Former PGMA
officers sue Wongs
The lawsuit alleges that false financial
By Ian Lind
reports made it appear all was well
Star-BulletinTwo former officers of Pacific Group Medical Association say they were provided "false and misleading" financial reports that made it appear the company was "thriving and profitable" when it was heading for financial disaster. The two, Henry Akiu Jr. and Edwin Ramos, have sued PGMA's founder, Peter P. Wong, his wife, Susan, and a series of companies Wong controlled, alleging they conspired to conceal vital information about the insurer's problems.
Akiu and Ramos should not be held liable for PGMA's problems because they were deceived by the Wongs and did not know enough about the true condition of PGMA to have taken corrective actions, the suit says.
The suit also names PGMA's accountants, Nishihama & Kishida CPAs Inc., and its attorney, John J. D'Amato of the firm D'Amato & Maloney, for failing to exercise reasonable care in carrying professional duties to the corporation.
The legal action is in response to an earlier suit against former PGMA officials by Insurance Commissioner Rey Graulty, court-appointed liquidator of PGMA.
PGMA, once a fast-growing health insurer, was seized by state regulators in March 1997 after the falsified reports were discovered and reported by Akiu and other company directors. Before its collapse, PGMA had about 30,000 members, with nearly half coming from the ranks of the United Public Workers and Hawaii Government Employees Association.
The company left an estimated $18 million in unpaid bills, according to accountings Graulty has filed in court.
The suit alleges that the Wongs carried out a scheme to defraud PGMA by controlling its day to day operations through a series of management contracts, then "misleading, misinforming, misadvising and concealing information" from company officials.
In court documents, Akiu and Ramos charge that the Wongs and their companies:
"Issued false and misleading monthly and annual financial reports to the directors of PGMA" which overstated company reserves and understated liabilities.
The Wongs, who are living and working in California, could not be reached for comment.
Attorney D'Amato said he had not yet seen the suit and declined to comment on the matter.
Glenn Kishida, president of Nishihama & Kishida, said he had no comment on the suit at this time.
Akiu and Ramos also allege the state's lax regulation of so-called "mutual benefit societies" was also a "key element" in Wong's alleged scheme.
PGMA was set up as a mutual benefit society because "Wong understood that reserve requirements would be lower than it would otherwise be for an insurance company," the suit alleges.
Mutual benefit societies are organizations set up to provide services to their members. State insurance laws and regulations currently do not fully apply to the groups, which are also considered tax-exempt. Mutual benefit societies include small health insurers, like PGMA, as well as the state's health insurance giant, Hawaii Medical Service Association.
State regulators investigate
By Ian Lind
Wong investment club
Star-BulletinAn investment club organized by former island insurance executive Peter P. Wong in 1996 is under investigation by state securities regulators following complaints that it was an illegal pyramid scheme. Securities Commissioner Ryan Ushijima said his office is pursuing complaints about the club, which first operated under the name "Friends Helping Friends" and later, "Possibility Investment Club," Ushijima said.
Allegations about Wong's role in the collapse of Pacific Group Medical Association apparently prompted renewed state interest in the investment scheme.
Wong, who is now living and working in California, could not be reached to comment.
Ushijima said his office received complaints from people who were asked to invest $2,000 and promised they later would receive $10,000 back after recruiting three other investors.
Other participants say initial investments ranged from $1,000 to $2,000, and the promised returns varied as well.
A similar gift exchange club that claimed money received would be treated by the IRS as tax-exempt gifts was closed by state regulators and Honolulu police in February 1996.
Wong's club is accused of taking thousands of dollars from island participants, including officers, employees and sales agents of Pacific Group Medical Association and related companies controlled by Wong.
Ushijima said the investigation is ongoing, but declined to provide further specifics.
Larry Key, an insurance solicitor who worked for Pacific Equity Growth & Management, also owned by Wong, said company employees and sales agents were invited to meetings after work and asked to invest in the club.
"We were told it was a way to make additional money," Key said. "But why would an insurance company be involved in something like this?"
Meetings were held in Wong's home, in the PGMA office and later in meeting rooms at two private country clubs, participants told the Star-Bulletin.
Another former Pacific Equity Growth & Management employee who invested and later recruited others into the club spoke to the Star-Bulletin but asked not to be named because of potential litigation.
"Peter represented himself as a registered financial adviser, and said it was totally legal," this employee said.
"He was good at bringing documentation, and he said there would be no taxes, no nothing, because of the gift exclusion," the employee said.
Wong assured potential participants that nobody would lose money, and said he would buy out any investor who wanted to withdraw, according to the employee.
The club grew rapidly until two people were required to track all of the participants.
Wong collected about $21,000 from a group of employees at one early meeting and then left for a vacation in Las Vegas, the employee said.
