Thursday, September 17, 1998

IRS audit puts
added pressure
on estate

The audit, close to being
completed, focuses on possible
violations of federal tax laws
by trustees and estate personnel

Lokelani Lindsey will testify Sept. 30

By Rick Daysog


The Internal Revenue Service is close to wrapping up its audit of the Bishop Estate, adding new pressures to the estate's trustees.

Just as trustees were preparing to address two separate grand jury investigations in state and federal courts here, IRS agents met last week in Seattle to discuss their audit of the multibillion-dollar trust's operations, sources familiar with the IRS examination said.

The audit, which covers the estate's 1994-1996 fiscal years, is not a criminal investigation. It focuses on possible violations of federal tax laws by trustees and key Bishop Estate personnel.

The outcome of the audit is not yet known, but it could result in penalties against individual trustees. The IRS also could force trustees to pay the estate for any benefits that may have been excessive.

The estate's status as a nonprofit charitable organization won't likely be affected by the IRS exam.

Shawn George, spokeswoman for the IRS in Seattle, would not confirm or deny the audit. An estate spokesman had no immediate comment.

Many believe that the IRS has placed a high priority on its audit of the Bishop Estate, given the estate's size and trustees' political clout in Hawaii.

The Bishop Estate inquiry, which began in 1996, is being conducted by local agents as well as auditors and attorneys from the IRS' Denver and Seattle offices.

At one time, IRS agents occupied an office in the Bishop Estate's Kawaiahao Plaza headquarters.

"This is one that they could not not audit," said Daniel Kurtz, the former top regulator for charities in New York City and author of a book on nonprofit organizations entitled "Board Liability."

"This is a matter that's scandalous, high-profile and also potentially lucrative for the (U.S.) Treasury."

Sources say the IRS has been investigating trustees' more-than-$800,000-a-year compensation, allegations of conflicts of interests and the arms-length relationship between the nonprofit estate and its multimillion-dollar for-profit subsidiaries.

The IRS wants to know if trustees and employees benefited at the expense of the trust.

During the past two years, IRS auditors have flooded the estate with numerous inquiries about estate transactions and events.

The inquiries, known as information document requests, ask for very specific descriptions on matters ranging from multimillion-dollar deals to mundane expenses like air fares, car rentals and hotel accommodations paid by the estate for trustees and trust employees.

They also seek information about estate-paid executive perks such as country club memberships and frequent-flier programs.

Sources say the Bishop Estate received about 500 information document requests from the IRS. The IRS has asked trustees why they received free, honorary memberships to the Waialae Country Club and the Mid-Pacific Country Club, which sit on leasehold land owned by the Bishop Estate. Lifetime memberships to the exclusive Waialae and Mid-Pacific clubs are valued at $44,000 and $36,000, respectively.

Three of the trustees -- Richard Wong, Lokelani Lindsey and Gerard Jervis -- said they don't use the club facilities. Stender turned down the honorary memberships. Trustee Henry Peters has been an active member.

The IRS also has examined personal credit card expenditures by Bishop Estate trustees and key employees.

In a well-publicized case, former state Sen. Milton Holt charged about $21,000 on Bishop Estate Visa cards at local strip clubs and Las Vegas casinos. Holt also spent in excess of $2,500 on estate cards at local hostess bars and restaurants while entertaining prominent isle politicians.

Holt said he has since repaid the trust.

Bishop Estate trustee Henry Peters' credit card expenditures also have been a subject of an IRS inquiry. But the estate said that Peters' charges, on cards issued by one of the estate's for-profit subsidiaries, were business-related and have never exceeded $1,000.

The IRS investigation comes as Bishop Estate trustees are under intense legal pressure by state and federal investigators. Bronster last week filed court papers seeking the removal of at least three Bishop Estate trustees. A state judge, at Bronster's request, convened an investigative grand jury into the Bishop Estate affair. And a federal grand jury is looking into possible illegal campaign contributions to Holt and state Sen. Marshall Ige by estate-related businesses.

Lindsey will testify
to grand jury on Sept. 30

By Rod Ohira


Bishop Estate trustee Lokelani Lindsey has been ordered to testify Sept. 30 before an investigative grand jury, her attorney said.

"It's my belief that Lokelani Lindsey is not a target of any grand jury investigation," said attorney Michael Green, who yesterday received the subpoena served on his client.

Lindsey declined comment when asked about the subpoena.

Two people, including a Kamehameha Schools Bishop Estate land department employee identified as Paul Carthcart, testified yesterday before the grand jury, convened at the request of Attorney General Margery Bronster.

Carthcart, accompanied by his attorney, Howard Luke, testified for about 90 minutes. "He was called to testify, he did testify and he answered all questions honestly," Luke said, referring to his client.

The other person who testified was an attorney.

Bronster has been investigating allegations of mismanagement and financial wrongdoing by estate trustees for more than a year, and she recently hinted that trustees may have conducted criminal acts.

Deputy Attorney General Larry Goya had no comment about the grand jury session.

Last week, Bronster petitioned the state Probate Court to remove at least three trustees -- Richard Wong, Henry Peters and Lindsey -- citing a pattern of mismanagement, self-dealing, cronyism and campaign finance abuses.

Bronster alleged that Wong and Peters received kickbacks from Wong's brother-in-law, Jeffrey Stone, while Lindsey mismanaged the estate-run Kamehameha Schools and used estate staff to help her renovate her Punaluu home.

The investigation is also looking into the alleged hiring of friends and relatives for jobs by trustees and a scheme in which $49,300 in campaign contributions were paid to Sen. Marshall Ige and former state Sen. Milton Holt, Bronster said.

Wong, Peters and Lindsey said they would challenge Bronster's charges in Probate Court, calling them politically motivated.

Bishop Estate Archive


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