He says the trustees withheld about
$350 million in income from
Kamehameha Schools and urges the
probate court to bill the trustees for
misspending funds on three
costly ventures

By Rick Daysog
Star-Bulletin

In a blistering counterpoint, Bishop Estate's court-appointed master blasted the trustees of the multibillion dollar trust for withholding hundreds of millions of dollars of income that should have been spent on the estate-run Kamehameha Schools.

Special master Colbert Matsumoto also urged the probate court to charge trustees for misspending estate funds on three costly ventures: the 1994 purchase of 30,500 acres in Hamakua, a study by an outside consultant justifying trustees' hefty compensation and lobbying efforts against federal legislation limiting trustees' pay.

Matsumoto's comments were part of a supplement to his critical review of the estate's finances for the 1994-1996 fiscal years.

The supplement -- along with responses by Bishop Estate and Attorney General Margery Bronster, who is seeking the trustees' ouster -- were filed in probate court yesterday.

A hearing on Matsumoto's review and Bronster's temporary removal petition is scheduled for Friday morning.

The estate, founded in 1884 through the will of Bernice Pauahi Bishop, was established to educate children of native Hawaiian ancestry.

According to Matsumoto, trustees failed to comply with the basic tenets of Bishop's will by withholding some $350 million in income from the estate-run Kamehameha Schools.

Matsumoto said the trustees intentionally tried to conceal the magnitude of the estate's accumulated income, which could grow as much as $1.5 billion by the year 2006.

"The inability of trustees to comprehend the gravity of their failure to properly account for and expend accumulated income betrays a lack of sensitivity to one of their most fundamental duties as trustees," he said.

The estate has argued that Matsumoto takes the issue of the estate's accumulated income out of proportion, saying the money has not been misappropriated but was separated to comply with Wall Street and bankers' accounting standards.

The trustees also filed an objection to Bronster's petition for removal, saying she offers no evidence justifying such a move.

Matsumoto yesterday said he found it troubling that the trustees minimized the significance of the problem of the schools' funding, calling their explanations "pathetic" and "outrageous."

He also argued that trustees should pay stiff penalties for mismanaging estate assets. The surcharges concern:

The estate's $21 million purchase of sugar lands from the Big Island's Hamakua Sugar Co. Staffers had valued the 30,500-acre parcel at $15 million, but trustees ended up paying $6 million above the price.

A $105,221 report by mainland-based SCA Consulting L.L.C. which justified the trustees' annual compensation of more than $800,000 each. Matsumoto believes the trustees should be charged for the full cost of the SCA report, calling the expense unnecessary.

Attempts to influence federal legislation to cap the pay of trustees of charities. Matsumoto said the trustees must account for any lobbying expense involving the legislation, which represents a conflict between their duties to the estate and their personal interests.

Matsumoto's comments were echoed by Bronster, who renewed calls for the removal of the trustees and urged the probate court to name a temporary receiver to take their place.

Yesterday, she identified two potential candidates who could serve as receiver of the trust until new management is put in place.

The candidates are Harold Williams, a past president of the J. Paul Getty Trust, a former director of Times-Mirror Co. and a former chairman of the Securities and Exchange Commission; and Bevis Longstreth, a professor at Columbia University's law school and a past member of the SEC's board.

Under Bronster's proposal, a receiver would take over the daily operations of the estate on a temporary basis. The receiver also would help appoint a permanent chief executive officer and reorganize the estate's current management.

Bronster also is calling for the trustees' permanent ouster, saying the estate has engaged in illegal campaign financing schemes and that two trustees -- Richard Wong and Henry Peters -- received kickbacks from Wong's brother-in-law.

The trustees said the appointment of a receiver is a drastic move that would hurt the operations of the trust. Such a move would harm the estate's investment portfolio and lower the estate's credit rating, trustees said.

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

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Faculty files another unfair
labor charge against estate

By Debra Barayuga
Star-Bulletin

The Kamehameha Schools Faculty Association today filed another unfair labor practice charge against its employer for stonewalling tactics in collective bargaining negotiations.

This is the second time this month the faculty group has filed a complaint with the National Labor Relations Board.

Officials of Bishop Estate, which is charged with running the schools, could not be immediately reached for comment.

"The employer has engaged in surface bargaining in implementing delaying and evasive negotiation tactics that are designed to frustrate and avoid mutual agreement," the association charged in its filing today.

The association had notified the estate it was prepared to negotiate the collective bargaining agreement on June 17 but was told to produce a draft contract proposal before scheduling the first negotiation session.

The association provided a draft on July 14 but despite attempts to schedule a negotiation session, the employer delayed the first session until Sept. 3 and refused to comment on the draft until that time, says today's complaint.

The draft proposal included among other things, no increases in existing wages and benefits and a one-year term, the same term that Kamehameha Schools teachers have been getting under individual employment contracts.

After three negotiation sessions, the only contract provision accepted by the employer is the contract preamble.

Kamehameha Schools Bishop Estate also has insisted a gag order provision be included in the contract that prohibits faculty from discussing the contract with anyone other than the employer.

The association on Sept. 11 filed three separate charges for what they considered punitive actions taken against faculty.

They charged that the estate continually refused to allow union members to meet on the school campus; eliminated stipends for grade-level chairpersons; and would not drop rules that prohibit faculty from talking about the terms and conditions of their employment with others.

The faculty association also supports state Attorney General Margery Bronster's petition for immediate removal of the trustees.

"KSBE, as managed by the KSBE trustees, has consistently made and continues to make management decisions that serve only to frustrate, discourage, silence and punish the teachers," it said in a brief supporting Bronster's petition. "The institution is bleeding and the bleeding must stop."

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