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Friday, April 30, 1999




Judge orders Bishop Estate: Don't pay trustees until I say

The ruling comes after the
estate's master said pay of
$1 million a year was too
much and jeopardized the
estate's tax-exempt status

Bronster: State's probe to continue

By Rick Daysog
Star -Bulletin

Tapa

A state judge today put a temporary hold on any payments to Bishop Estate's five trustees.

Probate Judge Kevin Chang ordered the trustees not to take compensation from the estate or from its for-profit subsidiaries until a future date that will be set by the court.

The decision came after the estate's court-appointed master Colbert Matsumoto disclosed that the five trustees -- Richard "Dickie" Wong, Oswald Stender, Lokelani Lindsey, Henry Peters and Gerard Jervis -- each earned more than $1 million in the year ending June 1998 and another $862,000 for the first 10 months of the trust's 1999 fiscal year.

Matsumoto argued that the pay was excessive and threatened the tax-exempt status of the multi- billion-dollar charitable trust.

The Internal Revenue Service has been conducting an exhaustive, four-year audit of the estate and has focused on the issue of trustee compensation as a key area.

"I am concerned that the trustees' compensation at this level flies in the face of court orders and jeopardizes the estate's interests," Matsumoto said.

Trustees in the past have argued that their compensation is based on performance.

They also have said that they waive hundreds of thousands of dollars a year that they are legally entitled to take.

But Matsumoto noted that the trustees' pay exceeds the guidelines set by the trust's own outside consultants.

One recent study by Towers Perrin suggested trustees should be paid from $680,000 to about $750,000, he said.

Matsumoto also raised concerns that the compensation levels could violate the federal legislation to limit the pay of trustees of charitable trusts.

"This situation is tantamount to rolling the dice," Matsumoto said.


Prove case,
embattled Bishop
Estate trustees told

The Bishop trustees must heed
a probate judge's 'show cause'
order or face possible removal

By Rick Daysog
Star-Bulletin

Tapa

All five trustees of the Bishop Estate must demonstrate why they should not voluntarily resign or be temporarily removed from their $800,000-a-year posts, under a ruling by a state judge.

Probate Judge Kevin Chang yesterday ordered a May 7 hearing on a confidential report by the estate's court-appointed master, Colbert Matsumoto, calling for trustees Richard "Dickie" Wong, Oswald Stender, Henry Peters, Lokelani Lindsey and Gerard Jervis to step down temporarily.

Known as a "show cause" order, Chang's ruling essentially forces the trustees to prove that their continuance in office won't immediately and permanently harm the 114-year-old charitable trust and the estate-run Kamehameha Schools, legal observers said.

"The ball is in the trustees' court," said Randall Roth, a University of Hawaii law professor and co-author of the 1997 "Broken Trust" article that criticized trustees' management of the Bishop Estate.

"If they don't make a compelling argument that they should not be removed, the court will remove them."

Matsumoto's report, which was filed under seal yesterday, is in response to threats to the Bishop Estate's tax-exempt status. On Tuesday, a special panel appointed by Chang said the Internal Revenue Service, as part of its exhaustive, four-year audit of the trust, may revoke the estate's nonprofit designation if trustees do not step down.

The IRS also is calling for the estate to set up guidelines for reasonable compensation for trustees and establish a selection process for successor trustees.

Loss of the estate's tax-exempt status could cost the estate tens of millions of dollars each year and could affect educational programs at the Kamehameha Schools.

Chang's hearing comes as a separate interim removal trial is under way before Probate Judge Colleen Hirai.

The attorney general's office last September sued to remove several trustees on an interim basis, alleging they mismanaged estate assets and withheld $350 million in income from the Kamehameha Schools, in apparent violation of past court orders and the will of Bernice Pauahi Bishop.

The attorney general's office also is seeking to remove several trustees on a permanent basis on the grounds that they engaged in a widespread pattern of self-dealing and mismanagement. The permanent removal case is scheduled to go to trial next year, while the temporary removal suit is now in progress.

Yesterday, trustee Stender said that he would be willing to resign on an interim basis if fellow trustees agreed to do so, or were removed from office. In a response to Matsumoto's report filed in the probate court, Stender said he would limit his 1999 compensation to $621,393 to comply with the IRS's concerns.

For the year ending June 30, 1997, Bishop Estate's five trustees each earned commissions of $844,600. Sources say board members' 1998 compensation was about $1 million.



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