Firm admits fraud,
illegal gifts

An official of Thermal Engineering
pleads guilty to tax charges
on the company's behalf

CORRECTION Friday, May 13, 2005 » In a Page A3 article Tuesday, a quote by Bob Watada, executive director of the Campaign Spending Commission, that Thermal Engineering Co. is "dead" was taken out of context. Thermal pleaded guilty to filing false tax returns in a campaign spending violation case. Watada actually said that in previous cases, companies found in violation of campaign laws have made changes, such as renaming the company and appointing new officers or directors. Thermal continues to do business with the government and other entities. The Honolulu Star-Bulletin strives to make its news report fair and accurate. If you have a question or comment about news coverage, call Editor Frank Bridgewater at 529-4791 or email him at corrections@starbulletin.com.

A local engineering firm admitted yesterday to federal charges of filing false tax returns from 1997 to 2000 as part of a scheme to violate Hawaii's campaign spending laws.

Paul Fukunaga, vice president of Kalihi-based Thermal Engineering Co., entered guilty pleas in U.S. District Court to four counts in an eight-count indictment filed last September against the firm and its president, Ken Mashima. As part of a plea deal, the government is expected to ask the court to dismiss the remaining counts against Mashima at sentencing in January.

"Both the government and the defense felt that the proper resolution was that the president be dismissed from the indictment and the corporation enter guilty pleas to the tax charges," said Stephen Pingree, attorney for Thermal Engineering.

Thermal Engineering's officers and directors made a "corporate-wide decision" to contribute nearly $59,000 on at least 40 occasions over four years to county and statewide campaigns in excess of the legal limits, according to the agreement.

Under state law an individual or corporation can give no more than $4,000 for a mayoral race and $6,000 for a gubernatorial race during a four-year election cycle.

The government contended, and Thermal Engineering agreed in court, that the moneys were essentially "illegal political contributions," assistant U.S. Attorney Michael Purpura said.

The plea could mean the end for Thermal Engineering, which gave campaign contributions to obtain government contracts, said Bob Watada, executive director of the Campaign Spending Commission.

"The officers plead guilty for the company, which means the company is dead," Watada said.

According to the commission's investigation, some major contributions by Thermal Engineering employees included $22,000 to former Mayor Jeremy Harris, $21,075 to former Gov. Ben Cayetano, $6,000 to ex-Maui Mayor James "Kimo" Apana and $500 to then-Maui Mayor Linda Lingle in her gubernatorial campaign.

The practice of taking money from the corporate treasury to make political contributions is common, Watada said.

In the case of Thermal Engineering, there was a clear paper trail, he said. The firm's officers met regularly to decide which campaigns would benefit from its support, the agreement said.

Thermal Engineering kept logs of contributions made by its employees so that if anyone was below the contribution limits for a campaign, that person would be designated the "pass through."

The firm would then prepare a check for the employee in the net amount of the contribution. For example, if an employee was directed to contribute $1,000, the employee would receive "compensation" in a higher gross amount. After state and federal taxes were withheld, the employee would net $1,000.

For each of the illegal contributions, Thermal deducted the gross amount of the contributions from its taxable income as officer "compensation" rather than as corporate political contributions, which are nondeductible. In doing so, Thermal Engineering's taxable income was lowered for those years.

The four political campaigns have since repaid a large portion, if not all, of the money, Watada said.

Filing false tax returns is punishable by a maximum fine of $500,000 per count or up to $2 million. The parties have agreed that the court should consider a fine of $60,000 to $120,000 for each count.