January 26, 1998 Main Secion, Page 3
BY IAN Y. LIND, Star-Bulletin
Peter P. Wong, who has been accused in court proceedings of looting the Pacific Group Medical Association, is getting free legal support from a state agency in an unrelated case.
The state Real Estate Commission and its Real Estate Recovery Fund have intervened in a suit stemming from Wong's actions as broker in the 1996 sale of a condominium to PGMA Inc., a company he owned. The company later stopped making payments required by the 10-year agreement of sale.
Wong was the broker representing both the seller and the purchaser in the transaction, court records show.
Wong, who has moved to California, did not respond to the suit and was about to lose the case by default when the state intervened.
Commission officials say they intervened to block any unnecessary payout from the recovery fund, but the effect is to provide a free legal defense for Wong.
Honolulu attorney Ken Kuniyuki, who filed the real estate fraud case on behalf of a condominium unit's original owner, is angry about the state's move.
"What's happening is that Peter's getting a free attorney at public expense, and that's not right," Kuniyuki said.
The commission intervened despite Wong's role in the costly collapse of the nonprofit health insurance firm, seized by the state last year.
In court documents, Insurance Commissioner Rey Graulty, the court-appointed liquidator of PGMA, has charged that Wong totally controlled the association's operations and diverted funds from the nonprofit insurer into a series of for-profit companies he controlled, then misstated the association's finances to conceal the losses.
The insurer left an estimated $18 million in unpaid bills, and assets have not been found to pay any significant part of the losses, court records show.
Rodney Nishida, the commission's attorney in the case, said it is unusual for the commission to intervene.
It happened in this case, Nishida said, because the Real Estate Recovery Fund would ultimately have to pay any judgment, and the commission obtained an affidavit from Wong in which he denied the charges.
State law provides that a plaintiff who gets a judgment against a licensed real estate professional based on fraud, misrepresentation or deceit, and is unable to collect, can later apply for payment of up to $25,000 from the fund.
Nishida declined to comment on how the decision to intervene was made in this case because it involved "attorney-client matters."
Commission executive officer Christine Rutkowski said she did not know whether the decision to intervene required commission approval.
Rutkowski said tax dollars are not involved because the recovery fund is supported by a one-time licensing fee paid by real estate brokers and sales agents.
The action "was in defense of the recovery fund and not to defend the individual licensee," Rutkowski said. Rutkowski said she did not know whether the commission directly intervened in any other cases during the year.
The allegations of real estate fraud arose in one of a series of transactions in which Wong arranged to purchase properties from individuals who were officers or directors of companies he controlled. Margaret Wong was an employee of Pacific Equity Growth & Management and a director of Pacific Equity Factors Inc., both owned by Wong.
According to court records, Peter Wong suggested she sell her Honolulu condominium to another company he controlled, PGMA Inc. Margaret Wong and Peter Wong are not related. The sale to PGMA went forward as an unrecorded 10-year agreement of sale, with PGMA making just a $500 down payment, court records show.
Peter Wong was the broker representing both the buyer and seller in the transaction. After the sale, the unit was rented with PEGM as managing agent and Peter Wong as its representative, court records show.
PGMA stopped making payments to Margaret Wong at the beginning of 1997, although the company continued collecting monthly rent checks from a tenant, court records indicate.
Margaret Wong then sued to regain clear title and for losses she sustained in the deal. An expert hired to review the deal concluded that Peter Wong "engaged in fraudulent dealings and misrepresentations" during the transaction.
Michael Pang, president of Monarch Properties, stated in an affidavit that Peter Wong took advantage of his position to benefit himself and his company by "using fraudulent, dishonest and unethical conduct which breached our real estate licensing rules and laws."
Pull-quote:
" Peter's getting a free attorney at public expense, and that's not right. "
Ken Kuniyuki
Honolulu attorney who filed the real estate fraud case
Copyright 1998
Feb 5, 1998
BY IAN Y. LIND, Star-Bulletin
State Insurance Commissioner Rey Graulty filed suit this week against the United Public Workers union and an affiliate of the Hawaii Government Employees Association to recover $2.4 million allegedly owed for Pacific Group Medical Association premiums.
Graulty, the court-appointed liquidator of PGMA, says he could eventually recover enough to pay half of the $18 million in outstanding claims against Pacific Group Medical Association if this suit and a series of other pending and planned legal actions are successful.
"It's still too early to say for sure, but I'm the perennial optimist," Graulty said.
The United Public Workers and the Voluntary Employee Benefit Association of Hawaii, which arranges health insurance for the Hawaii Government Employees Association, collected premiums from union members but withheld payments to PGMA for two months in early 1997 because of a dispute over late payment of claims.
UPW owes $1,497,412.66, while VEBAH owes $874,437.11, plus interest and attorneys fees, the suit alleges. The unions have argued in court proceedings that the funds should be set aside to cover the outstanding medical claims of their members, but Graulty has insisted that any funds recovered must be applied fairly to all outstanding claims.
At the beginning of 1997, UPW had 6,793 people with PGMA coverage, while HGEA had 6,029. The union members and their families accounted for 46 percent of all PGMA members, court records show.
Graulty has also sued the officer and directors of PGMA in an attempt to collect up to $5 million from a corporate insurance policy, and hopes additional amounts can be recouped from PGMA's reinsurance and from Peter Wong, the former island executive who controlled the association.
Copyright 1998
Feb 10, 1998
Main Section, Page 3
BY IAN Y. LIND, Star-Bulletin
A group of 217 doctors and medical businesses who say they are owed nearly $2 million by the failed Pacific Group Medical Association has filed suit against former officers and directors of the association and an affiliated company.
The legal action comes just six weeks after a similar suit by Insurance Commissioner Rey Graulty, court-appointed liquidator of PGMA, and sets in motion a legal struggle over the disposition of any funds recovered.
Graulty, in other court proceedings, has said recovered funds must be applied fairly among all creditors of PGMA, while the doctors' claim apparently seeks to establish a priority for payment.
PGMA was seized by the state in March 1997 after it became insolvent and stopped paying claims, leaving behind an estimated $18 million in debts.
The suit, filed by Honolulu attorney Robert D. Kawamura, alleges that mismanagement and diversion of funds led to PGMA's downfall. Funds were "intentionally, negligently, wrongfully and maliciously diverted" from PGMA and Pacific Equity Growth & Management Inc., which had a contract to manage the daily affairs of the association, the suit charges.
Officers and directors of the companies failed to carry out their fiduciary duty to PGMA and its members by not exercising "utmost care" in managing PGMA or giving the association "undivided, unselfish, and unqualified loyalty."
The suit asks for triple damages for unfair and deceptive trade practices, because PGMA continued to sell insurance after it had become insolvent and its officers knew they could not provide the promised coverage.
Peter P. Wong, president of PEGM, who has emerged as a central figure in the insurer's collapse, is named as a defendant, along with his wife and mother, who were also corporate officials.
Other defendants are Randy Ko; Byron Graves Jr.; Edwin Ramos; Henry Akiu Jr.; Richard Stiles; Mark Hopkins; William A. Williams, also known as Billy Williams; Harold Y. Kuwahara; Juan Martin Gonzales; and Mike Clear. All served as officers or directors of PGMA or PEGM, according to the suit.
Copyright 1998
January 14, 1998
Company owned by UPW head's daughter subpoenaed
By Ian Lind
Star-Bulletin
A company owned by the daughter of labor leader Gary Rodrigues has been hit with a subpoena for records as part of the probe into the collapse of Pacific Group Medical Association.
The subpoena seeks records of all payments or transactions between PGMA or related companies and Four Winds RSK Inc., a Kauai consulting and marketing company, court records show.
Four Winds was incorporated in February 1996 by Robin H. Rodrigues, according to state business registration records. Rodrigues, who is registered as the company's sole officer, is the daughter of United Public Workers head Gary W. Rodrigues.
Robin Rodrigues did not respond to messages seeking comment that were left at her Kauai home and business.
The senior Rodrigues' union, which represents blue-collar state and county workers, offered PGMA health insurance to its members as an alternative to the plans reviewed and approved by the state Public Employees Health Fund.
Members of the UPW and the Hawaii Government Employees Association, which represents white-collar workers, accounted for nearly half of PGMA's peak enrollment of 28,000. The unions pulled their members out of PGMA several months before the state's takeover.
Thomas E. Hayes, special assistant to Insurance Commissioner Rey Graulty in his capacity as liquidator of PGMA, said the Four Winds' transactions are under investigation but declined further comment.
Gary Rodrigues said the company's records had been subpoenaed along with those of other companies appearing on PGMA's books.
Rodrigues said he is actively cooperating with Graulty's investigation and that he believes the interests of UPW members will be protected.
Rodrigues declined to comment further, citing litigation.
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Fraud is deemed likely in the collapse of the Pacific Group
Medical Association
Insurer diverted funds, investigator says
By Ian Lind
Star-Bulletin
Fraud and diversion of funds were likely contributors to the collapse of Pacific Group Medical Association last year, according to Thomas E. Hayes, special administrative assistant to Insurance Commissioner Rey Graulty.
Hayes said funds were diverted from the nonprofit insurer into a maze of for-profit companies controlled by PGMA insiders.
Graulty is court-appointed liquidator of PGMA, and Hayes is directing the search for the nonprofit insurer's remaining assets.
Hayes said he has identified 45 different bank accounts but so far only has complete records for two of them.
"The money circulated back and forth (between the companies) without any business purpose," said Hayes, an experienced fraud investigator who has been court-appointed trustee in several high-profile cases involving complex business failures.
"We don't know how much of the loss is due to poor underwriting and how much was siphoned off for illegal or unauthorized purposes," he said.
PGMA, once a fast-growing firm that offered low-priced health insurance plans, ran into financial problems and was seized by the state in March 1997.
PGMA members, including thousands signed up through public-employee unions, could eventually get hit with the insurer's share of medical bills that remained unpaid when the state stepped in.
Attorneys for two groups hit by the insurer's collapse also suspect fraud.
Paul Schraff and Ryan Dwyer, attorneys for the Voluntary Employees' Benefit Association of Hawaii, have alleged in court proceedings that PGMA "was nothing short of an outright fraud" for months before the state took it over.
"By then, PGMA was no more than a Ponzi scheme, using 'current' dues to pay old claims with no prospect at all of every paying 'current' claims," they charged.
Honolulu attorney Robert Kawamura, who represents medical providers owed money by PGMA, told the Star-Bulletin his preliminary investigation points to the diversion of funds.
"We're talking about millions of dollars. That kind of money doesn't disappear overnight," Kawamura said. "It's got to be somewhere, and we believe it's tied up in real estate and other companies in which these people invested."
Graulty and Hayes are in the process of tracing all funds that flowed out of PGMA's accounts to determine what can be recovered.
Records have already been subpoenaed from individuals and businesses in Hawaii and California.
Graulty recently sued officers and directors of PGMA, alleging they failed to prevent mismanagement, misappropriation and other wrongdoing by corporate officials.
Graulty said he is now preparing legal action against former Honolulu real estate broker and insurance executive Peter Po Sang Wong, a key figure in PGMA's complex financial structure.
Wong, who is now living and working in California, did not return calls from the Star-Bulletin.
Wong was not an officer of PGMA, but, according to a 1994 examination of the company by state regulators, he controlled PGMA's key underwriting and marketing decisions through ownership of Pacific Equity Growth & Management, the association's sole marketing agent.
Wong was the managing general agent and plan administrator for PGMA and coordinated, authorized and reviewed "most of the association's major transactions and contracts" along with its marketing efforts, the report said.
Hayes said many of PGMA's officers and directors were employees or sales agents working for Wong.
Hayes is attempting to trace funds that flowed from the association to PEGM, and then to companies controlled by Wong or linked through overlapping officers and directors.
The companies include PGMA Inc., a for-profit company that shared the initials of the nonprofit insurer; Pacific Equity Factors; Pacific Employee Leasing Inc.; Pacific Equity Printers Inc.; Pacific Benefit Services Inc.; and Po Sang Corp., a Cayman Islands company.
One transaction disclosed in court records involves a check for $431,974.08 dated Aug. 4, 1994, from the PGMA Disability Benefit Fund to Pacific Equity Growth & Management Inc. Bank notations on the canceled check show it was exchanged for a cashiers check.
The cashiers check is believed to have wound up in an account of Ling Fong Wong, Peter Wong's mother, and then went into an escrow account, Hayes said.
Real estate records show Ling Fong Wong purchased a $1.75 million home on Hawaii Loa Ridge at that time which was later listed in state business registration records as Peter Wong's residence.
Unpaid bills left in the wake of the insurer's collapse are now expected to reach $18 million, substantially higher than earlier estimates, according to recent accountings disclosed in court. Cash on hand at the end of November 1997 amounted to just $1.5 million, the records show.
A court injunction currently blocks medical providers from trying to collect PGMA's unpaid bills directly from individual patients. A ruling on whether patients will have to pay the unpaid bills is not expected until later.