A critical review ofBy Rick Daysog
Bishop Estate's finances is blasted as
factually wrong and misleading
Kamehameha Schools/Bishop Estate today charged that a highly critical review of the estate's finances by its court-appointed master was "factually incorrect and grossly misleading."
In a 90-page counterpoint to the Nov. 17 report by special master Colbert Matsumoto, the estate said it did not lose $264 million in its fiscal year ended June 30, 1994, does not face an additional $1.9 billion in loss exposure, and denied that it withheld financial information from the master's review.
Bronster: "Disobedience" by estate is nothing new
Board awaits Yim report on "lead trustee" system
The charitable trust, estimated to be worth as much as $10 billion, said it has enjoyed a 17 percent compounded annualized rate of return on its investments between 1980 and 1994, outperforming the stock market, the bond market and other well-financed endowments like Yale University.
The estate also said it plans to review, but not eliminate, its so-called "lead trustee" management system. Matsumoto has argued that the system -- which places individual trustees as heads of various subject matters such as investments and educational programs -- may violate the will of Princess Bernice Pauahi Bishop.
"Such gross misinterpretations of the financial condition of the estate raise the question of the ability and experience of the financial professionals assisting the master to property analyze this admittedly complex situation," the estate said. Matsumoto this morning said he is still reviewing the estate's response but was critical of its defensive posture.
"When you step on a tiger's tail, you're bound to make it growl," Matsumoto said.
In its filing this morning, the estate said it plans to comply with several of Matsumoto's recommendations regarding the estate's accounting guidelines. Bishop Estate said it plans to improve financial reporting procedures, and refine and update listings of underperforming investments.
Matsumoto's review, the estate's rebuttal as well as the state attorney general's 20-page response to the master's report, which also was filed today, will be the subject of a probate hearing Friday morning by Circuit Judge Colleen Hirai.
The review of the estate's operations comes as it faces several investigations from state and federal authorities, and has been a subject of much criticism from Kamehameha Schools faculty, alumni as well as community leaders.
State Attorney General Margery Bronster in August opened an investigation into allegations of trustees' mismanagement of the trust, and the Internal Revenue Service is conducting an audit of the trust's finances.
The estate's appointed fact-finder, retired Court Judge Patrick Yim, also is scheduled to file a report Friday. He was chosen by trustees to investigate complaints about the management of Kamehameha Schools.
Senior Federal Judge Samuel P. King, one of the authors of the "Broken Trust" essay that prompted the attorney general's investigation of the estate, said he had not yet seen today's estate response.
He said the bottom line will be whether the trustees agree to implement directives of the court stemming from prior masters' reports.
Toni Lee, president of Na Pua a Ke Ali'i Pauahi, which represents more than 2,000 Kamehameha Schools students and alumni, declined comment this morning.
But, unlike King, she held high expectation for Yim.
"I have all the faith in him, I really do," Lee said, saying she expects the report to be thorough. "We're just sitting (waiting) with bated breath."
Even within Bishop Estate's boardroom, the reaction to Matsumoto's report was split. Trustee Oswald Stender supported Matsumoto's findings, saying the lead trustee system was full of pitfalls and needed a better accounting system.
Peters, however, faulted the report for its conclusions on the estate's finances, saying it "fell short of the mark."
In a related matter, Trustee Lokelani Lindsey responded yesterday to a petition for court instructions filed last month by trustees Stender and Gerard Jervis.
Stender and Jervis charged that the estate's three other trustees and estate attorney William McCorriston have hoarded information and kept them from boardroom decisions.
Lindsey said she supports the right of trustees to have relevant information on estate matters. But her attorney William Harrison said they believe the will of Princess Bernice Pauahi Bishop allows for majority voting on some issues.
by estate is nothing new
Bishop's flouting of the law isBy Gregg K. Kakesako
'longstanding and ongoing,' she says
STATE Attorney General Margery Bronster says that many of the 21 recommendations made by a court-appointed master hired to review the finances of Bishop Estate "demonstrate a longstanding and ongoing disobedience" of the law by the estate.
In the 20-page response to last month's report by court-appointed master Colbert Matsumoto, Bronster and Deputy Attorney General Kevin Wakayama today asked that "all reports, plans, schedules, listings and other information" given to Matsumoto by Bishop Estate in response to his 21 recommendations also be delivered to the attorney general.
Bronster also said that Probate Court, which will hold a Friday hearing on Matsumoto's report and the responses by the estate and her office, can withhold compensation to the trustees if they breach the will of Princess Pauahi Bishop.
The five trustees last year earned $900,000 apiece.
Bronster, in her filing today, said the Bishop Estate trustees:
Failed to publish an annual statement of personal, real and other property owned at the end of the fiscal year. The inventory filed Nov. 10 is deficient because it does not reflect current fair market values.
Omitted the $5.6 million lease rent transaction involving the Kahala Hilton and other real estate transactions.
Failed to make a full and complete report of all receipts and expenditures.
Filed a deficient federal tax return, which neglected among other things to disclose that Bishop Estate resources were used to improve trustee Lokelani Lindsey's beach home or the value of the improvement as additional compensation to Lindsey.
Failed to report on the conditions at Kamehameha Schools given the trustees' petition to appoint retired Circuit Judge Patrick Yim to investigate the problems at the Kapalama Heights campus.
Failed to provide written methodology for computations of trustee salaries.
"In short there is no way that the master or the attorney general can determine whether the commissions are correctly computed or whether the trustees should be surcharged for overpayment of commissions," Bronster's report states.
Bronster also said the trustees seem unwilling to vouch for the activities and transactions between July 1, 1993, through June 30, 1994, covered in the master's report. She said such action could subject the trustees to a contempt-of-court citation and removal from office.
In her recommendations, Bronster said the trustees must:
Compile a list of investments and complete the strategic planning process previously ordered.
Cease the practice of lead trustee because there is "inadequate control and supervision over what individual trustees are doing in their own fiefdom."
Cease co-investments because individual interests may conflict with the trust.
Show how commissions are calculated.
Board awaits Yim reportBy Gregg K. Kakesako
on lead trustee system
THE Bishop Estate today says it will wait for the report by court-appointed fact-finder Patrick Yim before deciding whether to abolish the informal practice of designating a "lead trustee" to handle specific areas of estate business.
Last month Colbert Matsumoto filed a critical 120-page master's report in which he recommended the estate's five trustees discontinue the practice and said they "should ensure that the board system of administration along with the formally established hierarchical system of management, through the hiring of properly selected and supervised agents, be kept intact and uncircumvented."
But in today's 90-page response to Matsumoto's report, Bishop Estate attorney Robert Bruce Graham said: "The so-called 'lead trustee' system was embarked upon in good faith for the purpose of capitalizing upon each individual trustee's interests and specialized experiences, while maintaining a collective decision-making process within the Board of Trustees."
The system is one of several trust management models suggested by Ernst & Young, professional management consultants.
Graham said Matsumoto presented no evidence that any unauthorized division of the trusteeship or sweeping delegation has occurred.
He said both the 113-year-old will of Princess Pauahi Bishop and trust law allow the trustees to chose how the estate will be managed.
"They await the report of the fact-finder and may make organizational changes based upon it," Graham said.
Retired Circuit Judge Yim was chosen by the trustees and appointed by the court to investigate complaints of the board's mismanagement of Kamehameha Schools, the estate's major beneficiary. Yim is scheduled to file his report on Friday.
But Senior Federal Judge Samuel P. King, an author of the "Broken Trust" essay that prompted the attorney general's investigation into the estate, reacted skeptically today.
"Hell, that's their own relative," King said, referring to Yim's family relation to trustee Henry Peters. "Who in the hell are they kidding?"
The "lead trustee" system placed Lokelani Lindsey in charge of educational programs, Peters as head of asset management, Richard Wong the trustee for government affairs, and Gerard Jervis as head of legal affairs.
"Trustee Oswald Stender, apparently, did not have a portfolio of responsibility," Matsumoto wrote in his report, of the 1994 status of the informal system.
Matsumoto said this delegation of authority lacked appropriate safeguards.
At worst, he said, the system is an unauthorized division of the trusteeship that may violate the will of Princess Bernice Pauahi Bishop.
The master's recommendation was supported by Stender, who agreed the lead trustee system was fraught with pitfalls.
In the past, Stender has supported a single-voice management system in which an organization is headed by a chief executive officer who manages its daily operations and a board of directors that sets the organization's policies.
The system of lead trustees has been attacked especially by Bishop Estate critics, including five prominent educators, who say they are appalled by developments at Kamehameha Schools since Lindsey was appointed lead trustee for education.
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