Scandal-Beset Hawaiian Charity’s Trustees Exit

The show finally appears to be over for the beleaguered board of trustees of Bishop Estate, who steered Hawaii’s richest charity from a position of power and prestige into the depths of public scandal.

A probate court judge late Friday removed four trustees and accepted the resignation of the fifth, saying their remaining in office “creates an immediate and substantial risk of significant harm to the trust estate.”

The removal is temporary, pending possible evidentiary hearings on their permanent removal. The judge appointed an interim board to handle the estate’s affairs, effective immediately.

The Internal Revenue Service had threatened to revoke the tax-exempt status of the $8-billion educational trust if the board members were not ousted.

“I think the nightmare is coming to an end,” Randy Roth, a tax expert at the University of Hawaii, said before the ruling. Roth helped kick off a state investigation of financial mismanagement at the estate nearly two years ago. The probe led to the criminal indictment of two trustees and Friday’s removals from their $1-million-a-year positions.

The IRS said it was concerned that the trustees were paying themselves too much and might have diverted funds from the beneficiaries of the trust, the students of Kamehameha Schools.

“It is time to put an end to this sorry spectacle . . . to tell the trustees that the game is over,” Deputy Atty. Gen. Dorothy Sellers argued before Probate Judge Kevin Chang.

Founded under the will of a Hawaiian princess, the estate has as its sole mission the education of Hawaii’s children, but the trust is much more than its flagship Kamehameha Schools. The $8 billion in assets includes nearly 9% of the land in Hawaii and a wide-ranging investment empire stretching from Beijing to Wall Street. The political ties of its board members were legendary, and for years they operated with little accountability.

But two years ago, the mismanagement of the school by trustee Lokelani Lindsey alienated students, parents and staff to the point of public protests. When several prominent Hawaiians published a manifesto denouncing trustees for self-dealing, conflicts of interest and financial mismanagement, Gov. Ben Cayetano directed his attorney general to investigate. The attorney general’s office petitioned the court to remove the trustees, alleging that they squandered assets, shortchanged education, used estate funds for their personal benefit and even let one employee use an estate credit card at strip clubs and casinos.

Criminal investigations led to the indictment of trustee Richard Wong, a former president of the state Senate, and trustee Henry Peters, a former speaker of the Hawaii House of Representatives, on theft charges for allegedly accepting kickbacks in real estate deals. The cases are still pending.

Late Thursday, another probate court judge also ousted Lindsey as unfit to serve. On Friday, trustee Oswald Stender, who had served as a whistle-blower, tendered his resignation to Chang, but other trustees tried to hang on to their jobs.

The fifth trustee, Gerard Jervis, took an overdose of sleeping pills in March after he and a female estate attorney were thrown out of a hotel restroom after being discovered in a sexual situation.

Attorneys for Wong and Peters argued in court Friday that the IRS’ demand that they be removed as a prelude to negotiations resolving its audit of the estate was “tantamount to extortion.”

“Removing all five trustees would be a disaster for the trust,” argued Ron Malone, Wong’s attorney. “It would plunge the trust into chaos. . . . You don’t have to cave in to the IRS’ demands every time they make one.”

Malone also said that the trustees’ compensation is justified because they helped make the estate wealthier than ever. The trust just earned $600 million from its investment in Goldman, Sachs & Co., which went public last week, and the 22 million shares that the estate still holds in the company are now valued at $1.5 billion, he said.

“There are very few people who can bring home the bacon like these trustees have done,” Malone said. “That’s a good week’s work--$2 billion.”

A three-member majority of the board--Wong, Peters and Lindsey--fought the attorney general every step of the way and succeeded in dragging out court action for months.

Kamehameha Schools, a kindergarten through 12th-grade institution, is open only to children of Hawaiian ancestry and serves 3,500 students on its main campus.