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By Andrew Murr
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For Hawaiians, it may be the biggest story since statehood, or even Pearl Harbor. After all, it has sex, suicide--and money. Lots and lots of money. It's the scandal over the $10 billion Bishop Estate, the nation's largest charitable trust. The legacy of Princess Bernice Pauahi Bishop, who died in 1884 as the last heir to King Kamehameha, the estate was created to educate native Hawaiian children. It owns 8 percent of the state's land and 10 percent of Goldman, Sachs. For decades the Bishop Estate was a beloved institution and its five trustees were treated with respect. Not anymore.
Today the trustees confront a dizzying list of allegations of mismanagement, financial impropriety and self-dealing. Two of them--former state Senate president Dickie Wong and former House speaker Henry Peters--face felony theft charges. Trustees Gerard Jervis and Oswald Stender await a judge's verdict after a civil trial in which they are seeking to remove the fifth trustee, Lokelani Lindsey, for incompetence and breach of duty. The state's attorney general wants to oust all five. And last week reports emerged that the IRS has threatened the estate's tax-exempt status if the trustees don't quit. "These people set a world record for breaches of fiduciary duty," charges University of Hawaii law professor Randall Roth, who co-wrote a 1997 newspaper series that helped ignite the scandal.
The trustees deny any wrongdoing. Their attorneys say their critics are trying to seize control of native Hawaiians' greatest asset and are motivated by jealousy and politics. The attorney general "has conducted a Gestapo smear campaign" to distract voters from the failure of her boss, Gov. Ben Cayetano, to stem the state's long recession, says trustees' attorney Bill McCorriston. "While Rome burns, he gives the people the circus show of the Bishop Estate."
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But what a show it has been. The theft indictments charge that in exchange for a sweetheart sale of estate-owned land to investors who included Wong's brother-in-law, Peters and Wong received illegal kickbacks in the form of price breaks on private condos. Prosecutors contend that Peters's break was worth $192,000 and Wong's $115,800. Both men deny the charges. Attorney General Margery Bronster and others charge that trustees used staffers for personal business, accepted free memberships from a golf course whose land lease (owned by the estate) was up for renegotiation, and invested estate funds in ventures in which the trustees had personal stakes.
Critics also say that, at more than $800,000 per year, the trustees are grossly overpaid. The trustees counter that they make what the heads of similar charities make. And they spent $900,000 of estate funds lobbying Congress unsuccessfully to alter a 1996 bill that provided stiff penalties for excessive pay for trustees of charities, an effort they say was proper.
Recently the mess turned deadly. In March security guards caught Jervis having sex with an estate attorney in a hotel men's room. The attorney, a married woman, committed suicide. Jervis swallowed sleeping pills, but survived.
The seamier aspects of the saga notwithstanding, at the heart of the dispute are charges that the trustees haven't operated the Bishop Estate in the interests of the 15,000 native children who are its beneficiaries. Bronster charges that they failed to spend $350 million over the past decade--the equivalent of four years of budgets for the Kamehameha Schools--despite rules requiring that all income go to them. "That's money that should have been spent on the children," Bronster asserts. The trustees say the funds were properly added to the estate's principal. But that principal appears occasionally to have been oddly invested. The estate lost money in risky ventures, including an SL and a local start-up called KDP Technologies, which offered an online library of softcore "videos depicting models and other 'talent'," according to the attorney general's petition to remove the trustees.
The trustees defend their investments. "This trust is far more liquid and wealthy than it's ever been," contends Peters. The trustees point in particular to their 10 percent limited-partnership stake in Goldman, Sachs. Their $500 million investment in the early 1990s could triple to $1.5 billion-plus this month when the firm goes public.
The trustees won one victory last week when Bronster lost her job. The state Senate refused to confirm her for a second term, in part because her zealous handling of the Bishop mess left her little time to deal with other issues. But the IRS's threat to revoke the estate's tax exemption unless the trustees quit is something of a doomsday weapon. The five show no sign of stepping down, and if the taxman follows through, Princess Pauahi's legacy to Hawaii's kids could get stuck for tens of millions a year.
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