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Insider purchase
of artwork challenged
Hon Chew Lee's heir wants
the state to look into private
deals by trustees of his estate
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When Hon Chew Hee died in 1993, he was one of Hawaii's most acclaimed artists.
His paintings had been displayed nationally and internationally in such venues as the Library of Congress in Washington, D.C., the National Academy of Design in New York City and Galerie Ariel in Paris.
Hon Chew Hee: The painter, one of the most highly acclaimed Hawaii artists, died in 1993
In 1985, an Italian academy honored Hee as a one of the world's most significant contemporary artists.
Today, Hee's legacy is tainted by controversy.
His adult daughter has raised questions about the foundation that was established following Hee's death to preserve and show his work and to fund art scholarships. The daughter claims the foundation's volunteer directors, in deals that were privately arranged in 1998 to 2000, sold hundreds of his paintings and prints to a New York man for as little as 4 percent of their value.
Caroline Hee also said several directors purchased some of her father's best pieces, again at a fraction of their value, in private deals in 1998 and 1999.
The latter transactions raise questions about whether the directors violated Internal Revenue Service rules prohibiting self-dealing at private foundations.
An IRS spokeswoman declined comment.
A lawyer who once represented the foundation said the Hee art was sold for fair market value. The foundation based that assessment on an appraisal done for Hee's estate in 1993, five to seven years before the pieces were sold in the private deals.
Attorney Frank Kanemitsu, who handled Hee's probate and once represented the foundation, said the state Attorney General's Office had looked into the daughter's concerns and decided against pursuing formal action. A spokesman confirmed that, saying there wasn't evidence to prove that the directors' conduct was grossly negligent -- a relatively high legal standard that must be met in cases involving uncompensated directors.
Instead of quelling the controversy, the Attorney General's decision has stoked it.
Ronald Amemiya, an attorney for Caroline Hee, said he shared with legislative leaders his concerns about the way the Attorney General's Office had handled the Hee case and another one in which he was involved.
A resolution subsequently was introduced calling for an audit of the attorney general's actions relating to investigations of Hawaii nonprofit corporations. The resolution is pending.
At the heart of the Hee case is what his work was worth when the foundation sold it, and how the directors, as insiders, were able to purchase pieces in apparent violation of IRS regulations.
Caroline Hee said she didn't learn of the transactions until 2001, when she took possession of her father's Kaneohe home, which she inherited, and discovered foundation records there. As she reviewed the paperwork, she learned that some directors and the New York man had purchased her father's art at what she believed to be hugely discounted prices.
The transactions, Hee said, insulted her father's legacy. "I was just devastated when I found out. All I would do was cry and cry and cry."
She subsequently hired art appraiser Don Severson to appraise the 700-plus pieces that the foundation sold to New York collector David Liu, and the most valuable of the nearly 30 pieces purchased by directors of the Hon Chew Hee Estate Foundation.
Relying on photos of the works, Severson, already familiar with Hee's work, pegged the market value of the oil paintings from $2,500 to $5,000 each, the watercolors from $250 to $2,500 and the serigraphs from $250 to $2,000, according to his October 2002 appraisal.
Based on those figures, the foundation should have received $399,500 on the low end, and $1.9 million on the high end for the 743 pieces purchased by the New York man, Amemiya said.
What the foundation actually received: $76,252.
"Whoever bought them got a huge bargain," said Severson, who noted that his appraisals were conservative because he saw only photographs, not the actual pieces.
Another indicator of true value, Amemiya said, was that Liu paid $75 each for certain serigraphs, while identical ones were sold at a public showing in 2003 for $1,550 to $2,850 each.
Liu's son, reached at their New York home, said his father was on vacation last week and wasn't available for comment.
The private deals with the directors raise even more questions.
IRS rules generally prohibit directors from purchasing from, or selling goods to, the private foundations they oversee -- a practice considered self-dealing -- even if the transactions are for fair market value, according to experts in the field.
"It's a flat prohibition, with only the most narrow of exceptions," said Betsy Buchalter Adler, a California attorney who specializes in laws dealing with nonprofit organizations.
The disparity between what the directors paid for Hee's work and what Severson appraised it for was likewise significant, according to Amemiya, who said the works should be returned to the foundation.
Carol Ann Fujimoto, the president of the board, for instance, paid only $1,100 for an acrylic painting that Severson valued at $5,000, Amemiya said.
Fujimoto did not respond to requests for comment.
The foundation told the Attorney General's Office that all the works purchased by Liu and the directors were for fair market value or greater, based on the appraisal done for Hee's estate in 1993.
Some works had termite damage or weren't in top condition, the foundation told the Attorney General's office.
Kanemitsu, the foundation's former attorney, said he wasn't familiar with the foundation's operations, including how the transactions with the New York man were arranged and why the sales weren't advertised to the public.
He said the artwork was sold to fund scholarships.
The foundation usually awards $1,000 scholarships to art students. In 2000, for instance, it gave $4,000 in scholarships to four students, according to its tax returns.
Caroline Hee disputed the notion that the foundation needed to sell her father's work to underwrite scholarships. She said her father's estate turned over more than $208,000 to the foundation in 1996, only a few years before the directors started selling his art.
Her father's will stated that the foundation could sell his art for "meritorious reasons" at the highest price available.
Not all the foundation's directors apparently were aware that Hee's artwork was being sold.
Even though Julian Lee, Hee's grandson and Caroline Hee's son, was listed as a foundation director during the years the art was sold, he said he never was informed about the transactions -- or even that he was on the board.
Had he known about it, Lee said, he would have objected to selling the work so cheaply.
By coincidence, Lee said in 2001 he went on eBay and discovered that Liu was selling some of his grandfather's art at prices Lee considered significantly undervalued. Not knowing how Liu obtained the art, Lee purchased eight small paintings for less than $100.
The foundation's former attorney said Caroline Hee was making trouble for the foundation because she didn't inherit any of his art following the father's death.
"I think this is basically sour grapes," Kanemitsu said.
Caroline Hee denied that, and said she was acting to protect her father's legacy, maintain the value of his art and to see that the prized pieces the directors had purchased are returned so the works can be shared with the public through public showings.
Hugh Jones, the deputy attorney general who investigated the Hee case, said the foundation had documentation for all the transactions and had not attempted to hide the deals. There also was no allegation of criminal conduct, he said.
For the Attorney General's office to pursue the case, it would have had to prove that the foundation had suffered a financial loss and that the directors actions' were grossly negligent, according to Jones.
"I think they could've displayed better judgment, but that's not the issue," he said. "The issue was one of gross negligence. That's a very high standard to meet."
Short of directors stealing from a foundation, Jones said issues pertaining to self-dealing are IRS matters.
Adler, the California attorney, said cases of self-dealing often involve people who aren't familiar with the regulations and believe their deals -- at fair market value -- will be beneficial to the foundations.
"Many people of good intentions are tripped up by this rule because it is counterintuitive," she said.
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