Small Business Hawaii

The full story of the corruption that permeated Hawaii's $10 billion charitable trust, the Kamehameha Schools/Bishop Estate, to the highest levels of government in Hawaii, has never been told.

But the information that has become public is categorized by 60 Minutes as "The biggest story in Hawaii since Pearl Harbor;" by The New York Times as "A feudal empire so vast that it could never be assembled in the modern world;" and by Howard M. McCue III, the Chairman of the Charitable Planning Committee for the American College of Trust and Estate Counsel, as "The most significant legal dispute of our time ... a tale of unbridled ambition, infectious greed, and high drama ... ."

This saga, involving Bishop Estate trustees, state Supreme Court justices, a former governor and leaders in the Hawaii State Legislature, peaked in 1997.

However, nearly one decade later, critics say there has been no accountability for the many influential people who wrongfully took advantage of Princess Pauahi Bishop's charitable trust - a trust she established in 1884 to fund the education of Hawaiian children, not to fatten the pockets of politicians and trustees.

University of Hawaii Law Professor Randall Roth and U.S. Federal Judge Samuel King, co-authors of a newly published book, Broken Trust: Greed, Mismanagement and Political Manipulation at America's Largest Charitable Trust, documented the story of the trust from its inception 100 years ago through current times.

At a July 5 forum hosted by Small Business Hawaii, and moderated by Hawaii Reporter, Roth and King shared their thoughts on what led to the extensive problems at the Bishop Estate and what still needs to be done to ensure there is justice and accountability for past wrongdoings.

Joining them were four other prominent Hawaii citizens who played a major role in pushing for reforms including Hawaiian attorney Beadie Dawson, former Honolulu Star-Bulletin Managing Editor Dave Shapiro, former Campaign Spending Director Robert Watada and Congressman Ed Case.

More than 150 members of the public attended the forum held at the Hale Koa Hotel and several asked questions including ousted Bishop Estate trustee Henry Peters, who showed up at the forum with a second ousted trustee, Dickie Wong.

While Wong, the former president of the Senate, remained silent, Peters, the former speaker of the House, spoke up during the question and answer period, professing his innocence and saying he continues to be persecuted by the Broken Trust book and panelists. He claimed he is a victim, despite raking in $600,000 annually from the trust as a part of his severance package and never facing any criminal charges or civil action.

Before the 90-minute panel wrapped up, the panelists shared some of the following insights from their experiences:

Congressman Case was a freshman state legislator in 1995 when he tried to make two major reforms related to the Bishop Estate - take the Supreme Court justices out of the trustee selection process and limit trustee compensation to what was "reasonable" -- both of which made him forceful enemies within the legislative leadership, the court and the Bishop Estate.

"I got nailed pretty bad," Case says of his first attempt in 1995.

The Hawaii Supreme Court justices admitted that they were split on whether they should be in the business of appointing trustees because of perception of cronyism and favoritism.

In1997, Roth, King and three other well-respected Hawaiians signed their name to a compelling essay entitled "Broken Trust" that documented the power, influence and wrongdoing in the highest levels of the Bishop Estate and the Hawaii government.

Shapiro, then the managing editor of the Honolulu Star-Bulletin, published the oped, which rocked the very core of the Hawaiian, political and legal communities.

That was the final catalyst for all but one justice - Robert Klein (now an attorney/lobbyist for the Office of Hawaiian Affairs) - to voluntarily step aside from the duty.

Case's bill to limit trustee compensation also passed, despite major obstacles. At the time, trustees were making more than $1 million a year.

The House, which had Bishop Estate-backed leadership, including House Speaker Joe Souki, and Reps. Terrance Tom and Calvin Say, agreed to a bill that would study the issue. But the Senate sided with Case in establishing compensation limits. In a highly unusual move, Case moved to suspend the rules and adopt the Senate version. Because of extensive pressure from the Hawaiian community, the media and the public, the House agreed to the bill by a vote of 50 to 1 with Rep. Say (who is presently the House Speaker) as the one dissenting vote.

Former trustee Henry Peters took to the mic stating that "he continues to be persecuted by the Broken Trust book and panelists."

Now, as a Congressman for the second district who is running for U.S. Senate against Sen. Daniel Akaka, Case has distinguished himself from his opponent on this issue. Akaka was sympathetic with the ousted trustees, while Case pushed for more accountability and less compensation. Today, Case says there are still "broken trusts" in Hawaii, which need to be addressed.

Hawaiian attorney and advocate Dawson says the Bishop Estate controversy was significant for the Hawaiian people because it is the first time they began to use their voices and their numbers to take a stand politically.

The tremendous power was evident when Kamehameha Schools alumni, students, faculty and supporters marched in 1997 from the Capitol to the Bishop Estate headquarters, demanding reforms, including the removal of trustee Lokelani Lindsey, who was micromanaging the school in a highly destructive manner.

A great deal of the information Roth and co-author Judge King used to write the Broken Trust was given to them by Watada, the director at the time of the state Campaign Spending Commission.

But Roth says there are still between 1 million and 2 million more documents sealed by the courts that he wants to review and catalogue and believes should be made public.

He hopes trustees will some day be held accountable for their mismanagement. But that is unlikely: they did not pay legal fees for the most part, they took millions of dollars for themselves, they paid off political cronies with trust funds, and held what Roth calls a "world record for breaches of trust."

Roth and King maintain the Broken Trust saga is not over, and neither are the problems for Kamehameha Schools if further safeguards and reforms are not implemented.

King points out that the estate is set up like an "ancient horse drawn buggy cart" and says 5 trustees are no longer necessary.

Although some would argue there are 5 trustees because Princess Pauahi Bishop set the trust up that way in her will, King says every provision of that sacred document has been violated except the provision that says there are 5 trustees.

For example, Princess Pauahi Bishop requested there be two Kamehameha Schools, one for boys and one for girls, and today it is one school. The princess asked that the teachers and trustees be Protestant, but that violates federal law.

Shapiro, former managing editor of the Honolulu Star-Bulletin who agreed to publish the Broken Trust essay in 1997, says the insightful report "changed the rules of engagement" in terms of the way the Bishop Estate story was covered by the media.

But that all changed when The Honolulu Advertiser editors refused to say when or if the essay would be published. The five authors then turned to the Honolulu Star-Bulletin, whose editors immediately seized the opportunity. "I said ‘thank you Jesus,'" Shapiro says.

Pictured above are the panelists from the July 5th Broken Trust forum presented by Small Business Hawaii ‹ back row, left to right, Hawaii Congressman Ed Case, Hawaiian Community Activist and Attorney Beadie Dawson, Attorney Randy Roth and Former Campaign Spending Director Robert Watada; front row, left to right, Judge Samuel King and The Honolulu Adverstiser Columnist David Shapiro.

The Broken Trust essay escalated the discussion from simply removing one trustee, Lindsey, to the incestuous relationships, alleged self dealing, and mismanagement of resources, and it put the issue of removing trustees in the forefront, Shapiro says. He maintains without the essay, the state might not have launched its investigation and the Supreme Court justices may not have stepped aside.

Shapiro admits the media shied away from covering the Bishop Estate controversy. The reasons? The Bishop Estate was powerful and had tremendous wealth and influential friends; it was a secretive organization and employees were too scared to talk; it was a complicated story to cover; and there was an unspoken rule that if the Hawaiian community did not complain, the media shouldn't either. "But that is no excuse," he says.

Watada, the executive director of the State Campaign Spending Commission, was charged with investigating any political corruption tied to campaign finances, and with the Bishop Estate, he had his hands full.

The Bishop Estate management was engaging in major lobbying efforts - a big "no-no" for non-profits with a 501-(c)(3) status. Money supposed to be used to educate Hawaiian children was instead being used to buy political fundraising tickets and distribute additional tickets by the thousands to Bishop Estate vendors; pay for political polling that would normally cost candidates more than $100,000; and subsidize the seedy lifestyle of some prevailing politicians including Senate Ways and Means Chair Milton Holt, who was granted a $20,000 credit card from the Bishop Estate to spend how he pleased. Holt, who had a drug addition, landed in federal prison for a year, spent his money on entertainment in strip clubs and gambling.

Sen. Marshall Ige, who called Peters his "role model," also landed in jail for a year. Watada's office forwarded an investigation into Ige's finances, discovering that a Bishop Estate vendor had participated in a money laundering scheme, paying Ige's campaign debts as a favor to the Bishop Estate.

Watada says the trustees had tremendous power. They controlled banks, politicians, lawyers, and almost every aspect of Hawaii. He says it was clear that if it had not been for the Broken Trust, "all of us would be beholden to the trustees."

Although the Campaign Spending Commission could have spent hundreds of thousands of dollars pursuing the investigation into the Bishop Estate, Watada says the commission backed down because resources were limited and because estate lawyers said fines would "take money from the children."

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