Feb 13, 1998
BY IAN Y. LIND, Star-Bulletin
State Insurance Commissioner Rey Graulty is asking the Legislature for additional funding and new legal authority to regulate the increasingly complex health insurance industry, and prevent a repeat of last year's failure of Pacific Group Medical Association.
"I currently have no personnel dedicated to the health-care area, yet I'm being called upon by the public to regulate the health maintenance organizations and mutual benefit societies like PGMA," Graulty said. "I can't do it without additional personnel."
The lack of regulatory muscle showed in the state's handling of PGMA, which left an estimated $18 million in unpaid bills when it was finally shut down by the state in March 1997.
The state raised concerns about the financial health and business structure of PGMA as early as 1994, records show. But PGMA and other mutual benefit societies are subject to less direct regulation under current laws than other types of insurers, giving state regulators fewer options when they suspect problems.
Under state law, mutual benefit societies are associations which provide benefits to their members. They are not subject to overall insurance laws, although for all practical purposes they are insurance companies. Hawaii Medical Service Association, the state's largest health insurer, is a mutual benefit society, along with some of the smallest health insurance providers.
Graulty said the commissioner's office knew PGMA was in trouble in 1996 when it fell behind in paying claims, sometimes taking six months before paying.
"Normally, two months is more than sufficient, and delayed payments are often an indication that a company is undergoing some distress," Graulty said.
Despite these warning signs, and two complete examinations of PGMA's operations, the state didn't move in until it received inside information that PGMA had submitted false financial reports.
Graulty said members of the PGMA board of directors met with then-Insurance Commissioner Wayne Metcalf on January 24, 1997, while company head Peter P. Wong was on the mainland for the Super Bowl.
"It was described as a coup d'etat," Graulty said.
"They came in to our office to report that the November 30, 1996, financial statement had been falsified," Graulty said. Instead of reserves of $629,500 and liabilities of $3.5 million as shown on the financial statement, the company's reserves actually had a deficit of $5.7 million and the company faced liabilities of $9.2 million, regulators were told.
Metcalf, who was appointed days later to complete the term of the late Sen. Richard Matsuura, is expected to play a key role in deliberations over the insurance measures.
Among the measures being considered are bills that would:
• Allow the insurance commissioner to hire staff - including one or two financial examiners, an investigator and an attorney - who would be assigned to health insurance matters.
The costs would be covered by annual assessments levied on HMOs, mutual benefit societies and other health insurers.
"We're saying health care insurers will be assessed the cost of regulating their industry. If they're not playing on a level playing field, there is potential for a company to do things that aren't appropriate," Graulty said.
• Establish a health insurance guarantee fund to step in and cover losses if any health insurer collapses in the future, similar to guarantee funds already in existence for other types of insurance.
Since no guarantee fund existed at the time PGMA failed, the question of whether PGMA's debts will be absorbed by doctors and medical providers, or by members who were covered by PGMA, has yet to be resolved.
The matter eventually will be decided in court.
• Apply the Uniform Claims Settlement Practices Act to mutual benefit societies, which would allow the state to step in sooner if a health insurer falls behind in payments or exhibits other problems.
Graulty will present his case for more resources at a hearing Monday before the Senate Committee on Commerce, Consumer Protection and Information Technology.
Copyright 1998 Honolulu Star-Bulletin
June 12, 1995
BY IAN Y. LIND, Star-Bulletin
Bills for more than $300,000 in legal services by a private law firm defending former Mayor Frank Fasi are secret, a city official says.
Corporation Counsel Darolyn Lendio said the bills will remain confidential, at least for now, although they have been paid with public funds.
The invoices submitted by the law firm of Fujiyama Duffy & Fujiyama are considered "privileged and confidential" because they are part of pending litigation, Lendio said in a letter earlier this week.
The Star-Bulletin had requested access to the records after the City Council voted in April to authorize an additional $100,000 to be paid to the law firm, bringing the total paid out so far to nearly $360,000.
"We may reconsider your request once the litigation is completed," Lendio wrote.
Hugh Jones, staff attorney for the Office of Information Practices, said Hawaii law generally requires public disclosure of billing records and government contracts. Although his office has not issued a formal opinion on the matter, Jones pointed to a publication of the American Bar Association which concluded that such information is not exempt from public disclosure.
The firm represents Fasi in a federal lawsuit by Windward Oahu residents who were displaced by the controversial Royal Hawaiian Country Club in Maunawili. The 1989 suit alleges that the golf course developers made illegal contributions to Fasi's 1988 re-election campaign in exchange for favorable city action on their development.
The law firm was hired to represent Fasi in 1991 after the Office of Disciplinary Counsel ruled that city attorneys could not continue to represent the mayor because of various ethical conflicts.
The case took on renewed life last year after the Federal Election Commission found that dozens of foreign businesses and individuals violated federal law by contributing to political candidates in Hawaii between 1986 and 1992. The Royal Hawaiian Country Club and its owner, YY Valley Corp., along with major stockholders, were fined $46,000 by the FEC for illegal contributions.
Federal law prohibits foreign nationals from contributing to candidates or taking part in corporate decisions by organizations or political action committees making such contributions.
The FEC also found evidence that the Maunawili developers violated state law by contributing more than allowed by state law, and by concealing the actual source of the funds. A complaint now is pending before the state Campaign Spending Commission.
Lendio said her office scrutinizes the legal bills "to ensure conformity with the custom and practice in the legal community," and to assure that "costs expended are reasonable and necessary for the vigorous defense of the City and its officers."
She refused, however, to allow public review of the bills.
City records show the Fujiyama firm was paid $45,399.27 from October 1991 through June 1994. Following Fasi's resignation as mayor in July 1994, the pace of the court action and the payments have increased, with the following payments reported by the city:
Nov. 25, 1994: $23,873.78
Jan. 23, 1995: $15,892.06
Feb. 2, 1995: $74,834.89
March 15, 1995: $59,032.11
March 21, 1995: $40,967.89
An additional $86,960.93 in costs remained unpaid as of mid-April, according to a City Council resolution authorizing the most recent payments.
Copyright 1995 Honolulu Star-Bulletin
Dec 13, 1995
BY IAN Y. LIND, Star-Bulletin
Those who want to see state or county records will be hit with new fees next year if rules drafted by the Office of Information Practices are approved.
Under the proposed rules, anyone requesting access to public records would have to pay $10 per hour for the time it takes to locate the records, and $20 per hour for any time needed to review the records and remove private or confidential information.
In each case, the first 15-minutes would be free. These costs would be added to existing copying fees.
The fees would be charged to both individuals and businesses, although limited amounts could be waived if a request is considered "in the public interest."
The fees for searching would have to be paid even if the documents requested aren't found or can't be released, according to the proposed rules.
The proposed rules also set time limits for the disclosure of government records. The rules would require "routinely disclosed records" to be provided within one day of a request. However, an agency could take up to 20 working days to provide other types of records, even if no fees are involved. Under "unusual" circumstances, the time limit could be extended to two months or more.
OIP Director Moya Davenport Gray said the rules are in a very preliminary form. They are currently being circulated to state departments for comment, and have also been sent to a few interested individuals and community organizations.
"We are seeking input at this early stage so that concerns of government agencies and the public will have been incorporated by the time we're ready for public hearings," Gray said.
Copies of the proposed rules may be requested by contacting the Office of Information Practices at 586-1400.
The draft rules will be submitted to Gov. Ben Cayetano for review early next year and public hearings will be scheduled after the upcoming legislative session.
The Office of Information Practices was created by the Legislature in 1988 as part of a broader effort to provide more openness in government. OIP advises government agencies about public access to government information, and can decide whether government agencies have properly responded to public requests.
Since becoming director in May, Gray has been struggling to cope with budget cuts approaching 25 percent, reductions in staff and, most importantly, an inherited backlog of requests for opinions.
"We're a combined court and administrative agency rolled into one," Gray said. Disputes over access to records can be submitted to OIP for resolution so they don't clog up the courts, but this has meant a heavy workload for the agency's four staff attorneys.
Gray was unable to say how far behind they are in preparing opinions, but an earlier report showed over 200 pending requests for opinions at the end of May 1995.
Gray estimated that OIP attorneys deal with an average of 40 cases each at any time, while 10-20 new requests for written opinions, plus at least 100 phone inquiries are received each month. During the past three months, little work was done on the backlog of pending cases, Gray said, because staff has been tied up in court or working on the proposed rules.
Despite the backlog, Gray said, completing the rules is her highest priority. "We need to let agencies know that we are here to stay, and rules do that. We also need to give agencies the tools to cope with requests for records."
Ultimately, Gray sees her job as "infusing openness in the fabric of government" through education, training and experience. "We need to filter that information (about openness in government) down to the people answering the phone in government offices, and to the person who opens the door in the morning," she said.
To assist in this process, OIP attorneys are "writing down the thought process behind the rules," Gray said. These explanations, along with comments received, will be part of an "impact statement" accompanying the rules.
Copyright 1995 Honolulu Star-Bulletin
Oct 2, 1996
BY IAN Y. LIND, Star-Bulletin
Secrecy allows sexual abusers to get away with their offenses, says Susan J. Labrenz, executive director of the Hawaii Island YWCA.
And when the alleged sex abuser is a public employee, as in the case of Hawaii Housing Authority inspector Bernard Sagawa, the secrecy is mandated by state law.
"If you look at any abuse of power, whether domestic violence, incest, sexual abuse, even political favoritism, the dynamics are very similar," Labrenz said.
"As long as we all keep the secret, it gets to continue," said Labrenz, whose agency operates Hilo's Sexual Assault Support Service.
State law was changed in 1988 to allow disclosure of the status of formal complaints against public employees. But the Legislature reversed itself and in 1993 closed the door on virtually all disclosures following protests and lawsuits from public worker unions.
Today, information about misconduct by an employee is considered confidential, unless the employee is suspended or terminated and all administrative appeals have been completed.
Sagawa was terminated by the housing agency after the allegations surfaced in court in 1994, but a grievance seeking reinstatement is being pursued by his union, the Hawaii Government Employees Association, court records indicate.
Department of Human Resources Development spokesman Jim Dote last week declined to disclose the date of Sagawa's termination, and would not say whether he is still on the state payroll.
Doty said the information could not be disclosed because the case is currently in arbitration and is considered confidential.
A court deposition by agency housing specialist Karen J. Kelly suggests that secrecy hurt Sagawa's alleged victims by denying them information they could have been used to protect themselves.
The deposition was sealed by court order earlier this month September and is no longer open for public view.
Kelly said one of Sagawa's victims was angry after finding out that an incident similar to hers had been quietly investigated by Hawaii Housing Authority officials in 1991 but had not been disclosed.
Kelly said she and her co-workers still don't know if Sagawa has ever been reprimanded or disciplined.
"They're not allowed to tell people if somebody gets disciplined. . . . Even if Bernard got reprimanded over this stuff that's happened over the past three years, us guys wouldn't know.
"I mean, the fact that he's not at work right now, we're assuming that was a reprimand, but no one has told us. . . . No one has told us anything. It's just none of our business. So no one asked."
Copyright 1996 Honolulu Star-Bulletin
Jan 23, 1997
BY IAN Y. LIND, Star-Bulletin
The state agreed today to pay $675,000 to settle two lawsuits by a Maui woman and her younger brother who said they were sexually assaulted in 1990 after being placed in two different foster homes.
The monetary award to Jennifer Medeiros, now 19, is among the largest paid in any case involving the state's foster care system. The settlement was announced today in the Maui courtroom of Circuit Judge Boyd F. Mossman.
The money will be halved by Medeiros and her brother, now 16. The boy, who was age 9 when molested, did not attend today's hearing, and was reportedly in a hospital for traumas from the assaults.
"It sort of takes away your childhood," said Medeiros in a news conference after today's hearing.
Wearing a pikake lei, jeans and T-shirt, Medeiros said she decided to go public with her case to make sure the state would be more careful and diligent in screening foster parents. "After they (state officials) place the kids, they should have weekly visits to the home," she said.
Henry Ku, administrative assistant to Human Services Director Susan Chandler, today said "the state is happy that the case has been settled in a reasonable way. We are particularly happy that the money is now in an account that will be supervised and administered by the courts."
Chandler was not immediately available for comment.
Medeiros was sent to live with a foster family in 1989 after being sexually assaulted by her mother's boyfriend, court records show. In July 1990, Medeiros was again assaulted by the father of her foster mother, who lived in the same house, court records show.
The state then moved Medeiros to another foster home, where she was again assaulted later that same year.
Court records show that all three men who molested Medeiros were prosecuted and convicted for their roles in the assaults.
Medeiros' younger brother, who is still a minor, was also sexually abused in one of the foster homes, court documents allege.
According to state records disclosed in the case, state social workers and foster care administrators failed to respond to repeated warnings that the children were at risk. Medeiros' attorney, Francis T. O'Brien, alleged in court that state employees failed to follow standard procedures and guidelines established to protect children while in the custody of the state.
According to documents in the case:
• State social workers received reports in November 1989 that the mother's boyfriend had sexually assaulted Medeiros' older sister, but allowed the girl to remain living in a van with her mother and the boyfriend. Over the next 21/2 months, Medeiros, who was 11 years old at the time, was also sexually assaulted.
During that period, state social workers did not personally visit the family and had only one telephone conversation with them, desite the recommendation of a court appointed guardian ad litem that close supervision was necessary.
When the sexual abuse was finally discovered, the state did not provide Medeiros any counseling or psychological care to cope with the experience, the suit alleged.
• The children were then placed with a foster family despite reports that "grandpa" was having sex with a previous foster daughter, and that another male member of the household showed pornographic videos to the foster children. State personnel had also been informed that police had investigated allegations of sexual abuse involving children at a Maui community center where the second man worked, although no charges resulted, the records show.
• The children were moved to another foster home, which did receive a foster care license until a day after the children arrived. The foster parents soon complained of problems handling the children and requested additional training and support, but the requested training was deferred. The foster father later confessed to repeatedly having sex with the girl between November 1990 and March 1991.
"Kids are young, vulnerable and voiceless, but they are not criminals," O'Brien said in an earlier interview. They were there under state control because they were victims, and the state had an obligation to keep them safe."
"It's not just a money problem, it's a caring problem. The state just doesn't care," O'Brien charged.
According to the suit, both Medeiros and her brother have had serious psychological problems as a result of their experiences, which were compounded by the state's failure to provide appropriate care after the abuse was discovered.
Copyright 1997 Honolulu Star-Bulletin
Sept 1, 1995
BY IAN Y. LIND, Star-Bulletin
A former Honolulu woman with ties to the Clinton administration has been accused of "looting" an Oklahoma company to benefit a small group of friends and relatives, including the son of Secretary of Commerce Ron Brown.
Nora T. Lum used her majority control of Dynamic Energy Resources Inc. to pay more than $3 million for dividends, unearned consulting fees, living expenses and outside investments, including a Honolulu condominium unit and a California auto stereo manufacturer, according to a lawsuit filed in Oklahoma by Linda Mitchell Price, Lum's former partner in the company.
Michael A. Brown, son of the commerce secretary, was given stock in the new company and a lucrative consulting contract, the suit charges.
Nora Lum has not responded to the Star-Bulletin but has denied the allegations in court documents.
Lum's political ties to the Clinton administration could come up as the bitter legal dispute unfolds in a Tulsa court. The lawsuit could raise additional questions for Ron Brown, the subject of a special prosecutor's probe into prior business dealings.
Price and Lum, along with their husbands, in 1993 formed Dynamic, which purchased a small gas-gathering system near Kellyville, Okla., for an estimated $10 million to $12 million.
Price, an attorney, is a niece of former U.S. Senate Majority Leader George Mitchell. She is married to Stuart Price, an oilman and member of Clinton's Interior Department transition team, who campaigned unsuccessfully for a seat in Congress last year.
Before leaving Hawaii in 1992, Nora Lum was a business consultant specializing in helping foreign investors find investment opportunities, and she continues to consult from Dynamic's Washington office.
Lum and her husband, attorney Eugene K.H. Lum, also control Cal-Pacific International, half-owner of the controversial Akahi golf course proposed in South Kona on the Big Island.
The Lums were involved in a number of political campaigns in Hawaii and raised campaign funds for former Honolulu Councilman Leigh-Wai Doo in 1988 and 1990.
They have become major Democratic campaign contributors in the last three years and have gained prominence among Asian-American Democrats.
Nora and Gene Lum did not respond to telephone calls from the Star-Bulletin.
Michael Brown, director of legislative affairs for the Washington law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, did not return repeated phone calls.
Jonathan D. Siegfried, a New York attorney who represents Dynamic Energy Resources Inc., said in a written reply that Dynamic denies all allegations regarding Ron Brown's involvement.
Lum, Brown and other defendants have denied any wrongdoing in documents filed in the Oklahoma court case.
Dynamic Energy Resources also has filed a separate federal suit against Stuart Price, husband of Linda Price, accusing him of reneging on an agreement to sell the family's stock in Dynamic for $1.25 million.
Linda Price could not be reached for comment. Her attorney, C.S. Lewis III, said he could not discuss the case at this time.
According to the complaint, Michael Brown is vice president and a director of the company and receives no less than $7,500 per month in consulting fees, plus an additional $800 per month in expenses. In an affidavit, Brown acknowledged doing unspecified "consulting and lobbying work for Dynamic in Washington, D.C., Pennsylvania, New Jersey, Florida, Indiana and Michigan."
Siegfried said Brown was given 5 percent of Dynamic's stock at no cost when he became a director of Dynamic. Brown's shares were worth at least $500,000, based on the estimated amount initially invested by Lum and her partners.
The Star-Bulletin also has obtained a copy of a Dynamic Energy Resource check made out to Eugene K.H. Lum in December 1994 for $2.6 million. The check is among documents subpoenaed from the company as part of the ongoing court battle.
Siegfried, responding to questions on behalf of the company, left for a three-week vacation without commenting on the circumstances of the payment.
Also receiving a gift of company stock was Helen L. Yee, mother of Commerce Department and Clinton campaign official Melinda C. Yee. Siegfried confirmed that Helen Yee, "a friend of Mrs. Lum for some 10 years," is now a director and shareholder.
Melinda Yee worked briefly in the White House personnel office before moving to the Commerce Department in 1993, where she has been a special assistant to Commerce Secretary Brown. According to Siegfried, she had no role in the company. "Her mother is a director, but that's really the extent of it," he said.
Melinda Yee did not respond to telephone calls or faxed questions concerning her ties to the company.
Ted Kimura, president of Island Termite Inc., is another member of Dynamic's board. The FBI recently wiretapped six telephone lines in the Honolulu offices of Kimura, although there is no indication the wiretaps were aimed at Dynamic.
Kimura did not respond to telephone calls from the Star-Bulletin, but an Island Termite representative said he resigned from Dynamic's board "in the last two to three weeks," following the wiretap disclosure.
Copyright 1996 Honolulu Star-Bulletin
Sept 2, 1995
BY IAN Y. LIND, Star-Bulletin
U.S. Secretary of Commerce Ron Brown has "no financial interest of any kind" in an Oklahoma company in which his son, Michael A. Brown, and the mother of a high-level commerce employee are stockholders and directors, a commerce representative said yesterday.
Brown is aware of his son's involvement in Dynamic Energy Resources Inc., but the two have never discussed the business, said press officer Carol Hamilton. Brown also has never taken any official action affecting the company, Hamilton said.
The company's majority owner, former Honolulu resident Nora T. Lum, has been accused by a business partner of spending more than $3 million in company funds to benefit a small group of friends and relatives, including Michael Brown.
Linda Mitchell Price, Lum's business partner, filed suit against Lum and Dynamic earlier this year, seeking a full accounting of the company's expenditures and investments.
Ron Brown met Lum "during the time he was chairman of the Democratic National Committee," Hamilton said. "She was a donor."
Lum was also executive director of the Asian Pacific Advisory Council (APAC-Vote), a Democratic National Committee project based in Torrance, Calif., during the 1992 presidential election. Lum's efforts were directly largely toward fund-raising for the Democratic National Committee and the Clinton campaign.
Hamilton said Brown never discussed Dynamic's business with Lum or with Gilbert Colon, a Commerce Department official who join Dynamic's Washington staff last year. Colon had been deputy director of the Commerce Department's Minority Business Development Agency. He has since left Dynamic.
Michael Brown is vice president and a director of Dynamic, owns 5 percent of the company stock, and has been paid at least $8,300 per month as a lobbyist and consultant, according to court records.
Helen L. Yee also owns 5 percent of the company, Hamilton said. Yee's daughter, Melinda C. Yee, is a special assistant in Secretary Brown's office. She worked with Brown at the Democratic National Committee during the 1992 elections, and was the national committee liaison with Lum's APAC-Vote project.
Hamilton said Melinda Yee "has no relationship with the company" and "has no personal or business relation with Nora Lum."
Jonathan Siegfried, an attorney for Dynamic, said earlier that Brown, Yee, and other directors received their shares at no cost after agreeing to serve on the company's board.
Copyright 1995 Honolulu Star-Bulletin
Oct 18, 1995
BY IAN Y. LIND, Star-Bulletin
An Oklahoma natural gas company headed by Michael Brown, son of U.S. Secretary of Commerce Ron Brown, made more than $15,000 in illegal corporate campaign expenditures during the 1994 elections, according to one of those involved.
The charges are the latest in a complex and escalating legal battle surrounding the company, Dynamic Energy Resources, which is controlled by former Honolulu business consultant Nora T. Lum and her husband, attorney Eugene K.H. (Gene) Lum. The company and its troubles have attracted attention because of the involvement of Michael Brown, and Nora Lum's ties to Ron Brown and the Clinton administration.
In a letter addressed to the Federal Election Commission, former Dynamic employee Eric D. Hubbard said the company illegally supported the campaign of Stuart Price, who resigned as Dynamic president to make an unsuccessful run for Congress.
Michael Brown is vice president and a director of the company, and was acting president when the expenditures were made. Nora Lum holds 60 percent of the company stock and is chairman of the board of directors.
Hubbard's charges were reported this week by Legal Times, a Washington, D.C., weekly newspaper.
In the letter, a copy of which was obtained by the Star-Bulletin, Hubbard charges Price with "illegally courting, accepting and concealing corporate contributions" from Dynamic. Hubbard, who worked in Dynamic's Washington, D.C., office, said he traveled to Tulsa, Okla., 10 days before the general election to "organize the African-American community in support of Stuart Price."
Hubbard said all of his costs - including travel, housing, local transportation and various campaign expenses - were paid by the company.
A campaign consultant from Los Angeles was in Tulsa with his family for a longer period, also at company expense, Hubbard stated.
Federal election law prohibits corporations from contributing to federal campaigns or making expenditures to support or oppose candidates.
Hubbard's letter is dated Aug. 17, 1995, and was notarized Aug. 24, 1995. However, a representative of the FEC said yesterday there is no record of the complaint being filed.
Hubbard, currently a student at Wittenberg University in Ohio, yesterday declined to elaborate on the complaint but confirmed it had been sent to the FEC. "I don't know why they can't find it," he said.
John Siegfried, an attorney representing the Lums, Brown, and the company, said he could not comment on anything relating to Dynamic Energy Resources because of a gag order issued by U.S. Bankruptcy Judge Stephen J. Covey.
Siegfried previously said Dynamic's election activities were nonpartisan and permitted under FEC regulations, Legal Times reported.
C.S. Lewis III, an attorney for Price, also cited the gag order and declined to comment.
In April 1995, the Lums, Michael Brown and others were sued by Linda Mitchell Price, wife of Stuart Price and owner of 30 percent of Dynamic's stock, who charged Nora Lum with "looting" more than $3 million from the company to benefit a small group of friends and relatives, including the younger Brown.
Dynamic filed for bankruptcy protection at the end of September.
Copyright 1995 Honolulu Star-Bulletin
Oct 18, 1995
BY IAN Y. LIND, Star-Bulletin
Nora and Gene Lum have been linked to earlier campaign finance controversies.
In 1991, the Lum family and business associates contributed nearly $30,000 to the re-election campaign of then-Hawaii County Mayor Lorraine Inouye.
Less than two weeks later, the county's planning director issued a letter dropping a number of costly requirements for a golf course project in which a company controlled by the Lums had a half interest.
A county probe later determined that the planning director acted properly, but critics complained that the investigation did not address possible campaign law violations.
Last year, Gene Lum cited the Fifth Amendment constitutional protection against self-incrimination and refused to say whether he had arranged an illegal $10,000 contribution from a Japanese golf course developer to the 1986 campaign of former Gov. John Waihee.
The statement came during a deposition in a lawsuit filed against Y.Y. Valley Corp., developer of the troubled Royal Hawaiian Country Club in Windward Oahu.
Lum said he was hired by Y.Y. Valley Corp. to negotiate the purchase of Old Government Road from the state. He and his wife met with Waihee at the state Capitol a number of times, Lum said, and he told Waihee that "as governor he should be aware of the political effects of our application."
When asked whether he arranged the $10,000 contribution, Lum cited the Fifth Amendment and refused to answer. According to Federal Election Commission records, Y.Y Valley Corp. earlier admitted contributing a total of $10,000 in corporate funds to Waihee between Oct. 27, 1986, and Nov. 3, 1986, in violation of federal law. The company and its owners were among those fined by the FEC last year for making illegal contributions.
The Lums, along with their family, have been major contributors to the national Democratic Party since December 1991, when they gave $26,000 to the Democratic National Committee on a single day.
Those contributions were recorded just days after the two met in Honolulu with then-DNC Chairman Ron Brown.
During the 1992 presidential campaign, Nora Lum directed the Asian Pacific Advisory Council, a Democratic National Committee project that registered voters and raised funds for the DNC and the Clinton campaign.
The Lums, their family and company officers gave more than $80,000 to Democratic candidates and committees during the 1994 elections, according to FEC records.
The largest beneficiary was Sen. Edward Kennedy's campaign, which received at least $21,500.
Copyright 1995 Honolulu Star-Bulletin
Sept 11, 1995
BY IAN Y. LIND, Star-Bulletin
Former House Speaker Daniel J. Kihano steered a $273,700 nonbid contract to a consultant in 1991 over the objections of the state Health Department. Less than two years later, Kihano and the contractor, Henry Blakley, invested together in a partnership seeking to build a $5 million surgery center on Maui.
The two-year Department of Health contract for "technical assistance" in planning and developing alcohol and substance abuse detoxification programs was awarded to Blakley after then-Health Director John Lewin was called to Kihano's legislative office several times to meet with the consultant, Lewin told the Star-Bulletin last week.
Lewin, now executive director of the California Medical Association, said Kihano "strongly advocated" giving the contract to Blakley.
The contract was terminated at the end of October 1992 after Blakley had been paid $176,478 but failed to complete work called for, state records show. The state sued Blakley last year seeking to recover $42,778 paid in advance for work that was never done.
Blakley agreed in January 1995 to repay the state a total of $12,000, but those payments are delinquent and have not been completed, Deputy Attorney General Elton Au said last week.
The U.S. attorney's office has requested copies of all records related to the contract. Elaine Wilson, division chief of the Health Department's Alcohol and Drug Abuse Division, told the Star-Bulletin that her office is "cooperating fully with the U.S. attorney" and preparing to turn over "everything related to the contract, plus the products (reports) we got out of the contract."
In testimony Friday before a Health Department committee considering the surgery center plans, Kihano acknowledged he contacted Lewin after learning of Blakley's experience in hospital administration. "I was convinced that I wanted to contract Mr. Blakley to do a study on our alcohol and substance abuse problems for adolescents," Kihano said.
Kihano blasted health administrators for fighting "tooth and nail" to block the 1991 contract. "The people in the department were fighting what we were trying to get Mr. Blakley to do because they were afraid Mr. Blakley was going to take their jobs," Kihano said. "I called all these people in and tried to sit down with them," he said.
Following his testimony, Kihano declined to answer further questions from the Star-Bulletin about the contract.
Kihano retired from the Legislature in 1992 and is now an executive assistant to Honolulu Managing Director Robert Fishman.
Blakley is married to a cousin of Kihano's longtime secretary, Kihano said.
Blakley declined to comment on the contract, citing the advice of his attorney.
Lewin said funds for the contract were written into the state budget by the Legislature even though they had not been requested by the Health Department.
Lewin said: "The money for the program was put into the budget and appeared to be almost earmarked for him (Blakley)."
Lewin recalled "several meetings where I was brought in to meet him (Blakley) in Mr. Kihano's office," and acknowledged that Health Department staff "felt like there would be retribution if they didn't use his services."
Lewin said, however, "There was never any forcing anybody to use him."
Wilson said Blakley had not been selected for the contract by her division, although they were responsible for the administration of the contract. "How was he selected? I can't fully answer that question," Wilson said.
In early 1993, Kihano and Blakley became stockholders and officers of Evets Ltd., one of two general partners in Hale Nani Partners, developer of the proposed surgery center.
The other general partner, NOJ Ltd., is owned by Dr. Edward Falces and his wife, Suzanne. Falces and Kihano grew up together in Waipahu and have been lifelong friends, according to Kihano.
Both companies were initially established by Honolulu tax attorney Richard L. Frunzi and were registered at Frunzi's office address, state records show.
Blakley became the managing partner responsible for the partnership's operations. He and Kihano both had authority to sign checks for the partnership, records show. Frunzi resigned from his roles in the partnership on Aug. 9.
Hale Nani's application for a certificate of need was turned down by the State Health Planning and Development Agency in 1993, but a Maui judge ordered new administrative hearings, which are now under way. The certificate of need is required before the surgery center can be built.
Deputy Attorney General Ted Clause said during hearings on the Hale Nani application last month that Blakley and Frunzi are targets of a federal money-laundering investigation.
"I said I had been informed by the U.S. attorney that there was an investigation going on and that Mr. Blakley and Mr. Frunzi were targets of the investigation," Clause said last week.
Clause said a third man, John Bowley, has been indicted on federal drug charges. Marshall Silverberg of the government's Organized Crime Strike Force said in court that Bowley holds a promissory note for $100,000 from principals of Hale Nani, the Associated Press reported earlier.
Hale Nani Partners' attorney Deborah Wright called statements about the federal probe "an incredibly unfair tactic" by the attorney general, who represents Maui Memorial Hospital in opposing the project.
"Hale Nani Partners is not the target," Wright said. "The attorney general has confirmed that in writing to us."
Wright said Hale Nani Partners has spent more than $400,000 during the certificate-of-need process and has arranged bank financing for construction of the surgery center if state approval to proceed is received.
Photo caption:
At Hale Nani Partners offices on Maui, efforts are still under way to gain a certificate from the state to build a $5 million surgery center.
Copyright 1995 Honolulu Star-Bulletin
Sept 13, 1995
BY IAN Y. LIND, Star-Bulletin
A controversial nonbid consulting contract pushed by then-House Speaker Daniel J. Kihano in 1991 paid the rent at least briefly for an office shared by a business in which Kihano and the consultant, Henry Blakley, were partners, state records show.
The contract was one of two that were funded by the Legislature, and then awarded to Blakley over the objections of Health Department administrators. Kihano pushed the department to approve the contracts, and had several meetings in his office with then-Health Director John Lewin regarding Blakley, Lewin said last week.
The business, Hale Nani Partners, was operating from Blakley's office in September 1992, when it filed a letter of intent to build a surgery center on Maui and four other facilities on Maui and Hawaii. At that time, Blakley was still under contract with the Health Department and Kihano was near the end of his last term in the Legislature.
Blakley was subsequently designated the managing partner in the business, and shared authority over the business checking account with Kihano.
Blakley said yesterday that he cannot comment on the contract at this time on the advice of his attorney.
Kihano's attorney, Ben Cassiday, today said the state had earlier threatened to start a criminal investigation unless Hale Nani Partners dropped its pending application for the surgery center. The state's action, Cassiday says, is aimed at protecting Maui Memorial Hospital from competition.
"This whole thing is about money," Cassiday said. "It (the hospital) is ripping off the people on Maui."
Blakley first rented the office at One Main Plaza in Wailuku after receiving a $110,000 consulting contract in 1990, Health Department records show. The budget for the contract included funds for office rent, equipment, and clerical services.
Blakley retained the office after being awarded a second, two-year contract initially valued at $273,000, records show. The contract was early terminated on Oct. 30, 1992, following budget cutbacks and a dispute over Blakley's performance.
Blakley failed to complete the studies called for in the contract, and the state later went to court seeking a refund of $42,778 paid in advance for work that was never satisfactorily completed, court records show.
Hale Nani Partners was formed in June 1992, according to state business registration records. On Sept. 14, 1992, the company notified the State Health Planning and Development Agency that it intended to apply for certificates of need for five medical facilities to be proposed for Maui and the Big Island.
The letter was signed by Honolulu attorney Richard L. Frunzi, a Hale Nani partner, with copies to Blakley and Kihano.
At the time the letter of intent was filed, the company was already using Blakley's office address, and continued to operate at that location until recently.
The U.S. attorney's office has been reviewing records of the Blakley contracts for the past week and has a scheduled meeting today with Elaine Wilson, chief of the Alcohol and Drug Abuse Division, who administered the contracts.
In a Sept. 4, 1992 memo to Lewin, Wilson said the contract required "certain deliverables" or reports to be submitted in order for payments to be made.
Wilson said the first report, due February 28, 1992, did not arrive until May 5, 1992, and the second report, due June 30, had not yet been received.
"The consultant last year was paid the entire $140,000, owes us a deliverable, and now has an additional new $42,778 to complete past deliverables," Wilson said in the memo. "This could be viewed as essentially 'giving' the consultant a free $42,778. It begins to border on illegality to allocate any more dollars at this time."
The Health Department rejected a report prepared by Blakley as inadequate.
In a written review, Wilson said "the report is vague, lacks in-depth analysis, is nonspecific, and essentially will be of little use to the department."
Blakley received total contract payments of $286,478 between Aug. 15, 1990, and Oct. 30, 1992, when the contract was canceled, the records show.
Copyright 1995 Honolulu Star-Bulletin
Mar 5, 1996
BY IAN Y. LIND, Star-Bulletin
A federal grand jury is investigating allegations that several hundred thousand dollars from one of the state's largest drug rings was "laundered" through two companies involving former House Speaker Daniel Kihano, according to court records and attorneys familiar with the case.
Federal prosecutors allege that John Bowley, who has pleaded guilty to drug and money-laundering charges, conspired with others to launder drug proceeds through Hale Nani Partners and Evets Ltd., one of its two partners.
Kihano is a shreholder and officer of Evets, shared signature authority over Hale Nani Partners' bank accounts, and has been actively promoting the firm's proposal to build a $5 million surgery center on Maui. The project was approved last month by the State Health Planning and Development Agency.
Attorney Ben Cassiday, who represents Kihano, now executive assistant to city Managing Director Robert Fishman, said he believes the grand jury is considering indictments against one or more people associated with Hale Nani Partners.
Cassiday said, however, that Kihano did not deal with Bowley and "only met him about three or four times."
Assistant U.S. Attorney Marshall Silverberg told the Star-Bulletin last week he could not comment on the grand jury proceedings. Silverberg said, however, a public announcement concerning the case is expected in early April.
Cassiday said: "Mr. Kihano was never involved with obtaining the funds to create the business.
"That wasn't his job, and he had no idea the funds were tainted in any way."
Evets Ltd., which controls 80 percent of Hale Nani Partners, was formed in 1991 by attorney Richard Frunzi, according to documents filed with the state during hearings on the surgery center proposal. Frunzi later sold a majority of the stock to Kihano and business consultant Henry Blakley, a friend of Kihano's.
Frunzi said he had been contacted regarding the grand jury proceedings, but could not make any comments at this time.
Blakley was unaware of any drug money, according to his attorney, Howard T. Chang. "We're not aware of any checks from Mr. Bowley," Chang said.
Chang said there was a $100,000 loan, but a promissory note signed by Hale Nani's directors was not in Bowley's name.
"At the time it was issued, it was not with Mr. Bowley as the payee. It was blank," Chang said.
According to documents filed last year in federal court, Bowley made more than $1 million in profit distributing crystal methamphetamine and cocaine during 1993-94 through a drug ring led by confessed drug kingpin Frank Moon. Bowley, also known as "Hollywood John," transferred "hundreds of thousands of dollars" directly or indirectly to Hale Nani and Evets, while seeking to conceal "the nature, location, source, ownership and control" of the funds, the government alleged.
Hale Nani Partners received the loan of $100,000 from Bowley in October 1993, and an additional $60,000 was deposited in the Evets checking account in August 1994, prosecutors allege.
Bowley pleaded guilty in October 1995, but the plea agreement remains sealed, court records show. He is scheduled to be sentenced this year. The government is also seeking to recover funds Bowley invested in Hale Nani and two mainland companies.
Cassiday said criminal indictments, if any, will not affect Hale Nani's planned surgery center on Maui. "It's not helpful to have some of your principals indicted, if any are indicted," Cassiday said, "but it is a completely legitimate business that is very much needed and is going to result in many people on Maui getting better medical services for less money."
Copyright 1996 Honolulu Star-Bulletin
Apr 18, 1996
BY IAN Y. LIND, Star-Bulletin
A federal grand jury has indicted a Honolulu tax attorney and a Maui health consultant for their roles in an alleged scheme to launder more than $400,000 in illegal drug proceeds.
The funds ended up in the bank accounts of Hale Nani Partners, which is seeking to develop an outpatient surgery center on Maui.
According to yesterday's indictment, attorney Richard Frunzi received $100,000 in cash from convicted drug dealer John "Hollywood John" Bowley in August 1993, and an additional $310,000 in November 1993. The funds were proceeds from the sale of large quantities of cocaine and crystal methamphetamine by Bowley, currently awaiting sentencing in an earlier case, court records show.
Frunzi then gave some or all of the funds to Henry "Hank" Blakley, managing director of Hale Nani Partners, who used a variety of methods to transfer the money into company bank accounts while concealing and disguising the actual source of the cash, the indictment alleges.
Blakley and Frunzi are shareholders of Evets, Ltd., which owns 80 percent of Hale Nani Partners. The partnership received a certificate of need from the State Health Planning and Development Agency earlier this year allowing them to proceed with the surgery center. The approval came after a disputed application process lasting nearly three years.
"Mr. Blakley intends to fight this indictment to the fullest and establish his innocence," said his attorney, Howard Chang.
"We believe that the indictment represents overkill by the U.S. attorney since the charges could have been made in three or four counts and had the same effect. Unfortunately, the indictment may destroy Hale Nani Partners and their efforts to establish a much needed surgery center on Maui," he added.
Frunzi could not be reached for comment.
Former House Speaker Daniel Kihano, also a shareholder in Evets, was not named in the indictment. Kihano shared signature authority on the bank accounts of Hale Nani Partners, according to records from the certificate of need hearings, and had been actively involved in the project.
Kihano's attorney, Ben Cassiday, said this should put to rest any rumors that Kihano had a role in the alleged conspiracy. "The message is clear," Cassiday said.
According to the indictment, the drug-related money was used to support the Hale Nani project during the appeal of an initial denial of its certificate of need application.
The initial drug funds were received from Bowley in August 1993, the same month the appeal was filed.
The indictment says that the cash was split into smaller amounts and deposited in various accounts at First Hawaiian Bank and First Hawaiian Creditcorp.
An initial $100,000 was in the form of a loan, the indictment states. Later, Blakley allegedly deposited some cash into his personal checking account, then wrote checks to Hale Nani Partners.
In other cases, Blakley arranged for cash to be deposited into the personal checking accounts of employees, friends, and family members, while asking them to write checks for similar amounts to Maui Medical Management, a business name used by Evets.
The indictment alleges that as a result of his cash investment, Bowley became a part owner of Evets and Hale Nani Partners.
U.S. Attorney Steven S. Alm said yesterday's indictment resulted from a joint investigation of the Internal Revenue Service and the FBI.
The case has been scheduled for trial in June.
Each money laundering count in the 114-count indictment carries a maximum penalty of 20 years in prison and a fine of up to $500,000.
The indictment also seeks forfeiture of the defendants' interests in Evets and Hale Nani, and at least $300,000 in cash.
The outcome of a separate federal probe into a $270,000 Department of Health nonbid contract that Kihano steered to Blakley in 1991 is unclear, although Cassiday believes it was dropped for lack of evidence of wrongdoing.
Health Department officials, including then-Director John Lewin, say Kihano insisted the contract go to Blakley despite their strong objections.
Copyright 1996 Honolulu Star-Bulletin
Aug 2, 1996
BY IAN Y. LIND, Star-Bulletin
Federal prosecutors are presenting new evidence to a grand jury that could bring additional charges, and defendants, in a money-laundering case that already has seen indictments against two backers of a proposed outpatient surgery center on Maui.
Among those linked to the case is former state House Speaker Daniel Kihano, a partner in the project who was one of the original targets of the probe but was not indicted.
The same grand jury in April issued a 104-count indictment against two of Kihano's business partners, Honolulu attorney Richard Frunzi and Maui health consultant Henry "Hank" Blakley, for money laundering and conspiracy. Two companies, Hale Nani Partners and Evets Ltd., were also named in the indictment.
Frunzi, Blakley and Kihano are stockholders and directors of Evets, which in turn controls 80 percent of Hale Nani Partners. The partnership received state approval this year to proceed with the $5 million surgery center.
Kihano, now a special assistant to city Managing Director Robert Fishman, recently announced he will step down from his $72,000-a-year job this month after completing the "high three" years that will greatly boost his retirement pay from that earned during his legislative career.
Attorney Howard T. Chang, who represents Hale Nani Partners and formerly represented Blakley, indicated in a May 6 letter to Assistant U.S. Attorney Elliot Enoki that new charges are likely.
"I have been informed by Assistant United States Attorney Marshall Silverberg that the grand jury investigation in this case is continuing and that a superseding indictment adding more charges and possibly more defendants may be sought from the grand jury as early as mid-May 1996 or thereafter," he wrote.
Silverberg confirmed this week that the grand jury probe is continuing but declined further comment. Chang also declined comment on documents he filed in the case.
Prosecutors say three convicted drug dealers are expected to testify at the trial, scheduled to begin in February 1997.
John Bowley and William Batkin, convicted of supplying large amounts of cocaine and crystal methamphetamine - "ice" - to a drug ring headed by convicted drug kingpin Frank Moon, are expected to testify that Frunzi knew $410,000 he received in cash from Bowley was drug money.
Harry Dong, who pleaded guilty to conspiracy to distribute ice, is expected to describe meetings between Batkin and Frunzi, prosecutors say.
They say they will seek immunity for and compel the testimony of Ramon Lindberg, who they say has information about the relationship of Bowley to both Blakley and Kihano.
Lindberg, who was manager of Club Magazine Girl, Club Bon Soire and Club 777, faces federal charges in a separate case for allegedly helping his mother and other family members conceal more than $1.1 million in income in order to avoid taxes.
Chang's documents disclosed that prosecutors obtained internal business documents along with secret tape recordings of partnership meetings and conversations between partners. The materials were turned over by Edward and Suzanne Falces, minority partners in Hale Nani.
Edward Falces, a friend of Kihano since the two were boys in the same Waipahu neighborhood, is a physician who invested in the project with the understanding that he would become medical director of the new surgery center, court files show. The Falceses are not suspected of wrongdoing, prosecutors say.
Copyright 1996 Honolulu Star-Bulletin
Feb 28, 1996
BY IAN Y. LIND, Star-Bulletin
Atlantis Submarines paid the Hilton Hawaiian Village Hotel more than $435,000 in fees and commissions in 1995 for the right to pick up passengers at the hotel's landmark pier on Waikiki Beach.
But the state, which owns the submerged lands on which the pier is built, collected less than $28,000 in lease rent from the hotel that year.
The transaction was revealed in a January financial statement submitted by the hotel to the Department of Land and Natural Resources. Just two years ago, the hotel was cited for "unlawful enrichment" following a similar profit.
The disclosure comes as the hotel is balking at state efforts to increase the rent for the famous slice of Waikiki coastline.
Negotiations between the hotel and the state over a new lease stalled late last year, state land records show. According to correspondence on file, Hilton has rejected a provision calling for it to pay 3.5 percent of all income and revenues derived from tour operations that use the pier.
The state wants to base the rent on all income Atlantis makes from its tours, rather than the far smaller amount Atlantis pays to Hilton. The difference could mean additional state revenues amounting to tens, perhaps hundreds, of thousands of dollars each year.
Atlantis, which shuttles passengers from the pier to its offshore submarine dive site, said last year it averages 1,000 customers a day in Waikiki. Club Atlantis, a joint venture between Hilton and the submarine firm, also began operating reef diving and related ocean activities from the pier during 1995.
"We want a percentage of the gross, but they are trying to wiggle out of that," said state land agent Cecil Santos. "Originally they said it was something they could work with. Now they're going to see if they can cut that down, but we're set on that."
Despite the state's intent to increase the pier rental, delays and confusion surrounding the new lease have left Hilton paying less than it did two years ago. In February 1994, Hilton was paying the state $3,485 per month, or $41,820 per year.
During 1995, Hilton paid a total of $27,958.35, according to the financial statement.
Critics say higher fees are long overdue, and fear that the state may abandon its rent demand and quietly make a deal favorable to the hotel, which is the largest in Hawaii.
Honolulu attorney Stephen Pingree blasted the state's handling of Hilton and Atlantis.
"It's abominable, in this day and age when workers are being laid off and benefits to needy people being cut, that they are allowing Atlantis to pay less than a fair market rent."
Pingree also questioned whether any lease can be legally granted at this time. "The business of how much they should be paying is secondary," Pingree said. "The very fact of whether they have a right to a lease is in question."
Pingree pointed to a state law prohibiting a lease going to anyone that has had a permit or lease canceled because of violations within the previous five years.
In February 1994, the Land Board ruled that use of the pier by Atlantis violated the hotel's permit, imposed a $2,000 fine, and required the hotel to forfeit $11,109 in profit it said was "unlawfully" earned through the arrangement. The hotel was also forced to negotiate the new lease, with its higher payments, to replace the revocable permit first issued in 1964.
The state says the prohibition does not apply because the Hilton's permit was canceled to make way for the proposed lease and not as punishment for violations.
Peter Schall, area general manager for Hilton, told the Star-Bulletin last week that only minor disagreements over language in the lease remain. "We actually do have a lease and we have abided by the lease for the last two years," Schall said.
In a Jan. 12 letter to Santos, however, Schall acknowledges the lease is still in draft form and says Hilton won't commit to the terms the state originally proposed.
In the letter, Schall identified the state's desire to recapture "sandwich profits" as the most critical issue. If the hotel cannot make a profit by charging Atlantis more than it pays the state, "we would have no incentive whatsoever to make the Pier or our vessel available to support those dives."
Schall, in a telephone interview, objected to suggestions that the pier lease should be auctioned to the highest bidder, like most other state leases. "The pier is ours because we built the pier. The pier was built under an existing lease that we have had for many, many years, and we have operated that pier very responsibly."
The percentage rent proposed by the state is less than the 5 percent charged other lessees by the land board, Santos acknowledged.
Copyright 1996 Honolulu Star-Bulletin
Oct 9, 1995
BY IAN Y. LIND, Star-Bulletin
CHARITY events can be moneymakers, but businesses that promote and market them often walk away with most of the funds. State officials say it's a case of "buyer beware."
Five hundred people paid $10 each to attend a "big band" dance in July benefiting Adult Friends for Youth, a nonprofit group providing outreach services in gang-prone neighborhoods. The group ended up with a check for just $167 out of the $5,000 or more raised.
1,400 people attended a similar dance concert a month earlier to benefit the Honolulu Police Department's Juvenile Services Division. With $10 tickets and a one-drink minimum, the dancers spent close to $20,000, but HPD received a check for just $977.69.
Telephoners sold $274,304 worth of tickets and advertising for the Hawaii Police Athletic Federation's Celebrity Sports Challenge last year, but the group got just $27,430, 10 percent of the money.
In these and other cases repeated across the state, individuals and businesses may be surprised to find that 80 cents or more of each charity dollar often goes into the pockets of telemarketers, show producers, or other professional fund-raisers.
This far exceeds the charitable guideline set by the Philanthropic Advisory Service of the Council of Better Business Bureaus, which recommends that fund-raising costs not exceed 35 percent of total contributions.
Functions aren't regulated
The Rev. Frank Chong, executive director of the Waikiki Health Center and a longtime leader among Hawaii nonprofit groups, said health and human service agencies here "steer away from" telemarketing and professional solicitors. Some, like the American Cancer Society, have policies prohibiting telephone solicitations from the general public and strictly limiting fund-raising expenditures.
Sidney M. Rosen, executive director of Adult Friends for Youth, is now concerned that the "benefit" description can mislead consumers compared to the meager returns to the charitable groups. "When somebody is doing a charity function, what does that really mean?" Rosen asked.
"The name of the charity legitimizes it, and it seems like everybody is doing a good deed by participating. But there's nothing in the law that identifies how much the charity should be getting out of the event," he said.
Rosen said Adult Friends for Youth never uses paid solicitors, and was approached to be a beneficiary of a charity dance. Rosen agreed to let the group's name be used before learning the dance was a business promotion for a Honolulu radio station.
A lesson learned fast
In a more typical arrangement, a telemarketing company contracts with a charity to organize a special event and sell tickets by phone to local residents and businesses.
Honolulu PAL Boosters Inc. contracted last year with the National Benefit Co. of Waterbury, Conn., to produce and market a wrestling show and an advertising booklet.
"It was the first year we did this, and our last," said Boosters president Wayne Kishida. "Too much money goes out to the solicitor."
Tickets and advertising worth $282,469 were sold but PAL Boosters received only $64,042, or 23 percent of the total, state records show. The rest went to the telemarketing firm.
"Our name sells, so it was easy for them to sell ads and stuff," Kishida said.
The PAL Boosters support teams that are part of the Police Activities League, a project of the Honolulu Police Department.
Kishida said he had to spend time every day responding to questions from people wanting to verify that the telemarketer's sales pitch was authorized by PAL. A number of businesses also complained they felt pressured by "runners" who showed up almost immediately to pick up money pledged. The runners are hired by telephone solicitors anxious to boost their own commissions, Kishida said.
Avoiding ethical problems
PAL fared better than the Hawaii Police Athletic Federation, which ended up with just 10 percent of the $274,304 raised last year by its Celebrity Sports Challenge, a basketball game between a team of police officers and one made up of National Football League players.
Federation Vice President Dennis Peterson, a retired Honolulu police officer, said the group decided to use a professional fund-raising firm to avoid ethical problems.
"We could do it ourselves, but police officers aren't allowed to solicit," Peterson said. "Even if I'm a retired police officer, people might feel some kind of intimidation. There's that pressure there. We felt it would be a lot cleaner if we stayed out of it."
A consumer's responsibility
State officials and national watchdog groups say it is up to consumers to defend themselves from deceptive or misleading solicitations by asking how much money will go to the charity, and how it will be spent, before agreeing to make any donations, especially when responding to telephone or door-to-door appeals.
Russell Yamashita, securities commissioner for the Department of Commerce and Consumer Affairs, said the state has little control over fund-raising despite registration of charitable groups and financial disclosure requirements.
"We accept the information submitted (by charities and telemarketers), but we can't even verify or audit it," Yamashita said.
Copyright 1995 Honolulu Star-Bulletin
Dec 13, 1995
BY IAN Y. LIND, Star-Bulletin
A telemarketing company recently barred from doing business in Oregon for five years is running a telephone sales campaign for the Hawaii Police Athletic Federation.
A lawsuit charging the company with misleading consumers has been filed by the attorney general of Washington state.
The Hawaii promotion is proceeding despite the firm's legal woes and in the face of Honolulu Police Chief Michael Nakamura's recent call for police-related organizations to get out of the telemarketing business.
The company, Bellevue, Wash.-based Tri-Star Productions Inc., has an office in Kakaako and is selling tickets and soliciting contributions by telephone for the Celebrity Sports Challenge. It's a basketball game in which police officers compete against professional football players.
A portion of the proceeds goes to the police group, which funds scholarships, makes donations, and underwrites certain expenses for police officers competing in the International Law Enforcement Games, held every two years.
The board of directors of the Hawaii Police Athletic Federation was informed of the pending legal actions earlier this year but voted to stick with Tri-Star until its three-year contract expires in 1996, said Dennis Peterson, a retired Honolulu police officer and fund-raising chairman for the group.
At the time of the vote, the Oregon ban had not been signed.
"If somebody is suing somebody in court, until that is settled the man is innocent," Peterson said last week. "In my whole police career that's what I was taught. We couldn't break our contract just on the allegations."
Peterson said what to do next is up to the group's directors.
The Oregon ban was agreed to by Tri-Star owners Joseph "Mike" McGuinn and Colleen F. McGuinn, and three related companies, to settle a lawsuit brought by the state attorney general. The lawsuit alleged Tri-Star repeatedly made false or misleading statements to consumers in violation of state laws. Among the allegations:
•The companies failed to properly register with the state and disclose activities as required.
•Solicitors falsely claimed to be volunteers for the charitable organizations and did not disclose they were paid employees.
•Funds raised for at least one "charity" event were kept by Tri-Star and never turned over to the charity.
•Solicitors falsely claimed that unused tickets would be donated to community groups for use by needy children, but the company was not authorized to make those claims and did not give tickets to designated groups.
•Tickets and advertising were sold for one group, Athletes Supporting Kids, that Oregon officials allege was established and controlled by Tri-Star for its own commercial gain.
The pending case in Washington is described by Assistant Attorney General David M. Horn as "probably our biggest enforcement action against a commercial fund-raiser raising money through charitable solicitations." Horn said the action against Tri-Star stands out "because of the magnitude of the problem, the extent of the alleged misrepresentations and the fact they are still operating."
Telemarketers have traditionally used high-pressure techniques to sell commercial products and services, but in the last few years they have moved into charity marketing. They are controversial because of reports of misrepresentation and fraud, and because most of the money raised - 80 percent or more - typically goes for commissions and fees for the marketing company, leaving little for the charities.
During the year ending June 30, 1994, the Hawaii Police Athletic Federation received $27,430 of $274,304 raised by Tri-Star.
A report by the Better Business Bureau of Hawaii says no complaints about Tri-Star have been received here in the last three years.
Washington's Horn said, however, that consumer complaints are infrequent in charitable solicitation cases. "You agree to a donation, off it goes, and all you really know is that someone cashes your check. You assume it went to the charitable organization."
Mike McGuinn acknowledges mistakes were made by his salespeople.
Keoki Simmons, a Honolulu resident who solicited contributions while working for Tri-Star during the last two months, said he was told to "sound authoritative, sound like a policeman."
Simmons said he was never told to pose as a police officer, but was shown how to indirectly convey that impression.
If asked whether the athletic group was part of the police department or related to better-known police department programs, Simmons said he was instructed: "Say what you want. Get the money."
Copyright 1995 Honolulu Star-Bulletin