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Settlement ends Putting an end to three years of costly litigation, the attorney general's office has agreed to accept $20.1 million to settle its suit to surcharge the former trustees of the Kamehameha Schools.
‘painful chapter’
for trust
Kamehameha Schools can
refocus on its mission of
educating beneficiaries of the
trust, the attorney general saysBy Rick Daysog
Star-BulletinIn court papers filed in state probate court yesterday, the attorney general's office said about $14 million of the settlement will be earmarked for the Kamehameha Schools to cover mismanagement claims against former trustees Henry Peters, Richard "Dickie" Wong, Lokelani Lindsey, Oswald Stender and Gerard Jervis.
The attorney general's office will receive $1.3 million to cover its litigation costs. The former trustees will not have to pay any out-of-pocket expenses since all of the payments will be covered by the trust's $25 million insurance policy with Federal Insurance Co.
"The settlement brings to end a painful chapter in the history of the trust," Attorney General Earl Anzai said. "It will permit the trustees, the staff, the faculty and students of the Kamehameha Schools to return their undivided attention to the primary purpose of the trust, which is the education of the beneficiaries."
The deal requires approval from the probate court, which has scheduled a Sept. 29 hearing. The Internal Revenue Service, which took part in the settlement talks to resolve related issues raised by its own investigation of the $6 billion trust, also needs to approve the deal.
The settlement was initially struck last Friday, canceling a one-year trial that was scheduled to begin on Monday. However, the terms of the deal were not made public until yesterday's filing.
Anzai said the state agreed to settle its claims because a trial would have exhausted the trust's insurance policy and would have been costly for taxpayers. Even if the state won its complicated case, there would be no guarantee that the trust would be able to collect more than the settlement amount, he added. In its 12-count surcharge suit, the state has alleged that the former trustees took excessive compensation, mismanaged the estate's educational programs and incurred more than $200 million in investment losses during their tenures.
Anzai's remarks came at a joint news conference held with the estate's interim trustees Ronald Libkuman and Robert Kihune. While some may criticize the settlement agreement as lenient for the former trustees, Kihune said, the deal was the best deal available.
The state could surcharge the former trustees personally only after the case went to trial and only after the insurance policy was depleted.
According to Libkuman, one of the conditions of the settlement calls for the resolution of the IRS's personal claims against the former trustees. He said that the trust is discussing the issue with the IRS and that he's optimistic that an agreement can be worked out.
The settlement culminates a string of reforms of the 116-year-old trust, whose mission is to educate native Hawaiians. Since the state began its investigation into the trust and its former trustees in August 1997, the estate has adopted a new governance structure, agreed to vastly expand its educational programs and implemented a more stable investment policy.
Additional reforms include a reasonable pay scale for trustees, a new trustee selection process and the preservation of the estate's tax-exempt status.
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