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Saturday, September 16, 2000

Ex-trustees settle with Kamehameha

The charitable trust will get
most of an insurance policy
worth $25 million

By Rick Daysog

Signaling the end of a three-year legal battle, the attorney general's office and the five former trustees of the Kamehameha Schools have reached an agreement calling for the charitable trust to receive a huge chunk of a $25 million insurance policy.

Yesterday, the state and ex-board members Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis signed a so-called global settlement, averting a costly trial which was scheduled to begin Monday and paving the way for continued reforms at the 116-year-old trust.

Broken Trust art

"This is about going forward. We recognize the need to hold people accountable, but we need to go forward," said Jan Dill, vice president of the 3,000-member Na Pua a Ke Ali'i Pauahi, a parent and alumni group that protested the former trustees' stewardship of the trust.

"This is not about vindication; this is not about getting back with anybody."

Many of the details of the settlement remain under seal and will not be available until next week. But Clyde Matsui, probate court-appointed discovery master for the state's suit, confirmed previous news reports that the trust's entire $25 million insurance coverage will be consumed by the pact.

The deal also will provide about $1.3 million for the attorney general's office for its costs and up to $4 million in legal fees that have already been paid for by the ex-trustees. The estate will receive more than $15 million to cover the alleged mismanagement of trust assets.

Matsui said the settlement will not pay the legal bills for the criminal cases involving former trustees Peters and Wong. Both Wong and Peters were indicted on theft and related charges for their alleged personal involvement in a trust land deal. The theft charges were overturned but have been appealed. Wong also faces a perjury charge.

Matsui would not say whether the settlement will cover any potential claims sought by the Internal Revenue Service against the former board members.

The agreement -- which will be submitted to the state Probate Court for approval -- was disclosed after a one-hour chamber conference involving Matsui, Probate Judge Kevin Chang, Circuit Judge Eden Elizabeth Hifo and lawyers for the estate, the ex-trustees, the attorney general's office and estate insurer Federal Insurance Co.

Two interim trustees of the estate -- retired Adm. Robert Kihune and attorney Ronald Libkuman -- and lawyer David Fairbanks, the court-appointed mediator in the legal dispute, also attended the meeting.

All referred questions to Matsui.

In its surcharge suit, the state alleged that the former board members took excessive compensation, mismanaged the trust-run Kamehameha Schools and incurred more than $200 million in investment losses. All five resigned last year in the wake of an IRS threat to revoke the estate's tax-exempt status.

The settlement comes as the estate is embarking on major reforms of its operations. The trust is in the process of implementing a strategic plan in which it will increase its annual spending on educational programs from about $150 million to $200 million.

That expansion includes the construction of permanent satellite campuses on the Big Island and Maui as well as the restoration of many of the outreach programs eliminated by the former board.

Earlier this year, the trust hired longtime educator Hamilton McCubbin as its first chief executive officer and implemented a single-voice management system to replace an often-criticized lead trustee system in which each board member operated like a chief executive.

"The situation is vastly improved and seems to be headed in the right direction, and there's every reason to be optimistic," said Randy Roth, University of Hawaii law professor and co-author of the 1997 "Broken Trust" Star-Bulletin article which prompted the state to open its investigation.

"This is an important milestone and shows that the legacy of Pauahi is in good shape today."

For Dill, a 1961 Kamehameha School's graduate, the past controversy underscores the continued need by members of the Kamehameha community to critically examine the trust's direction. Many of the reforms, he added, will not work unless the trust rids itself of the culture of controversy that has blanketed it for the past four or five years.

"History has taught us that without a clear and persistent questioning of what's going on, the legacy gets thrown in the back seat," Dill said.

Bishop Estate Archive
Kamehameha Schools

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