Bronster: Open up

Attorney General says
trustees uncooperative, failed
to submit finances

By Rick Daysog

Trustees of Kamehameha Schools/Bishop Estate could be removed or docked pay if the estate does not file a complete accounting of its 1993-1994 finances within 30 days, state Attorney General Margery Bronster says.

Responding to court-appointed master Colbert Matsumoto's report last month which was highly critical of trustees' management, Bronster said yesterday that trustees did not cooperate with Matsumoto's review, failed to meet eight of nine court-ordered requirements and failed to certify that their account of the estate's finances is true and correct.

"What's available to the court would be to remove them or withhold their compensation," Bronster said. "There's a whole panoply of remedies available."

Circuit Judge Colleen Hirai has scheduled a hearing for tomorrow on Matsumoto's report and responses by Bronster and the estate.

Bronster said her comments on the master's report should not be construed as a road map to her investigation of Bishop Estate, which centers on allegations of trustees' mismanagement of estate assets.

Bronster declined to say whether her inquiry has found grounds to file sanctions against any trustee or seek his or her removal.

Randall Roth, University of Hawaii law professor and one of the authors of the "Broken Trust" article that criticized trustees' management of the estate, applauded Bronster's remarks, saying trustees have made a mockery of their fiduciary responsibilities.

"These trustees have ignored numerous court orders and their fiduciary duty, not to mention specific provisions of the will," said Roth. "This is a textbook example of how trustees are not supposed to behave."

The estate, meanwhile, has argued that it has not impeded Matsumoto's investigation. It has agreed to comply with some of Matsumoto's 21 recommendations, such as improving its financial reporting procedures and filing updated lists of its underperforming investments.

But the estate balked at other recommendations such as abolishing its lead-trustee management system, which Matsumoto criticized as a potential violation of the will of the estate's founder, Bernice Pauahi Bishop.

Master's accountant blamed

The trust also faulted the master's review as "factually incorrect and grossly misleading," saying it distorts the financial health of the estate.

The estate said that its investment returns have outpaced those of the stock and bond markets since 1980 and that losses during its 1994 fiscal year totaled just $23 million, not $264 million.

For the same 1994 fiscal year, ended June 30 of that year, the value of the estate's investments increased by more than $222 million, it said.

The trust blamed its dispute with Matsumoto on the master's accountant, Steven Sakamaki, saying Sakamaki and his 10-employee accounting firm do not understand the complexity of the estate's finances.

Relying on a "scatter gun approach," Sakamaki conducted some 1,200 hours of work on the master's report and billed $92,296 for work the estate said duplicates much of the efforts of its own tax auditors, Coopers & Lybrand L.L.P.

"Like a blind man approaching an elephant and seizing it by the trunk, he perceived a reptile and overlooked the greater reality of the mammoth he was reviewing," the estate said.

Matsumoto declined comment on the specifics of the estate's charges. But he said he stood by his report, adding that he had full confidence in his accountant's work. Sakamaki declined comment.

Bronster said it was unfair for the estate to criticize the master's report, since some trustees may not have provided enough information to Matsumoto.

She said any trustees that may have hindered the master's review should be charged personally for any delays they caused. Trustees earned about $840,000 in commissions last year.

Fact finder to file tomorrow

Bronster, who represents the trust's beneficiaries, said that if trustees don't provide a full accounting of the estate's finances within 30 days, they should be called into court to show why they should not be found in contempt or be removed as trustees.

"We've shown that in a number of instances the guidelines have not been met and the probate rules have not been met," Bronster said. "Until those things are met, the courts should not accept the accounting."

In a related development, the court-appointed fact finder investigating allegations of mismanagement of the schools, retired Circuit Judge Patrick Yim, said he will file his report tomorrow under seal as required by the July 10 order establishing the fact finder.

Estate manager asked
investor to join gas deal

By Ian Y. Lind

A top Bishop Estate manager asked at least one mainland investment manager to invest personal funds in a 1989 Texas methane gas project already slated for an $80 million investment by the estate itself, contrary to claims made by estate attorneys yesterday.

The side deal -- which ultimately included personal co-investments by four trustees, 14 top estate managers and a handful of other private investors -- was questioned by court-appointed master Colbert M. Matsumoto because of possible conflict-of-interest concerns.

The methane project ran into financial problems leading to large losses and extended litigation with the project operator, Mike McKenzie. At one point, the estate estimated its loss at up to $100 million, but has subsequently recouped much of its investment.

Matsumoto's master's report said trustees "did nothing to deter or institute safeguards specifically relating to the potentially conflicting interests of the employees of the trust estate who had co-invested in the methane gas investments."

When the deal got into financial trouble, trustees and employees who had personal investments in the project continued to participate in estate decisions, including the decision to "infuse substantial additional capital into the investment," the report states.

The trustees' response to Matsumoto promises a more complete report would be produced promptly, and states, "There was no solicitation of investments by any trustee or staff member."

But according to records disclosed in court, Mitchell D. Gilbert, then financial asset manager for the estate, sent a Nov. 15, 1989, letter to Dick Voell at the Rockefeller Group Capital Corp. in New York.

In the letter, Gilbert invited Voell to invest in a series of five partnerships that would hold a small interest in the same gas-drilling deal the estate was backing.

Gilbert said he was writing at the suggestion of then-trustee Matsuo Takabuki, who has continued as an officer in the estate subsidiary that now owns the gas project.

The deal offered "a very low-risk/

high return oil and gas play," Gilbert wrote, along with tax credits "that really make it sing." Gilbert stated Bishop Estate had already invested $32 million in the project, and estimated that would rise to $80 million.

"The trustees have approved the organization of a series of small general partnerships which will co-invest in 2 percent of each phase," the letter said. "The partners will consist of the trustees, senior KS/BE management and respected investment affiliates of KS/BE."

Gilbert signed the letter as managing partner of HAK Partners, but it was faxed from Bishop Estate offices using an estate cover sheet, the records show.

Partnership records show Voell did not ultimately invest in the deal, but at least two other Rockefeller officials invested a total of $225,000.

Investments also were made by trustees Takabuki, Henry Peters, Myron Thompson and William Richardson, with Takabuki and members of his family taking the largest share.

Takabuki's son, Honolulu attorney Glen S. Takabuki, is shown on partnership records as having a total of $50,000 invested in the partnerships.

All 5 trustees should
get the boot, Dawson says

By Ian Y. Lind

Probate Judge Colleen Hirai has no alternative except to remove all five Bishop Estate trustees and replace them immediately with a court-appointed receiver, a leading critic of the estate's management says.

Beadie Dawson, attorney for Na Pua a Ke Ali'i Pauahi, a group of students, parents and alumni of Kamehameha Schools, said the trustees are collectively liable for any violations of their legal duties by individual trustees within their own areas of responsibility. For this reason, all trustees are equally responsible for any abuses.

Dawson's comments came in response to Attorney General Margery Bronster's recommendation to disapprove the estate's 1993-94 annual report for failing to provide full and accurate information about estate operations and not complying with prior court-ordered guidelines.

Bronster's recommendations were filed yesterday morning, along with the estate's responses to last month's critical report by court-appointed master Colbert M. Matsumoto.

Dawson said it's time for drastic action.

"Its long past the time for a slap on the wrist, past the time for contempt of court or other mild actions," she said. "I don't believe there's any other alternative to their removal."

On the basis of information disclosed and investigations under way, Dawson believes there is some possibility that criminal charges against one or more trustees will be filed, while there is no chance that trustees will be completely exonerated.

"This is something trustees need to come to grips with. Continued denial is putting them deeper and deeper in a hole," Dawson said. "We've got to clean house, not just talk about it," she said. "There's too much damage being done as far as the children's education, too much damage to the reputation of the school and the reputation of the estate."

"Despite protestations (by trustees) that everything is fine at Kamehameha, from all the information we have, it is not going well, not with students or faculty," Dawson said.

"This is not the learning climate you want to put your children in. The court must be mindful of this as well as the tremendous amount of estate assets that are being spent on the kind of obstruction and delaying that is going on right now."

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