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Saturday, May 27, 2017
Randy Roth: OHA Copies Bishop Estate--Misusing LLCs to Hide from Law
By Video @ 4:50 AM :: 8738 Views :: Ethics, OHA

Randy Roth testimony begins at the 3:15 mark

Highlights from Randy Roth testimony and Q&A:

“I’m … here because 20 years ago I was involved in what some then called the Bishop Estate Controversy. I co-authored with Judge Sam King a book called ‘Broken Trust’ about it.  And one aspect of that situation I think is similar to my perception of one aspect of what you’re facing today.  It primarily has to do with the use of what I’m describing as ‘wholly-owned subsidiaries’, these LLCs that OHA has set up.  Simply stated, I think regardless of how the question of OHA’s legal status is resolved, I think there are reasons why OHA can’t be using the LLCs to get around laws that would otherwise be applicable to OHA and OHA Trustees.  

“If, for example, OHA is a State agency, I believe very strongly that these LLCs are subject to procurement laws, public information and Sunshine laws.  You simply can’t hide things by dropping them into a wholly-owned subsidiary such as these LLCs, in my opinion. 

“If instead, OHA is a classic trust, then trust law applies.  I think there are a variety of fiduciary duties that make it improper for OHA Trustees to, in effect, delegate extremely important functions and to do it in a way I think would not enable anyone to hold OHA Trustees accountable for the delegation or for the acts of their agents or for a number of other duties the OHA Trustees simply cannot rid themselves of simply by dropping assets and activities into LLCs.

“So, my bottom line on all this–I think on the audit which you are about to conduct—and I commend you—I think that’s exactly what is needed.  I think the public will support that very, very strongly.  I think particularly your beneficiaries will support that very strongly.  I would simply say that it’s critically important—in my opinion—that those LLCs be included.   

“I’ve read published reports suggesting to me that legal counsel that you have evidently received in the past having to do with these LLCs in my opinion is very questionable.  And I believe those lawyers who gave that advice having to do with those LLCs have their own interests to protect at this point in time.  So I would suggest to you that, in my opinion, they have a conflict of interest.  As fiduciaries I think it is critically important that you not seek legal advice on issues such as I am testifying on from attorneys that I believe have a conflict of interest on those specific issues.  

“I really appreciate that you’re allowing me to share my thoughts on these critically important issues and I’d be happy to address any questions you might have….”

Q&A begins at 9:50 mark.  

At 15:10: 

“…While the law is confusing in some ways, I personally think OHA is a State agency.  Obviously, all of you have been holding yourselves out as Trustees holding trust assets.  So at least arguable you’re subject to all of the restrictions that would apply to a State agency and all of the fiduciary duties that would apply to trustees. 

“Your situation in that regard is quite unique.  And so when I sit here and offer you expert testimony, it is my opinion, based on a lot of complicated input, that you simply can’t do what I think has been done with the LLCs in the past.

“I don’t know all the details, which is one reason why I think the audit is necessary.  I certainly don’t know what the motivation was in setting them up in the first place.  But if you drop down a function that would otherwise be subject to Information Practices, Sunshine Laws, Procurement Laws into a wholly-owned LLC—in my expert opinion that does not shelter that from those laws.

“Similarly, if you have various fiduciary duties as Trustees that would require you to do something and you’re trying to avoid that by putting it—and even if your motive isn’t to avoid it—if the effect is to avoid those fiduciary duties by dropping it into a wholly-owned LLC, in my opinion that is a breach of the duty.”

at 18:05: 

“…What I’ve seen (in the media) has suggested, for example, on some procurement issues, that Trustees have relied on advice that to me is simply wrong on its face.  And with respect to Information Practices issues, whether or not to respond or how to respond to a 92-F request for information, for example, I’ve seen a letter from attorneys representing the Trustees that I think is simply on its face wrong.  I think its legally indefensible.   

“If my conclusion is correct, then I think whomever provided that legal advice has some issues of their own and that would cloud their judgment in providing advice now on whether my testimony is accurate or not.”

at 20:10

“(Trustees) have a duty to be accountable.  You have a duty to communicate that information that is necessary to hold you accountable. And I referenced what we used to call Bishop Estate, currently operating under the trade name of Kamehameha Schools.  I mentioned those event s 20 years ago because the Trustees at that time—at least a majority of the Trustees—especially the Lead Trustee for Asset Management for that Trust at that time, were constantly using wholly-owned subsidiaries in an attempt to get around various fiduciary duties that they had as Trustees.  And it not only was legally indefensible—it’s a primary explanation for how so many serious breaches of trust could go on so long and the Trustees not be held accountable for that.

“I felt that story should have taught the community a lesson that you simply can’t allow people in positions like those Trustees were in – or like all of you are in—to avoid accountability simply by shuffling a bunch of pieces of paper and simply saying ‘oh, now some other entity owns that property.’”

  *   *   *   *   *  

Written Testimony:

May 25, 2017

To: OHA Board of Trustees

From: Randall Roth

Re: Pending Audit

I served on the faculty of the University of Hawaii’s Richardson School of Law for the past 35 years, but this testimony is mine alone. I am not here on behalf of any other person or organization.

My interest in OHA is longstanding and has occasionally including public comment. For example, along with former OHA trustee Walter Heen, I’ve raised questions relating to OHA’s legal status: “What is OHA?”, Honolulu Star-Advertiser, Dec. 20, 2015, at -- "What-is-OHA?".

My testimony today focuses on what I perceive to be OHA’s misuse of wholly owned LLC subsidiaries to avoid laws applicable to OHA and OHA trustees. Such use would be indefensible whether one assumes OHA is a charitable/public trust or a state agency. Either way, OHA and OHA trustees cannot properly use wholly owned LLC subsidiaries to avoid otherwise applicable legal duties such as a trustee’s duty to provide full accountings when legally required to do so, or a government official’s duty to comply with procurement and sunshine laws.

I express these opinions now because of an upcoming audit that I believe would be woefully incomplete if it does not include OHA’s wholly owned subsidiaries.

If OHA trustees have at any time relied on legal counsel for advice on OHA’s above-mentioned use of subsidiaries, it would not be reasonably prudent for OHA trustees to seek legal advice now on the correctness of that prior legal advice. In other words, any legal advice related to the subject matter of my testimony should be sought from non-conflicted counsel.

Mahalo for this opportunity to express my views on this critically important matter.

---30---

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