In 1989, the thrift had a net income of $30.1 million and an operating income of $11.5 million, the Justice Department said. By 1992, the S&L reported a net loss of $73.1 million, with an operating loss of $87.3 million.

“In 1992, Mr. Simon Jr. wrote that it was unlikely WFS&L could be sold in its entirety ‘for an amount in excess of zero,’ ” the Justice Department said.

The problems were so severe, according to the Justice Department, that an investment banker hired by Western Federal and its holding company told it in the months before its federal takeover that “he had seen few thrifts survive that had asset quality deficiencies as severe as those of WFS&L’s.”

In February 1993, the thrift and Westfed reported that they expected losses in excess of $180 million over the next three years and “that no capital to cushion those losses could be raised.”

They turned to the federal government [a.k.a. US Taxpayers] for a $150 million bailout though the purchase of preferred stock, but the Justice Department said the government refused, and regulators soon stepped in to place Western Federal under receivership.

About the Writer: The Bee’s David Whitney can be reached at (202) 383-0004 or dwhitney@mcclatchydc.com. Margaret Talev of The Bee Capitol Bureau contributed to this report.

Xiamen International Bank – On Sept 28, 1974, Luso International Bank was incorporated in Macau.

In 1975, it was acquired by Panin Group (renamed Min Xin Group in 1988), Hong Kong.

In Nov 1985, Panin Group, with three PRC-based institutions, Industrial and Commercial Bank of China; Fujian Investment and Enterprise Corp (renamed Fujian International Trust & Investment Corp); and Construction and Development Corp of Xiamen Special Economic Zone (renamed Xiamen Construction and Development Corp, Ltd.) jointly founded Xiamen International Bank, the first joint venture bank in the People’s Republic of China.

Luso International Bank was injected as part of the capital to the bank, thus becoming a wholly-owned subsidiary of Xiamen International Bank.

In Nov 1991, XIB was joined by three more shareholders: Asian Development Bank; The Long-Term Credit Bank of Japan, Ltd.; and Sino Finance Group, Ltd. (owned by Bishop Estate and former U.S. Treasury Secretary, William Simon).

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GreaterThings, by Greg Wongham: The Ripple Effect is one way we, the people of Hawaii, can attempt to tell the rest of the country about the way the Asian-influenced financial world of Hawaii could cost you and your children every penny in your bank. Hawaii’s political powerbrokers, led by Hawaii (D) Senator Dan Inouye, have been very busy manipulating the financial world from Wall Street to the White House.

Inouye knew Wall Street could be had if he were able to get a big powerhouse brokerage firm like Goldman Sachs to make a market for one or two of his big Asian banker friends, like Mochtar Riady’s Lippo Group (who was the center of the “Chinagate” investigation) and his brother-in-law, Mumin Ala Gundawun, who controls Xiamen International Bank.

Other Chinese-Indonesians like Atang Latief and his former son-in-law Sukarman Sukamto (now named Sukamto Sia), played a big role in the “high finance” world that has dominated Hawaii and Hawaii politics for decades. Latief, for example, was credited with controlling 10 offshore banks in Hong Kong.

The $6 billion Kamehameha Schools Trust provided the financial “brick and mortar” used to build the bridge that would span the gap between Asia and U.S. capital markets. The Democratic Party-controlled Kamehameha Schools Trust spent $500 million to purchase 10% of Goldman Sachs stock….

Kamehameha Schools’ lead investment trustee, Henry Peters, stated that they were going to put Xiamen International Bank on the N.Y. stock exchange. This was a plan to create a conduit allowing the American public’s capital to flow through to their business partners in Asia, in some cases subsidizing a communist regime.

The Clinton appointment of Rubin as Secretary Treasurer was the other link to Hawaii’s financial and banking world….

For more on Sukamto Sia, GO TO > > > The Indonesian Connection

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March 8, 2002

China lets first foreign bank take Chinese clients

SHANGHAI (Reuters) – China’s central bank has given the green light to the first foreign financial institution, Xiamen International Bank, to do business with Chinese clients, a bank official and state newspapers said on Friday.

The Sino-foreign joint venture bank, based in booming Xiamen in the southeastern coastal province of Fujian, had been given approval to provide domestic clients with foreign currency services, they said.

“We are the first foreign financial institution and first joint venture bank to gain approval,” an official at the Xiamen International Bank told Reuters by telephone. He declined to say how the new business would affect earnings.

Xiamen International Bank is 10-percent-owned by Japan’s Shinsei Bank, 10 percent by the Asian Development Bank and five percent by U.S.-backed Sino-Finance Group Co Ltd.

It is majority-owned by Fujian provincial and municipal government firms.

As part of its commitments for World Trade Organisation entry, China allowed overseas banks to conduct foreign currency business with Chinese residents from February 1.

Foreign banks were formerly only allowed to take foreigners or overseas-invested firms as customers and many are now applying to the central bank to expand their business.

Xiamen International Bank gained its approval on March 4, state newspapers said on Friday.

The bank was set up in November 1985 and has a licence to do yuan business with foreign individuals and companies. Its market coverage spans Fujian, Macau and Hong Kong, according to its Web site.

Min Xin Holdings Ltd has a 36.75 percent stake in the bank, Fujian International Trust and Investment Corp has 12 percent, Xiamen Construction and Development Corp has 7.5 percent and Industrial and Commercial Bank of China has 18.75 percent.

China’s central bank said on Thursday foreign banks have to follow the same interest rate guidelines as Chinese banks when taking foreign currency deposits from domestic clients.

Analysts said the guidelines would ensure foreign banking giants, with their more sophisticated products and international names, did not take clients away from Chinese banks by offering more attractive interest rates.

China has pledged to open the financial sector to overseas players gradually in the five years after its WTO entry. Foreign banks will be allowed to do yuan business with Chinese companies in two years and with Chinese individuals in five years.

For more, GO TO > > > The World Trade Organization

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Last Updated on April 11, 2003, by The Catbird