Friday, September 11, 1998

"I believe certain trustees received
kickbacks worth hundreds of
thousands of dollars."

--Margery Bronster

'Sweetheart deals' made with cronies

The trustees deny the state's
allegations and blame the Cayetano
administration for exploiting
the controversy

Attorney General's Petition for Removal
By Rick Daysog


Raising the possibility of criminal charges, Attorney General Margery Bronster says Bishop Estate trustees received kickbacks, participated in illegal political campaign contributions and mismanaged Kamehameha Schools.

Yesterday, Bronster filed a 58-page petition in probate court targeting the removal of the estate's majority trustees Henry Peters, Richard Wong and Lokelani Lindsey, saying the three trustees enriched themselves at the expense of the trust's beneficiaries.

Bronster alleged that trustees Peters and Wong received kickbacks from a Hawaii Kai land deal involving Wong's brother-in-law, Jeff Stone.

Lindsey, meanwhile, mismanaged Kamehameha Schools and used trust employees to run personal errands and help renovate her Hauula home, the attorney general alleged.

"I believe certain trustees received kickbacks worth hundreds of thousands of dollars from relatives via elaborate real estate transactions," Bronster said in a letter to Gov. Ben Cayetano, who ordered the investigation more than a year ago.

"Trustees have hired friends, relatives and political allies who have given little or no service to the trust and trustees have also routinely made sweetheart deals with this same assortment of relatives, cronies and other hangers on."

Bishop Estate attorney William McCorriston denied that any breaches of trust have occurred, saying trustees and their individual attorneys look forward to answering the charges in a court of law.

"They are looking forward to having this resolved by judicial resolution in a court of law -- hopefully by a judge who won't be influenced by the electronic lynching by the media or be persuaded by anything except the evidence that will be presented," McCorriston said.

Yesterday's removal petitions also sought surcharges against Peters, Wong and Lindsey, saying the majority trustees offered jobs to friends and relatives. The jobs paid high salaries but offered little services to the estate.

Some of the hirings forced the estate to create unbudgeted positions to accommodate the new hires, the state said. They included:

bullet Local attorney and Peters' friend, Al Jeremiah Jr., was paid $35,000 to conduct menial and clerical labor in helping to inventory the Baker/Van Dyke collection of Hawaiiana, the state said.

bullet Office of Hawaiian Affairs trustee and Peters' associate, Clayton Hee, was hired by the estate's Royal Hawaiian Shopping Center Inc. subsidiary as a cultural affairs researcher, according to the state.

bullet State Rep. Terrance Tom, a former colleague of Peters' in the Legislature, has been paid a monthly retainer of $4,000 for negligible legal services, the state said. Tom has denied wrongdoing in the past.

bullet A company headed by Big Island businessman Larry Mehau is being paid $40,000 a month to provide security services at Kamehameha School's main gate. Mehau is a friend of Wong and Lindsey.

bullet Peters' former employer, Dura Constructors Inc., received more than $2.7 million in nonbid construction work from the Bishop Estate starting in 1995. Dura renovated Peters' home in Maili.

Renee Yuen, attorney for Peters, denied any wrongdoing by her client, saying the Cayetano administration is exploiting the controversy to boost the governor's "sagging popularity" and deflect attention from the weak economy.

"In the future, this dismantling of the Bishop Estate will be seen as the ultimate robbery of the native people directed by non-Hawaiians," she said.

Bronster, meanwhile, denied that politics is playing a role in her investigation, saying the timing of yesterday's petition is due in large part to delays caused by trustees.

A hearing on the permanent removal petition is scheduled for Oct. 23.

The removal requests come more than a year after the state launched its investigation into allegations of financial mismanagement, breaches of fiduciary duties and manipulations of the student admission process at the estate-run Kamehameha Schools.


Key Figures Named in
the Attorney General’s Petition


Bullet Joseph M. Souki
66, of Wailuku is a Democrat, the current speaker of the state House. The owner of a real estate company, Souki this summer was questioned by the state attorney general over a Maui land deal involving Bishop Estate that earned him a $132,000 commission. Souki denied any wrongdoing and said it a was a private real estate transaction. He is up for re-election this year, and has reported a $110,000 campaign war chest.

Bullet Robert N. Herkes
67, is a Democratic state representative from Kau-Puna, Big Island. The hotel industry executive first ran for public office as a Republican, winning a Hawaii County Council seat in 1983. Four years later, then-Gov. John Waihee appointed him to a Senate seat. The attorney general names Herkes as one of the politicians benefiting from trustees' actions aimed at "preserving excessive compensation. In this Legislature, he opposed legislation to cap trustees' pay.

Bullet Clayton Hee
45, is a trustee and former chairman of the Office of Hawaiian Affairs. A Hawaiian culture college instructor, Hee, of Molokai, entered the state House in 1983. He later became a state senator -- where he became good friends with then-Sen. Ben Cayetano -- and served as Senate Judiciary chairman until 1988, when he lost his re-election bid. The attorney general says Hee was among politicians benefiting from trustees' actions aimed at "preserving excessive compensation."

Bullet Joseph S. Tanaka
56, is a Democratic state representative from Wailuku. Along with Souki, Tanaka was subpoenaed by the attorney general as part of the inquiry into the Maui land deal involving Bishop Estate. Tanaka earned a $42,000 commission from developer Everett Dowling last year, but said his consulting work did not involve the estate. Instead, Tanaka said he introduced Dowling to Sports Shinko Inc., which originally owned the Maui property.

Bullet Terrance Tom
50, has been a state representative since 1982. He now is running for the state Senate seat for Kahuku-Kaneohe. Tom, who has been blind since birth, has come under fire as chairman of the House Judiciary Committee for his stand on several issues, including same-sex marriage. As a lawyer who gets a retainer of $4,000 a month from Bishop Estate, he was criticized this past session for voting on legislation to cap trustees' pay. He voted against the caps.

Bullet Yukio Takemoto
59, is a former state budget director who resigned in late 1993 to become Bishop Estate's chief executive for budget and review. He made $163,010 in 1997. As state budget director under Gov. John Waihee, he came under scrutiny from a state Senate special investigative committee for his government purchase practices and investment decisions of the state pension fund.

Bullet Marshall Ige
44, is a state senator representing the Kaneohe-Enchanted Lake district. Ige, a former elementary school teacher, first ran for the state House in 1978 and served until 1994, when he narrowly lost a bid for the state Senate. He was elected to the Senate two years later. The Damien High School graduate received his education degree from the University of Hawaii. He currently serves as co-chairman of the Senate Government Operations and Housing Committee.

Bullet Milton Holt
45, is a former state senator and current administrative officer for Bishop Estate. In a story earlier this year based on records the estate submitted to the Internal Revenue Service, Holt reported he entertained state legislators at the estate's expense at local restaurants and hostess bars, although several lawmakers denied the meetings took place. From 1992 to 1997, more than $23,000 was charged on the estate's credit cards from Las Vegas casinos and local hostess bars.

Charges of personal benefit,
helping pals


from Bronster's petition


Here are some accusations lodged by the state attorney general's office against Bishop Estate trustees:

Enriching themselves

Trustees Henry Peters, Richard Wong, and Lokelani Lindsey have enriched themselves from the trust at the expense of the beneficiaries:

bullet Inflated prices (on apartments at 1015 Wilder Ave.) were paid to Peters and Wong as a quid pro quo for conferring financial benefits on Wong's brother-in-law Jeffrey Stone.

bullet The trust wired $500,000 to KDP-Technologies on July 2, 1997.

This investment was made without adequate due diligence and in disregard of an internal staff report. KDP-Tech was managed by principals with no proven business track records, was a highly speculative start up company, and the soft-porn nature of the investment was not suitable for a charitable educational trust.

Within a week of the trust's initial investment of $500,000, KDP-Tech began negotiating a consulting agreement with Wong's brother-in-law Randy Stone.

KDP-Trust (KDP Ltd., a subsidiary of Royal Hawaiian Shopping Center) continued to advance trust money to KDP-Tech until its treasurer, Lindsey's acquaintance, was indicted for federal mail fraud and money laundering crimes (for which he was subsequently convicted and sentenced).

bullet While a director of Mid Ocean, Peters received substantial director's fees and received options to acquire 6,000 shares of Mid Ocean stock.

The Mid Ocean fees and stock options are assets that belong to the trust and not to Peters individually.

Peters has enriched himself at the expense of the beneficiaries by retaining the fees and stock options for his personal benefit.

Helping friends

bullet Peters and Wong concealed from the other trustees Holt's personal charges on the trust credit card and rejected suggestions to confiscate the card.

bullet Peters was instrumental in the trust entering into a consulting services contract with (friend Al) Jeremiah Jr., initially at $5,000 per month and then at $7,000 per month, without regard to whether any work was performed, with an additional $125 for each hour worked in excess of 40 hours per month.

bullet Peters was instrumental in the trust, by its subsidiary Royal Hawaiian Shopping Center (RHSC), hiring (friend) Clayton Hee as a cultural affairs researcher with negligible duties.

bullet Terrance Tom served with Peters in the Hawaii Legislature, and was hired by the trust at a monthly legal retainer of approximately $4,000 for providing negligible, if any, legal services to the trust.

bullet Peters directed RHSC to hire his cousin, Mona Ryan, as a property manager. Peters directed RHSC to hire a number of his other friends or relatives. "The trust created unbudgeted positions to accommodate these hirings."

bullet Lindsey directed RHSC to hire her grandson, Hoku Haiku.

bullet Larry Mehau, a principal shareholder of Hawaii Protective Association (HPA), is a friend of Wong and Lindsey.

In July 1996, the trustees hired the Hawaii Protective Association to provide additional security personnel at the Kamehameha Schools. There was no operational necessity to hire any outside security contractor.

It is more expensive for the trust to use HPA than to use Kamehameha Schools personnel to provide the same security services. It is more expensive for the trust to use HPA than other outside security services, because HPA charges above market rates.

The trustees did not solicit competitive bids for HPA's security services. There is no written contract with HPA.

bullet Peters is a former employee of Dura Constructors Inc. ("Dura"). Dura renovated Peters' Maile residence.

Beginning in 1995, the trust awarded construction contracts to Dura without competitive bidding and in amounts totaling more than $2.7 million.

Dura received $465,000 for work on the athletic locker room at the Kamehameha Schools. The work was so deficient that the building was unsafe for student use. The trust corrected Dura's work itself rather than pursue Dura for the deficiencies.

bullet Rhino Roofing also worked on Peters' Maili home renovation. Peters' nephew is the owner of Rhino Roofing.

Beginning in 1995, the trust awarded construction contracts under which Rhino Roofing received more than $1.3 million, customarily without competitive bidding or as the hand-picked roofing subcontractor.

bullet In 1993, the Lindseys obtained a permit from the Building Department of the City and County of Honolulu ("Building Department") to renovate the house on the property (53-823 Kamehameha Highway). The renovations uncovered structural damage that necessitated additional work beyond the scope of the existing building permit.

Lindsey went forward with the expanded renovation and was cited by the Building Department for violating the existing building permit.

Lindsey obtained a private proposal for $12,000 to obtain the necessary governmental approvals for the expanded renovation to proceed.

Rather than spend $12,000 of her own money, Lindsey used trust employees to obtain a shoreline certification from the State of Hawaii Department of Land and Natural Resources, and to obtain a zoning variance from the City and County of Honolulu.

Personal benefit

The trustees have used trust employees, equipment, supplies and resources for their personal benefit. For example:

bullet Lindsey has used trust employees to run personal errands for herself and her family members and to install a computer in her Maui and Oahu residences;

bullet During his 1986, 1988, 1990, and 1992 political campaigns while a trustee, Peters used trust employees to photograph him and his supporters for his campaign materials, in violation of trust restrictions on political activity by the trust and its employees.

Bishop Estate Archive

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