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Wednesday, April 14, 1999



Embattled Empire

Peters
By Craig T. Kojima, Star-Bulletin

<H3>When his grandson once asked Henry Peters if he were the 'Darth Vader' of the Bishop Estate, Peters jokingly replied, 'I'm Luke's father.'The 'Star Wars' figure aside, Peters is a powerful warrior, fared by many, who now must lead the defense of an empire battered by repeated attack.</H3>

Peters, charges stand out in lengthy
Bishop Estate investigation

By Rick Daysog
Star-Bulletin

Tapa

As alumni of the Kamehameha Schools debated the temporary removal of Bishop Estate trustees, Henry Haalilio Peters unexpectedly strolled into the well-attended conference room.

The atmosphere of the November 1997 meeting became tense. Graduates nervously eyed the trustee as he entered hostile territory. Hands that were previously 2 feet in the air were going up inches.

To say that the burly, 6-foot-tall Peters is an imposing presence in the Bishop Estate boardroom would be an understatement.

The 58-year-old former speaker of the state House of Representatives is the longest current serving trustee -- joining the five-person board in 1984 while still speaker -- and arguably the most powerful.

While trustee Richard "Dickie" Wong may be chairman, Peters, as treasurer and former acting asset manager, is the prime mover behind a financial empire that spans three continents and holds big stakes in names like Goldman Sachs Group and Saks Fifth Avenue.

Supporters see Peters as a larger-than-life folk hero who rose from a humble upbringing on the Waianae Coast to become House speaker and an $840,000-a-year trustee of one of the nation's richest charitable organizations.

They say he's remained down to earth, even as he rubs elbows with Wall Street investment bankers, Asian tycoons and U.S. Treasury secretaries.

Critics view him as a symbol of what's wrong with the Bishop Estate. Lawyers for trustee Oswald Stender regard Peters as key to the boardroom triumvirate that for years has ruled the estate and the estate-run Kamehameha Schools through a "fist of power."

Along with trustees Wong and Lokelani Lindsey, Peters has called for an investigation of teachers at the estate-run Kamehameha Schools over the release of a report critical of the trustees.

Peters -- who once broke his knuckles during an argument with a state lawmaker -- also has taken a hard line against critics within the Hawaiian community, calling them "Hawaiian shields" and "disgruntled and sophisticated country club Hawaiians."


Henry Haalilio Peters

PROFILE

Bullet Age: 58.
Bullet Title: Bishop Estate trustee (since 1994), treasurer of the board.
Bullet Education: Bachelor's degree business administration, Brigham Young University (Provo, Utah).
Bullet Previous positions: Member of the state House of Representatives (1974-1994), Speaker of the House of Representatives (1981-1987).
Bullet Outside directorships: Chairman, PBOC Holdings Inc. (parent of Beverly Hills-based People's Bank of California); director, Sino Finance Group; former director, Mid Ocean Ltd.


He became so angry at Kamehameha Schools graduates who took part in the May 1997 march protesting trustees' management of the campus that he took down names of participants, implying future retaliation, according to court testimony of the estate's former spokeswoman. Peters denied the charge.

Peters often toys with his notoriety. He joked that his grandson asked him if the Bishop Estate was an evil empire and if Peters was Darth Vader.

His wisecrack response played on the theme of the popular "Star Wars" movies in which the menacing Vader redeemed himself in the end:

"I'm Luke's father," Peters said.

Cases against Henry Peters

Like Darth Vader, Peters is a villain, so cast by state prosecutors in the 2-year-old Bishop Estate saga.

Attorney General Margery Bronster has accused Peters and fellow trustees of an "educational tragedy" that has denied benefits to a generation of native Hawaiian children. Bronster has sued for the removal of Peters and trustees Wong, Lindsey and Gerard Jervis, alleging that the trustees jeopardized the estate's tax-exempt status and withheld $350 million in trust income from the Kamehameha Schools.

The temporary removal suit against Peters and Wong, now in trial before Probate Judge Colleen Hirai, is just one of several legal actions against Peters. Last November, an Oahu grand jury convened by Bronster indicted Peters for theft, making him the first board member to face criminal charges in the 114-year history of the charitable organization.

The indictment alleged that Peters took a $192,500 kickback from developer Jeff Stone, a brother-in-law of trustee Wong. In exchange, Stone and his mainland partner, National Housing Corp., received a "sweetheart deal" when they purchased the estate's fee interest to the Kalele Kai condominium project in Hawaii Kai in 1995, the state charged.

Calls for resignation

Critics say that Peters' legal woes not only tarnish the legacy of the estate's founder, Princess Bernice Pauahi Bishop, but also interfere with his daily duties at the trust. They are calling for him to voluntarily resign, noting that he recently stepped down temporarily from the board of a Southern California savings and loan, PBOC Holdings Inc.

"It certainly doesn't look good to the outside world that one of the trustees has been indicted for a crime directly related to the performance of his fiduciary duties," said Randall Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" article critical of trustees' management of the Bishop Estate. "He's innocent until proven guilty, but in the meantime it's hard to have a lot of confidence in him as a trustee."

Peters has pleaded not guilty and has refused to step down.

He believes that Bronster trumped up the criminal charge to leverage her removal case against him. Peters - who failed to get his indictment thrown out on jurisdictional grounds - said Kalele Kai has been a great deal for the estate and that Stone and his partners got no "sweetheart" transaction.

The $21.9 million price for the fee interest in Kalele Kai is almost 2-1/2 times that of an independently appraised value for the land and will serve as a benchmark for future leasehold conversions in East Honolulu, he said. The trial is set for January 2000.

(A separate grand jury on Monday indicted trustee Wong for theft, conspiracy and perjury in the same alleged kickback scheme. Wong expects to plead not guilty.)

"We are guilty of being successful," Peters said.

The Empire Strikes Back

In a recent interview, Peters characterized his legal woes as a Machiavellian setup.

He believes that former rival Gov. Ben Cayetano used the Bishop Estate controversy to bolster his position in the close re-election fight with Republican Linda Lingle last November.

The idea was to make the estate a scapegoat to divert attention from the state's fiscal woes, Peters said. Many of the estate's Hawaiian critics, he added, were enlisted to serve as "Hawaiian shields" in the Cayetano administration's campaign against the trust.

"They did a number on us," Peters said.

Peters' recent court filings accused Attorney General Bronster of abusing her powers and intimidating the state Supreme Court. Last year, the high court ended its century-old practice of selecting Bishop trustees and has recused itself from several estate-related cases.

He refers to Bronster as a "New York, Ivy League newcomer" who has embarked on a "personal crusade" against the Bishop Estate and its trustees because they don't share her "corporate missionary mentality."

A spokeswoman for Bronster declined response.

Quote

"I personally feel that the majority of Hawaiians have not been told the truth," Peters said. "When they find out that KSBE has been maligned by these untruths about our operations and our management, there will be an explosion in this town. It will be heard across the country and probably the world."

Peters conceded that his legal woes have taken a toll on him and his family. But Peters said he doesn't let the controversy affect his daily life.

He joked that he recently was stopped for speeding on the highway near Makakilo, but the officer didn't issue him a ticket after he recognized Peters. The officer told him he didn't need a ticket because he had enough troubles as it is, Peters said.

"This is not the first time that Henry Peters was involved in controversy and it probably won't be the last," he said.

Humble upbringing

Peters was raised on the Waianae Coast in a close-knit family steeped in Hawaiian tradition. His mother, Hoaliku Drake, headed the Department of Hawaiian Home Lands under Gov. John Waihee.

Peters' great-grandfather, James Hakuole, was sent to Japan as a member of King Kalakaua's Hawaiian Youths Abroad program. Hakuole studied with members of the Japanese imperial family.

After graduating from Waipahu High School, Peters studied for two years to become a priest at the now-defunct Jackson College in Manoa before transferring to Brigham Young University, where he graduated with a degree in business administration.

While at BYU, Peters was a standout volleyball player, later playing against the likes of Olympic volleyball legend Pete Velasco and former Olympian Jon Stanley. Peters also had a tryout with the Pan American Games volleyball team but was left off the squad after he broke his ankle while playing basketball.

After a tour in the Army National Guard in the late 1960s, Peters became Waianae community advocate for the Model Cities program, a Nixon-era initiative to boost economic development in the inner cities. Waihee also worked on the staff of Model Cities, recalled local historian Bob Dye, who was former Honolulu Mayor Frank Fasi's liaison for Model Cities.

"Both Waihee and Peters were on parallel paths," said Dye. "I was personally surprised that Henry didn't end up as governor. That's always where I thought he was headed."

Rose through the ranks

Peters was elected to the state House from Waianae in 1974 in a freshman class that included Cayetano, current state Senate President Norman Mizuguchi and U.S. Rep. Neil Abercrombie. He gained the confidence of then-Speaker James Wakatsuki, who guided Peters through the ranks to become speaker in 1980.

In 1984, Peters was named to the Bishop Estate board. Then-Chief Justice William Richardson said he believed Peters would become one of the best trustees ever.

Former Associate Supreme Court Justice Frank Padgett recalled that the selection of Peters was unanimous. While he may not have had the financial background back then, the justices believed that Peters would grow into the job and would benefit from the expertise of board member and legendary financier Matsuo Takabuki, Padgett said.

Padgett declined to comment on the current controversy, but said he had fond memories of Peters. When Padgett's wife suffered a stroke about a decade ago, Peters sent her two dozen roses.

"Henry is a very personable and a very caring guy," Padgett said.

Several credit lawmaker Peters with playing a key early role on ceded lands. Kamaki Kanahele, former Office of Hawaiian Affairs trustee and Peters' cousin, said Peters helped pass legislation in the early 1980s that would later serve as the basis for the state's sharing of revenues from its use of former crown lands.

"It was a historical decision because it was the difference between Hawaiians getting something or Hawaiians getting nothing," Kanahele said.

Larry Meacham, executive director of Common Cause/Hawaii, has a different perspective. Common Cause, a citizen watchdog group, often complained about Peters' dual role as a lawmaker and as a trustee of the state's largest private landowner, Meacham said.

Persuasive presence

While Peters may not have openly voted on issues that affected the trust, such as legislation involving trustees' compensation and the leasehold conversion, Meacham said he had an influence on the direction of the legislation.

"That's one of the reasons the management of the Bishop Estate has escaped scrutiny for many years," Meacham said.

Peters had an image as a brooding and intimidating person during his political career, earning the nickname of the House bouncer.

In one often-recounted tale, Peters broke his knuckles during a 1979 dispute over organizational issues with a fellow lawmaker, former state Rep. Mits Uechi.

Peters, then House majority leader, confronted dissident legislator Uechi and banged his hand on Uechi's office furniture, according to news reports.

Later that same day, Peters got into a shouting match with then-Rep. Oliver Lunasco, also a member of the dissident group. Peters called the incident unfortunate and said he doesn't intend to come across as intimidating.

"When he gives you a handshake, he means it 100 percent," Kanahele said. "But if you reneged on one, oh boy, you have an enemy."

'Schoolyard bully'

The toughness that Peters developed in the athletic and political arenas is also present in his business dealings.

Larry Landry, former chief financial officer for the $4 billion John D. and Catherine T. MacArthur Foundation, which is a co-investor with the estate in a Boston-based investment fund and a Florida apartment complex, describes Peters as a savvy and thorough investment manager.

Deal promoters often approach large foundations and charitable trusts thinking they have deep pockets. But Peters brings a healthy skepticism to anyone who brings an investment to the estate, according to Landry.

"Henry is extremely bright and has the right kind of conservative (investment) philosophy," said Landry, who now serves as chief executive officer of Florida-based Westport Realty Advisers. "He's good at making sure that whoever they're dealing with have their skins in the game."

Some businessmen have complained that Peters can be heavy-handed. For instance, when a group led by Tokyo General Corp. acquired the Kahala Mandarin Hotel in 1993, Peters refused to give the partners a break on the annual lease rent even after the partners decided to invest at least $30 million in hotel improvements and agreed to pay the estate's $1 million litigation costs.

Those involved say Peters often overruled previous negotiations by then-asset manager Tony Sereno.

Peters plays hardball

Peters is just as tough in the boardroom, according to sources. Peters once got into a shouting match with trustee Jervis over the estate's legal strategy. The confrontation ended after Peters reportedly uttered an ethnic slur disparaging Jervis' Portuguese background, sources familiar with the event said.

Peters said he did not recall the incident.

Supporters concede that Peters can be harsh but say that just shows he's taking his fiduciary duties seriously.

"He wants to make sure that never, never again will the Hawaiian people be ripped off," said Kanahele.

To be sure, there are questions about his skills as an investment manager.

In his review of the estate's 1994-1996 accounts, court-appointed master Colbert Matsumoto and the accounting firm of Arthur Andersen said the estate -- during Peters' tenure as acting asset manager -- generated an embarrassing return on investment of minus 1 percent. During that period, the trust set aside more than $240 million in reserves for future losses.

That woeful performance came as Wall Street was in the midst of a record bull run in which investors could have made double-digit returns just by putting their money in an index fund.

Matsumoto's findings have served as a major foundation for the attorney general's removal petitions against the trustees.

Peters takes strong exception to the master's report, saying Matsumoto failed to understand the complexity of the estate's finances. Peters also suggests ulterior motives on the master's part.

Contrasting outlook

Peters believes that the estate's investments are extremely healthy and cited top credit ratings by Standard & Poors and Moody's Investors Service. He also pointed to the estate's successful investment in Goldman Sachs Group, in which the estate has more than tripled its initial $500 million investment.

The Bishop Estate -- which until the late 1970s had been a land-rich, cash-poor trust that could barely meet school expenses -- has seen its investments grow at a compound, annual rate of 17.3 percent since the late 1980s, he added.

If the estate followed many of Matsumoto's and Arthur Andersen's recommendations, it would have suffered huge losses during the Black Tuesday stock market crash of October 1987 as well as the recent Russian and Asian economic crises, he said.

"This mastering process has become so political that it's an embarrassment to the Judiciary. ... It should be an embarrassment to the C.J. (state Supreme Court Chief Justice Ronald Moon) and it should be an embarrassment to the people of Hawaii," Peters said.

Last year, Peters joined with Wong and Lindsey to seek Matsumoto's removal as master and to invalidate his findings. They believe that he is a political crony of Cayetano's who is doing the governor's bidding.

Probate Judge Hirai in January rejected Peters' motion to remove Matsumoto after the master's attorney, James Duffy, likened Peters, Wong and Lindsey to "schoolyard bullies" who were attacking the master not because the report was inaccurate but because the findings were critical of them.

Peters now believes that he probably should have worked closer with Matsumoto and critics within the Kamehameha ohana about their concerns on the management of the estate and the Kamehameha Schools.

"I'm disappointed it's gotten this far. In hindsight, could we have done something differently or better?" Peters said last week. "Would it have helped? I'm not sure. It could have. I'm a great Monday quarterback."



Peters, charges stand out
in lengthy Bishop Estate
investigation

By Rick Daysog
Star-Bulletin

Tapa

The state's exhaustive investigation into the Bishop Estate appears to focus on trustee Henry Peters as a central figure in the two-year controversy that's rocked the multibillion-dollar charitable trust.

In a September Probate Court petition to permanently remove several trustees, Attorney General Margery Bronster alleged that Peters took part in repeated acts of self-dealing and mismanagement. The state's charges include:

Between 1993 and 1998, Peters received options to acquire 6,000 shares of stock as well as substantial director's fees from a Bermuda-based insurance company, Mid Ocean Ltd. The estate was a big investor in Mid Ocean. Peters has since declined to exercise the stock options, which would have been worth more than $400,000 under Mid Ocean's 1998 merger with competitor Exel Ltd.

Peters directed trust managers and the estate's former Royal Hawaiian Shopping Center subsidiary to hire his friends and relatives for unbudgeted positions and outside consulting work, according to the state. The employees included former state Rep. Terrance Tom, local attorney Albert Jeremiah and Office of Hawaiian Affairs trustee and former state Sen. Clayton Hee.

Starting in 1995, a company headed by Peters' nephew received more than $1.3 million in nonbid and subcontracting work from the estate.

The company, Rhino Roofing, conducted renovation work on Peters' Maili home.

Since 1995, Peters' former employer, Dura Constructors Inc., received more than $2.7 million in nonbid work from the estate.

In one case, Dura billed the estate $465,000 to build an athletic locker room at Kamehameha Schools that was later deemed unsafe for student use. The trust wound up correcting the building deficiencies itself and did not pursue Dura for the faulty work. Dura also conducted work on Peters' Maili home.

Along with his fellow trustees, Peters received compensation well above that of comparable organizations. In 1997, each trustee earned about $840,000 in commissions.

Peters and fellow trustees also spent more than $900,000 of trust money to lobby Congress against the passage of federal legislation limiting salaries for board members of charitable trusts.

Peters has defended himself from charges of conflicts of interest and cronyism, saying that family members or friends that work at the estate were hired because they are qualified and not because they are related to him.

He and other trustees say their compensation is performance-based and have argued that they have waived millions in dollars in commissions that they were legally entitled to.

The estate, Peters added, benefited from his sitting on outside boards in which the estate held big stakes.

He noted that two of those companies, Mid Ocean Ltd. and PBOC, have generated millions of dollars for the estate.

"We're the wealthiest we've ever been in our history and we are far more liquid than we ever have been in our history," he said.



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