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Wednesday, June 14, 2000

Trust legal tab
is $15 million
and rising

Critics argue that lawyers
were hired to protect the
personal interests of
former board members

Schools' federal funding survives
Schools' meeting emphasizes
public input on goals

By Rick Daysog


The Kamehameha Schools' legal tab for the three-year controversy has mushroomed to nearly $15 million and the costs are likely to grow.

In an internal report included in recently filed court documents, the $6 billion charitable trust said it paid its law firms and accountants about $4.8 million between July 1997 and October 1999 to address the Internal Revenue Service's audit of the trust's operations.

The estate also spent $3.3 million in defense of the attorney general's investigation of its former trustees and another $3.2 million for various probate court proceedings during that same period.

Former trustees Oswald Stender's and Gerard Jervis' successful suit to remove Lokelani Lindsey from the board cost the trust about $1.9 million, the estate said.

The $15 million tab -- which represents nearly one-sixth of the estate's annual $100 million budget for educational programs -- far exceeds previous estimates which placed the estate's controversy-related legal and accounting costs at $8 million to $10 million.

Critics have long argued that the trusts' lawyers were hired to protect the personal interests of the embattled former board members at the expense of the charity's core mission of educating native Hawaiian children.

They noted that the IRS audit and the attorney general's investigation targeted alleged misconduct by individual trustees.

Legal Expense graphic

"Be it $1 million or $10 million, the money should have never been spent in the first place," said Jan Dill, a 1961 Kamehameha Schools graduate and vice president of Na Pua a Ke Ali'i Pauahi, a 3,000-member parent, student and alumni organization.

"The costs are just unbelievable. It's like an onion, the more you peel off, the more abuses you see."

And the costs are rising.

The latest tally of the trust's legal expenses was compiled by the Kamehameha School's interim board of trustees in November. The report does not include the bulk of the legal costs for the interim board's successful effort to permanently remove former trustees Stender, Jervis, Lindsey, Henry Peters and Richard "Dickie" Wong.

It also does not include expenses stemming from the attorney general's suit to surcharge the ex-trustees.

The state's surcharge suit, scheduled to go to trial on Sept. 18, alleged that the former board members took excessive compensation, mismanaged the Kamehameha Schools' educational programs and incurred more than $200 million in investment losses during their tenures.

Deputy Attorney General Dorothy Sellers said the state's suit seeks to recover some of those attorney fees from the former trustees on the grounds that the fees were self-serving. Sellers noted that the former trustees inflated the estate's legal bills by filing multiple and repetitive challenges to the state's requests for information, which the attorney general's office was entitled to as parens patriae, or legal guardian, of the trust.

Sellers also cited last month's report by court-appointed special master Robert Richards, which recommended the Probate Court surcharge the ex-trustees for $5 million in legal work that apparently benefited the former board members and not the estate.

"The fees were inappropriate because the former trustees were looking after themselves and not the interests of the beneficiaries," Sellers said.

Former majority trustees Peters, Wong and Lindsey have denied wrongdoing, saying the trust's legal work was conducted to protect the legacy of the Kamehameha Schools while Stender and Jervis said they often objected to the legal work by some of the trust's outside firms.

An estate spokesman had no immediate comment.

The estate's survey of its controversy-related legal bills is part a 13-page, in-house study of potential claims that may arise from the attorney general's surcharge suit.

The overall study found that the trust and its former board members would be liable for $49.6 million to $54.6 million in surcharges if the state were to win its case.

The bulk of the potential claims involve allegations that the former trustees took excessive compensation. As a whole, the five member board took $17.9 million to $22.9 million more than they should have during their various terms, the report said.

Hawaiians’ education
funding survives

By Rick Daysog


A measure providing about $20 million in federal funding for the native Hawaiian educational program survived a partisan challenge in the U.S. House.

By a 220-to-202 vote yesterday, the House rejected an amendment to eliminate the funding under the Elementary and Secondary Education Act. Past recipients of the federal money included the Kamehameha Schools.

Rep. John Boehner (R, Ohio), the author of the amendment, said his proposal aims to bring accountability to the Kamehameha Schools, which has been wracked by a sea of scandal during the past three years.

Boehner -- who previously opposed the federal funding when it last came up for congressional authorization in 1994 -- questioned why the trust, the nation's wealthiest charity, needs federal money. He faulted the trust -- which budgets about $100 million a year on the Kamehameha Schools -- for spending far too little of its assets educating native Hawaiian children.

But Hawaii Rep. Patsy Mink, who voted against the amendment, said funding will not go to the Kamehameha Schools but will be directed to various community-oriented programs for native Hawaiians, including those administered by the University of Hawaii.

In the past, a portion of the $20 million went to the Kamehameha Schools for child care and higher education programs but Mink said the new interim board of trustees indicated that they would not seek such funding.

A trust spokesman had no immediate comment. But as part of recent reforms initiated by the interim board, the Kamehameha Schools recently has agreed to greatly expand its spending on educational programs. The estate is in the midst of a major expansion on the neighbor islands and has committed to spend between $125 million a year to $300 million a year on education.

Yesterday's floor vote in the House was largely along partisan lines, as 206 Democrats voted against the amendment and 200 Republicans voted for it.

Hawaii Reps. Neil Abercrombie also voted against the Boehner amendment.

The bill next goes to the Senate.

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