Hawaiian Charity’s Trustees Under Fire

The original mandate was simple: Educate Hawaii’s children. But the state attorney general will argue in court Friday that the Bishop Estate trustees, whose job it is to carry out that order, should be removed for corrupting the $8-billion legacy of a Hawaiian princess.

“I think it may be the most egregious example of abuse by trustees that we’ve ever seen in our research in the charitable field,” Atty. Gen. Margery Bronster said recently.

Her yearlong investigation of one of the nation’s wealthiest charities will come to a head when a circuit court judge considers the state’s request to appoint a receiver in place of the five trustees of the century-old educational trust, considered the most powerful private institution in Hawaii.

In court documents, Bronster accuses the trustees of squandering assets, shortchanging education, taking kickbacks in real estate deals, hiring friends in return for little or no work, doing financial favors for politicians and even letting an employee use an estate credit card at strip clubs and casinos.

State and federal grand juries are considering possible criminal charges, and the Internal Revenue Service has been investigating Kamehameha Schools Bishop Estate, as it is formally known.

Board Chairman Richard S.H. Wong vowed to fight the attorney general’s effort to remove the trustees, calling it “an attack on the trust” based on false charges.

In 1884, Princess Bernice Pauahi Bishop left 378,500 acres of her land in trust for the education of Hawaii’s children. Bishop Estate now runs the private Kamehameha Schools, enrolling 4,400 native Hawaiians from preschool through high school and reaching nearly 10,000 in summer.

But the estate is much more than an educational institution. Its land holdings encompass roughly 9% of the entire state. In recent years, it has built a global investment empire, ranging from a 10% stake in Wall Street powerhouse Goldman Sachs & Co. to interests in a Chinese bank. Its political connections are legendary. Wong is a former president of the state Senate, and Trustee Henry Peters was speaker of the state House.

In response to allegations of mismanagement, William C. McCorriston, attorney for the trustees, said it appears that the attorney general “doesn’t fully understand some of the estate’s business transactions.”

“In the final analysis, we believe that we’ll be able to show that this particular board of trustees has added about $2 billion in value to the corpus of the trust since 1993, which is perhaps the best indication of their performance,” he said.

Counters Bronster: “Just because a corporation is making money, does that allow the officers to steal? I think the answer is no.”

She alleges that the board hoarded $350 million in trust income that should have been spent on education, while phasing out programs for students. McCorriston said the money was withheld for an ambitious school building program.

Bronster also faults trustees for imprudent investments, taking “wildly excessive” compensation (roughly $850,000 each annually) and using $900,000 in trust funds to lobby against legislation that would penalize trustees who paid themselves too much.