Funeral firm’s $20M
questioned
The state sues a company to account
for money collected for funeral plans
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The lawsuit, filed in Circuit Court yesterday, states that RightStar Hawaii Management Inc. was supposed to "transfer at least 70 percent" of the money it receives from its several cemeteries operations and funeral services -- including Nuuanu Memorial Park Funeral Plan Trust and Valley of the Temples Items Trust -- and place it in a trust to provide for "prepaid consumer obligations for cemetery and funeral services and merchandise."
However, state officials said RightStar trustees withdrew about $20 million from the trusts in 2002, and as a result of the "inaccuracy of the trust data, it was impossible for the RightStar entities and the RightStar Trustees to determine whether withdrawals were allowable under Hawaii law."
The civil lawsuit was filed jointly by the state attorney general's office and the state Department of Commerce and Consumer Affairs.
"This action is an effort to protect Hawaii consumers who have purchased pre-need funeral plans and other merchandise from RightStar," said DCCA Director Mark Recktenwald.
State Attorney General Mark Bennett said the lawsuit seeks "full and complete disclosure" regarding concerns about how RightStar accounted for trust funds.
"What we are seeking in this legal action is an accounting by RightStar and its trustees to the court of the trust funds it holds on behalf of Hawaii consumers," Bennett said.
The RightStar trustees named in the lawsuit are Waihee, Stephen E. Harris, M. Tyler Pottenger and Reed B. Rohrer.
When contacted about the lawsuit last night, Pottenger referred questions about the case to the group's attorney, Bill McCorriston, who could not be reached for comment.
"We've been working with the AG's office, so we're surprised that we've been named in anything," said Pottenger. "You've kind of caught us flat-footed because we haven't even seen the lawsuit yet."
According to the lawsuit, several withdrawals ranging from $10 million to $490,000 were made from the RightStar trust in 2002. RightStar's own independent auditors, Karns Yee Murakami Hanashiro Choy LLP stated that the withdrawals were made for various reasons, including for old and canceled contracts, and because previous owners used an incorrect method that left "more money than was required in the trusts."
In all cases, state officials stated that "due to the inaccuracy of the records, these withdrawals may not be in conformance with Hawaii law."
In one case, state attorneys allege, RightStar trustees took 72 percent of one particular trust fund -- the 50th State Funeral Plan Trust -- as well "significant portions of its other trust funds," and invested it in a mortgage lending corporation by the name of Vestin Fund II LLC, a Nevada company managed by Vestin Mortgage.
According to the lawsuit, RightStar has outstanding loans owed to Vestin Mortgage from moneys borrowed to purchase cemetery and funeral operations from RightStar's previous owners in 2001.
The lawsuit alleges that "these investments constitute a breach of their fiduciary duty to prudently invest and diversify the funds" and that "the actions of RightStar trustees in removing principal from the RightStar trusts ... demonstrate that they also breached their duties of loyalty and care."
In addition to Valley of the Temples and Nuuanu Memorial, RightStar and its subsidiaries also operate other cemeteries, including Kona Memorial, Homelani Memorial and Maui Memorial.