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Sunday, August 23, 2020
Insider Cacao Scheme: KSBE out $4M -- but OHA Dodges Bullet
By Andrew Walden @ 1:06 AM :: 2110 Views :: Ethics, OHA

Millions are given to those who “know how and who to ask.”- Hawaii State Auditor Report on OHA Finances, January, 2018

by Andrew Walden

The 222 acre Kalona Brand Company cacao farm on Oahu's North Shore has announced it is shutting down and liquidating assets.  What is not mentioned in this week's news coverage is that Kamehameha Schools is out $4M in the deal.

That's not surprising.  This is Hawaii. 

What is surprising:  Trustees for the Office of Hawaiian Affairs DIDN'T get suckered into ‘investing’ $2.7M into this designed-to-fail insider scheme. 

As Hawai’i Free Press explained August 24, 2019:

With all eyes on Mauna Kea, Office of Hawaiian Affairs (OHA) and Kamehameha Schools (KSBE) insiders are taking the opportunity to grab for millions of beneficiary dollars.

With ‘the 72-hour rule waived’ and OHA Trustee Brendon Lee leading the charge, a $2.7M ‘investment’ of OHA beneficiary dollars was rushed onto the ‘new business’ agenda of the Committee of Resources and Management August 21, 2019.  The item reads:

New Business: Action Item: RM #19-12, Consider funding the Kalona Brand Company LLC private placement Investment Opportunity in an amount not to exceed $2.7MM from the Hawaii Direct Investment portfolio.

Kalona Brand Company LLC, according to DCCA records, was formed November 2, 2018.  Its four member-managers include Oregon-based Eric Pond of Greenleaf Farm Management and Noel Kullavanijaya of Equilibrium Capital—the parent company of BioLogical Capital.  Apparently representing Kamehameha Schools, the other two member-managers are KSBE CFO Ben Salazar and KSBE ‘Senior director of regional strategies for O'ahu’ Kamuela Cobb-Adams.  Kawika Burgess, a former OHA COO and former KSBE Land Manager, is the President and CEO of Kalona.  OHA Trustee Brendon Lee is the Oahu President of the Kamehameha Alumni Association.  An April 30, 2019 Kalona news release says: “The founders of the company include Hoʻoulu Mahiʻai LLC, an affiliate of Kamehameha Schools, Equilibrium Capital Group, and Greenleaf Farm Management.” 

Approved by the RM committee, RM #19-12 was rushed onto the Board of Trustees agenda the very next day—again with the ‘72-hour rule’ waived.

But instead of being rushed into rubber-stamping an obvious insider deal, Trustees Keli’i Akina, Carmen Hulu Lindsey, and Kalei Akaka voted ‘No.’  With trustees Lei Ahu Isa and John Waihee IV absent, the three ‘No’ votes were enough to deny Lee the super-majority he needed to approve a multi-million dollar ‘investment’ of OHA beneficiary dollars.

Beyond the one-sentence text of RM #19-12, very little information is available about the suitability of Kalona as an investment.  OHA Trustees were given a ‘confidential’ Kalona-related meeting packet.  The public portions of the meeting packets for both RM and BOT are not available on line.  During the OHA BoT debate, it came out that:

  • Kalona was promising no returns for 15 years 
  • OHA’s $2.7M would buy OHA 28% of Kalona shares
  • KSBE has ‘invested’ $4M and owns 40% of Kalona shares

Did Kalona’s failure to trick OHA Trustees into coughing up $2.7M lead to the closure?

The Star-Advertiser reports:

“…a long-held objective to raise $3 million for a second phase of the farm plan could not be achieved, and that led Kalona’s partners to consider other options….”

Did Kalona’s farm plan consist of burying capital and raising salaries?   

We asked Burgess,

“How much of KSBE's $4M 'investment' are you refunding to the Trust?” 

He did not reply.  

Raising multi-million dollar ‘investments’ from KSBE and others is rewarding.  As the Star-Advertiser August 21, 2020 points out:

Kawika Burgess, company CEO, said all was going according to plan until an effort failed to raise capital from other investors for a second phase.

“The business hit a lot of its goals and objectives, operationally and financially,” he said. “Everything was going well.”

Kalona quickly steered its plans away from crops that would generate revenue anytime soon:

The plan also included devoting 20 acres to provide local consumers and schools with organic fruits and vegetables, including taro, tomatoes, lettuce, peppers, cabbage, cucumbers, beets and radishes. But this aspect was abandoned early on in favor of a simpler focus on tree orchards.

According to HNN, “The sustainable farm venture partnered with Kamehameha Schools 5 years ago.”  That implies Kalona’s burn rate is $800K per year.  Did Burgess tell KSBE that he would need a steady flow of free money for the next 15 years to make good on the Trust’s investment? 

KSBE also did not answer our questions:

Is KSBE's 'investment' now considered a total or partial loss?

How would KSBE respond to the assertion that this deal was always doomed to fail and is just another example of political insiders looting the KSBE trust to line their own pockets?

Some questions need not be answered.


July 26, 2020: Miske Lawyer Behind Campaign to Unseat OHA Trustee Keli’i Akina

Aug 24, 2019: With All Eyes on Mauna Kea, OHA, KSBE Insiders Make a Quick Grab for $6.7M

KWO July, 2019: Trustee Brendon Lee: OHA Should be a Center of Influence Peddling


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