Tuesday, October 12, 1999

Bishop eyed move to Dakota

For tax reasons, a remote
Sioux reservation in South
Dakota was studied

Critics call it an apparent attempt
to circumvent state and
federal oversight

Lindsey faces more IRS trouble

By Rick Daysog


The remote, South Dakota prairies of the Cheyenne River Sioux Reservation might be the least likely place that Hawaii's largest private landowner would call home.

But in 1995, lawyers for the ousted trustees of the Bishop Estate zeroed in on this impoverished, 2.8 million-acre reservation as a potential corporate base for the $6 billion charitable trust, sources close to the estate said.

In an apparent attempt to circumvent state and federal oversight, the Bishop Estate paid Washington D.C.-based Verner Liipfert Bernhard McPherson and Hand more than $200,000 to look into moving the estate's legal domicile, or corporate address, to the mainland, sources said.

Art Verner Liipfert, whose local office is headed by former Gov. John Waihee, identified the Cheyenne River Sioux Reservation as the top relocation prospect after reviewing the legislative, tax and judicial environments of 48 mainland states and Alaska.

The study was part of a broader effort by the former board members to lobby against federal legislation limiting trustee compensation and to convert the tax-exempt Bishop Estate to a for-profit corporation.

While the former trustees said the idea of moving the 115-year-old trust from Hawaii never got off the drawing board, critics charged that the ex-board members' consideration of such a plan shows that they were more concerned about their own personal interests than those of the trust.

"It's another indication of how arrogant, greedy and insensitive this whole bunch is," said senior U.S. District Judge Samuel King, a co-author of the 1997 "Broken Trust" article that called for major reforms of the Bishop Estate and the trust-run Kamehameha Schools.

"Their claim that they are supporting Princess Pauahi's will is laughable."

Details of the estate's relocation efforts will be brought up during the Dec. 13 trial over the permanent removal of former trustees Henry Peters, Richard "Dickie" Wong and Lokelani Lindsey.

A court-appointed interim board of trustees -- retired Adm. Robert Kihune, former Honolulu Police Chief Francis Keala, American Savings Bank executive Constance Lau, local attorney Ronald Libkuman and retired Iolani School headmaster David Coon -- sued for the permanent removal of the trustees after the Internal Revenue Service threatened to revoke the estate's tax-exempt status.

The temporary board believes that the former trustees tried to preserve their $1 million-a-year salaries at the expense of the trust by ordering their outside lawyers to look into changing the estate's Hawaii domicile and dropping its tax-exempt status.

The interim trustees also have alleged that the former board members jeopardized the estate's tax-exempt status and have placed more than $750 million in trust assets at risk by not resigning voluntarily.

Former trustee Peters denied wrongdoing, saying board members have a fiduciary duty to explore the relocation of the trust if it comes under attack by the IRS and the attorney general's office.

But Peters said he could not recall a recent board discussion about moving the trust's domicile and could not remember a 1995 Verner Liipfert study that identified the South Dakota Sioux reservation as a possible domicile for the Bishop Estate.

"I consider it a duty for the trustees to explore all possible options when it comes to protecting Pauahi's will," said Peters, who noted that past trustees considered relocating to the mainland prior to 1984 when he was named to the board.

"People have to understand that the sacred cow in all of this is Pauahi's will. It's not the money, it's not Henry Peters and it's not the tax exemption."

A Verner Liipfert spokesman had no response. Waihee, a Verner Liipfert partner since 1994, also declined comment, citing the pending litigation.

Sources say the Verner Liipfert firm eventually recommended against moving the trust to the South Dakota reservation but only after conducting an extensive study of the Sioux tribe.

At one point, Verner Liipfert sent a letter to the Cheyenne River Sioux tribe's attorney, Steven Emery, asking about the tax and legal ramification of relocating an unnamed client to the South Dakota reservation, sources said.

Emery, who apparently did not respond to the letter, could not be reached for comment.

Gregg Bourland, chairman of the Cheyenne River Sioux tribal council, said he is unaware of any contact between the Bishop Estate and his tribe. But Bourland said there is good reason for an entity like the Bishop Estate to make inquiries about changing its domicile to the South Dakota reservation.

The reservation sits on land about the size of the state of Connecticut and the 12,000-member Cheyenne River Sioux are considered to be among the more progressive tribes when it comes to sovereignty rights.

Since the 1800s, the Cheyenne River Sioux have had a government-to-government relationship with the United States which allows them to operate their own police force, court system and legislative functions.

Such a system may shield the trust from Hawaii Probate Court jurisdiction, although Bourland was unsure if the IRS would continue to oversee the trust.

Bourland added that the tribe, whose unemployment rate is about 60 percent, is attempting to legalize gambling and has plans to build a large-scale casino resort near one of its lakes.

Both the IRS and the attorney general's office have raised serious concerns about a possible domicile change.

Marcus Owens, head of the IRS's exempt organizations division, warned that it would seek to revoke the estates' tax-exempt status if trustees were to transfer its assets outside of the federal agency's jurisdiction.

Former Attorney General Margery Bronster also went to court in an unsuccessful attempt to block a recent reorganization of the trust. She believed that plan would place as much as $1 billion of estate assets, including its holdings in Goldman Sachs Group L.P., in a nonprofit corporation outside of the control of the state Probate Court and the IRS.

"Unfortunately these are the kind of over-the-top things that the trustees and their consultants were doing," Bronster said.

"They were into empire building instead of working for the education of Hawaiian children."

Ex-trustee Lindsey faces
more problems with IRS

By Rick Daysog


Lokelani Lindsey, who was permanently removed as a $1 million-a-year Bishop Estate trustee in May, is facing new problems with the Internal Revenue Service.

The IRS on Sept. 27 placed a new lien on all Hawaii properties owned by the former trustee and her husband Stephen Lindsey, for failing to pay $189,547.28 in back taxes and interest for 1998.

That lien is on top of a previous IRS lien for the Lindsey's failure to pay $230,003 in taxes and interest for 1997.

James Duca, Lindsey's tax attorney, said his clients' tax problems are due in part to payments she made to support many of her relatives. She also incurred huge attorneys fees defending herself from various legal actions arising from the Bishop Estate controversy.

Duca said Lindsey plans to pay the taxes and is pursuing a claim against the estate's insurance carrier to pick up some of her legal costs.

She also in the process of selling her Niu Valley residence, Duca said.

According to state land records, the Lindseys acquired their Niu Valley home in 1994 for $1.25 million. They also own a Maui property for which they paid $60,000 in 1984.

Duca said that Lindsey is in the process of appealing Circuit Judge Eden Elizabeth Hifo's May 6 order permanently removing her as a Bishop Estate trustee. The judge, formerly known as Bambi Weil, found that Lindsey breached her fiduciary duties and mismanaged the estate-run Kamehameha Schools after a five-month trial.

The IRS tax liens are unrelated to a separate IRS investigation into excessive compensation and private inurement by the former Bishop Estate trustees. Sources believe that the IRS could recommend additional penalties for Lindsey and other former board members.

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