The estate could lose $75 million
in insurance coverage if
trustees assist the state
Former state senatorBy Rick Daysog
Holt released from prison
The Kamehameha Schools' interim trustees should not be required to assist Attorney General Earl Anzai in his suit for multimillion-dollar surcharges against the trust's former board members, according to a court-appointed special master.
In a 19-page report filed in state Probate Court yesterday, attorney Michael Tanoue also said that the $6 billion charitable trust's current trustees aren't obligated to file a separate surcharge suit against ex-trustees Henry Peters, Richard "Dickie" Wong, Oswald Stender, Gerard Jervis and Lokelani Lindsey.
Tanoue's recommendations -- which will be subject to a July 21 hearing -- largely side with the estate's interim trustees, who have raised concerns that the trust could lose up to $75 million in insurance coverage if they take an active role in the state's litigation.
The attorney general's office has argued that the interim board has stonewalled its requests for information, causing a one-year trial delay. They believe that the interim trustees have allowed the estate's insurance policy to dictate their fiduciary duty.
The state's suit -- which is scheduled for a Sept. 18 trial -- alleges that the former trustees took excessive compensation, jeopardized the trust's tax-exempt status, mismanaged the trust's educational programs and incurred more than $200 million in investment losses during their tenures.
The former trustees have denied wrongdoing, but resigned last year after the Internal Revenue Service threatened to revoke the trust's tax-free status.
Tanoue said the state may be legally correct in its arguments that the interim board is duty-bound to pursue its predecessors for breaches of trust. But the "practical reality" is that the legal actions could result in little monetary recovery and could lead to the loss of the estate's insurance coverage, he said.
Tanoue added that the interim trustees should not be required to file a separate surcharge suit against their predecessors, saying such efforts would be duplicative and a waste of trust assets.
"Put it plainly, the interim trustees understand that any potential "paper judgement' against the former trustees -- though perhaps morally satisfying -- may not result in the return of any substantial monies to the trust estate," Tanoue said.
Deputy Attorney General Dorothy Sellers declined comment on Tanoue's recommendations.
The legal dispute between the state and the interim board emerged after the state's insurer, Federal Insurance Co., threatened to revoke up to $25 million in coverage if the interim board took an active role in the state's litigation.
Separately, Bermuda-based XL Insurance Co. informed the trust it would reserve the right to deny $50 million in reinsurance coverage purchased by the trust's captive insurance company, P&C Insurance Co.
Former state Sen. Milton Holt has been released from federal prison.
Former state senator
released from prison
Holt has been on supervised release since June 5 after serving about six months in a federal prison in Sheridan, Ore., according to Elizabeth Taylor, chief U.S. probation officer for the Hawaii district.
Taylor said Holt will remain on supervised release for three years.
Once one of the isles' more promising politicians, Holt pleaded guilty to a federal mail fraud charge relating to his personal use of campaign funds.
U.S. District Judge Alan Kay sentenced Holt to one year in jail last December but credited him for several months served in a federal detention facility. While awaiting trial, Holt's bail was revoked after he tested positive for illegal drugs.
State and federal prosecutors have alleged that Holt, a former Kamehameha Schools employee, took part in an alleged illegal campaign finance scheme involving the trust's outside vendors.
Holt's attorney, Reginald Minn, declined comment.
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