Lawsuits Close in on Hawaii’s Largest Carbon Credit Scheme
by Andrew Walden
Some greenwash is thicker than others. When a couple of penny-stock touts, one of whom is listed in the Panama Papers Offshore Leaks Database, start selling timber futures and carbon credits in Hawaii, the greenwash is thicker than most.
Behind all the greenwash, a raft of lawsuits quietly working their way through Hawaii courts harkens back to Hawaiian Legacy Hardwoods (HLH) co-owners Jeff Dunster and Darrell Fox’s pump-n-dump days hustling wanna-be stock traders with tales of glorious riches awaiting them in the OTC shell-company listings. And a 2015 audit challenges representations made in HLH’s timber futures prospectus.
Dunster is one of a handful of Hawaii residents showing up in the 2016 Panama Papers ‘Offshore Leaks’ database. According to the leaked data posted online by the International Consortium of Investigative Journalists (ICIJ), Dunster owns or owned as many as five formerly-secret trusts registered in the Cook Islands—tagged by the New York Times as “A Paradise of Untouchable Assets.” Other Cook Island trusts show up in 1990s litigation in Oregon Federal Court involving Dunster, Fox, and Waihee-connected lawyer Gary V Dubin—who is now facing disbarment proceedings in Hawaii.
How thick is it?
If you’ve got $15,499 burning a hole in your pocket, HLH claims it can turn it into $217,488 … or $285,519, … or $321,117.
Modelled after tree-farm schemes common in Costa Rica in the 1980s and 1990s, Hawaiian Legacy Hardwoods (HLH), Hawaii’s largest carbon credit scheme, is a ‘Certified B-Corporation’, joining a “new class of companies that use the power of business to help to resolve social environmental and economic problems, leading a global movement to redefine success in business.”
Cashing in since 2010, Hawaiian Legacy Hardwoods sprawls across 1,011 acres of leased Kukaiau Ranch land on the Big Island at Paauilo. Dunster speaks of additional carbon credit plantings planned for Kahua Ranch near Kamuela, and Oahu’s Gunstock Ranch in Laie. HLH owns none of the land it is planting on.
Contacted by Hawai’i Free Press, Dunster refused to answer two key questions:
1) When do you expect the earliest investors in HLH timber futures will begin to be paid?
2) Do you have a performance bond, trust fund or other method to ensure that lease payments at Kukaiau Ranch are made for the full 60 year term of the land lease?
In a 2009 internet discussion, Fox explains: “My wife and I followed a tree farm in Central America for over a decade. We even spent a month down there looking at similar operations. It isn't for everyone, but if I had invested in those guys I wouldn't have to listen to my wife say I told you so.” An ‘HLH Plan Book’ published in 2012 explains, “It has taken Jeffrey Dunster, Darrell Fox, and the rest of the HLH team more than 10 years to research, plan, and establish the company.”
The Costa-Rica-based Tico Times in 2012 investigated one of the country’s few remaining schemes in an article entitled “Investors: Where’s Our Money.” This is a question HLH investors may soon be asking. HLH ‘Projections’ to investors show timber sales revenues beginning to flow based on sales of lumber cut from eight-year-old koa trees. This creates a sense of urgency for Tiffany Potter whose Washington, DC-based Slipstream Consulting, August 10, 2015, sued Dunster and his associated entities in Hawaii federal court. Potter argues her name was listed on SEC documents as an HLH corporate officer without her permission.
Potter also alleges the HLH companies ripped her off for thousands of dollars in residuals due after she made key introductions which allowed HLH to launch its carbon credit business. Potter’s suit claims HLH’s troubles began in 2013 and 2014 when it stopped paying a 3.5% residual owed her on carbon credit deals made with her assistance. According to the lawsuit, thanks to Potter, “(HLH) has been listed on the Gold Standard Registry and verified to produce 10,000 carbon credits, or 10,000 metric tons of carbon dioxide equivalent per year, for 40 years….”
HLH is also being sued by Kukaiau Ranch. The ranch-owning De Luz family filed suit February 14, 2017 to evict Dunster and his companies for non-payment of rent on four Pa’auilo houses adjacent to the ranch land. HLH is represented in various Big Island courts by David Louie, former Abercrombie administration Attorney General, whose hourly rate and travel costs quickly add up to more than the monthly rent on the ranch houses. The house leases are separate from the primary ranch land lease.
The 2012 HLH Plan Book explains, “As a company, HLH has a simple product range that is presented to the public in two completely different ways—One as an investment opportunity and the other as a pseudo non-profit….”
The ‘nonprofit’ Hawaiian Legacy Reforestation Initiative, with Dunster as Executive Director, is carrying a Platinum ‘Seal of Transparency’ from Guidestar. HLRI scooped up a $130,000 Grant in Aid from the 2017 Legislative session. Meanwhile, HLH benefits from Enterprise Zone GE Tax exemptions, a 15-year USDA Conservation Reserve Enhancement Program (CREP) subsidy, and other state and federal grants.
HLH boasts plenty of warm fuzzy Internet hype, the de rigueur fluff-piece from Pacific Business News, and “70 legacy partners”—including five Hawaii resorts, helicopter tour operators, developers, and even a funeral home--who include carbon credits as part of their sales packages. Additionally HLH names 300 legacy charities to whom donors send a $30 contribution when ponying up $90 for a ‘fully tax deductible legacy tree’, and 400 legacy members who have planted a tree in the last year. HLH even gave the Hawaii Diabetes Association a newly planted 100-tree lot—which an HLH news release says is worth the alleged 20-year harvest value of $285,519—generating a juicy tax deduction.
“Of the first 20,000 seedlings planted ‘none of them forked.’” – Dunster, 2012 (This 2018 photo from HLH twitter feed shows a former Miss Hawaii posing with an HLH koa tree clearly forking out into multiple trunks at about the 6-foot level.)
If a carbon credit falls in the woods and no one is around to hear, does it make a sound?
HLH, LLC is a vendor of “unregistered securities” under Securities and Exchange Commission (SEC) Rule 506. By selling only to “accredited investors”, HLH avoids a SEC requirement that investors be given, “financial statements, which in some cases may need to be certified or audited by an accountant.”
Dunster Beats the Rap
Asked about the numerous complaints filed against him and his associated with the DCCA Securities Enforcement Branch, Dunster replies:
“They were filed years ago—no one knows who filed them-- and the results were that there were no violations. So-- in essence, you are asking me to comment on nothing….”
William Nhieu, DCCA Communications Officer, was a little more forthcoming. According to DCCA information provided by Nhieu, neither Dunster nor Fox is registered with the DCCA to sell securities in Hawaii—but they have filed four “Notices of Exempt Offering of Securities” with DCCA SEB since 2015. Nhieu explains Dunster, Fox and Hawaiian Legacy Hardwoods, Inc beat the rap a combined seven times:
Hawaiian Legacy Hardwoods, Inc.
1 complaint filed with SEB. Allegations were misrepresentations and omissions of material facts. Case was closed on October 4, 2013 because evidence gathered did not support a violation of the laws.
Darrell D. Fox
1 complaint filed with SEB. Allegations were unregistered broker-dealer, unregistered securities salesperson, unregistered securities, and fraud. Case was closed on April 6, 2006 because evidence gathered did not support a violation of the laws.
Jeffrey Alan Dunster
5 complaints filed with SEB
- Complaint filed, but closed on January 1, 2003. No other information was found for this case.
- Allegations were unregistered broker-dealer, unregistered securities salesperson, unregistered securities, and fraud. Case was closed on April 5, 2006 because evidence gathered did not support a violation of the laws.
- Allegations were unregistered broker-dealer, unregistered securities salesperson, unregistered securities, and fraud. Case was closed on April 6, 2006 because evidence gathered did not support a violation of the laws.
- Allegations were misrepresentations and omissions of material facts. Case was closed on October 4, 2013 because evidence gathered did not support a violation of the laws.
- Allegation was fraud. Case was closed on August 29, 2013 because evidence gathered did not support a violation of the laws.
The DCCA complaints came prior to a 2015 audit of HLH by the Rainforest Alliance which certified HLH for ‘Gold Standard’ designation—dramatically boosting carbon credit sales in exchange for a cut of the action going to the Swiss-based ‘Gold Standard’ organization.
The Rainforest Audit also created a paper trail which contradicts many of the representations made to HLH timber investors.
Prospectus vs Audit
HLH’s timber ‘projections’-–in essence a prospectus for investors--are contradicted by the information provided to the 2015 Rainforest audit. Confusing? Consider that more failed timber growth—trees that fork out instead of growing one trunk tall and straight—means lower timber values and less tree cutting and therefore more carbon credits to sell. Here are some key examples:
1) Koa Speak with Forked Tongue?
No Fork: “Of the first 20,000 seedlings planted, Dunster said, ‘none of them forked.’” – Environment Hawaii, March, 2012
No Fork: “… Much of our data (on koa’s behavior as a plantation tree) comes from the performance of Acacia mangium a very closely related tree from the same genus….” –HLH Co. ‘Projections’
Fork: “…The auditor notes … Koa’s relatively poor growth form compared to Acacia mangium….” – Audit of HLH pg 6
Fork: “The assumed proportion of sawlogs in the final harvests has been revised downward. This approach, though less conservative, (Editor’s Note: ‘Less Conservative’ means more carbon credits to sell and less usable lumber production.) is also more accurate as it is based on actual observations of tree form in 12 inventory plots at the planting site and projections made on the actual future density of 4m sawlogs. The auditor observed during the field audit that the original assumption of sawlog density was likely overestimated based on the somewhat frequent occurrence of poorly formed koa.” – Audit of HLH pg 7
2) Koa Price Growth: 1000% -- 2000% -- or Nothing?
120%? -- “…even by the most ultra-conservative estimates, koa prices rise (sic) more than 120% in the past 5 years…” – Jeff Dunster, HLH Newsletter, October, 2014
or is it 1000%? -- “The rate of increase in tropical hardwood prices has averaged 13% per year since records started being kept in 1972. To remain conservative, we have based our estimates on the more conservative value of the 6-7% annual price increase that has been documented for lumber in general by the forest industry over the last 100 years. In the case of tropical hardwoods, this is very conservative. The limited range of koa was a major consideration. Demand and limited supply has resulted in a price increase of almost 1000% in just the last 10 years.” –HLH Co. Projections
or is it 2000%? -- “The price of Koa has risen more than 1000% in the last ten years and more than 2000% in the last twenty years.” – LegacyTrees.org (an HLH website)
or is it 1%? -- “The developer has made several corrections and updates to the investment comparison analysis in response to this CAR. This includes … An increase in the assumed stumpage price for Koa of 1% per year, as compared to the 0% annual increase originally submitted in the first version of the analysis.” – Audit of HLH pg 7
3) Will $53 Sustain HLH for 150 Years?
Sustain for 150 years? -- “… the annual revenue generated from the sale of carbon is enough to maintain the company three times over. In other words, this 50-year project will sustain HLH for the next 150 years. Along with carbon sales, the proceeds of the lumber collected from any dead trees after year 25 is enough to sustain this forest indefinitely.” – DBEDT, May 23, 2017
Only worth $53? -- “…under the most plausible scenario that the Net Present Value (NPV) of the project activity is $53.00….” -- Audit of HLH pg 8
Negative net worth? -- “…The NPV of the Native restoration/timber production forestry scenario is --$1,113,331. This unprofitable result is reasonable given that the majority of the planting area is dedicated to conservation forestry that generates no meaningful income….” -- Audit of HLH pg 41
Environment-Hawaii in 2012 points out:
…Estimates of the volume of lumber taken from HLH stands at the end of the 25-year investment cycle were “more than an order of magnitude more than what we observe on a neighboring ranch,” said J.B. Friday, a University of Hawaii extension service forester and one of the authors of several studies on koa growth trends. … The most recent figure I published was 7,000 board feet per acre… And they [HLH] project 77,900 board feet per acre.”
In a biographical sketch posted on the Hawaiian Legacy Reforestation Initiative website, Dunster describes his stock-brokerage days:
“When I was too young to know any better, I became a stock broker, and later, a partner in a brokerage firm with offices stretching from Honolulu to Dusseldorf. After retiring from the securities business in 1990, I began a small Mergers & Acquisitions consulting company with my longtime friend and business partner, Darrell Fox. Over the years, we have had the privilege of consulting for more than two dozen companies worldwide and from many diverse industries. Our expertise in the inner workings of public companies even allowed us the privilege of heading two large shareholder actions in which we successfully removed entrenched corrupt management and restored fiscal controls back to the shareholders….”
According to the Financial Industry Regulatory Authority (FINRA), Dunster worked in the late 1980s for three Honolulu penny stock brokerages—all subsequently expelled from FINRA. As a result, Dunster was suspended by the National Association of Securities Dealers (NASD) August 7, 1989, and then lost his securities licenses, July 17, 1990, when he failed to pay $75,000 in fines.
Dunster and Fox were involved 2001-02 in “two shareholder actions” Seedling Technologies Corporation v. Komatsu Investments, LTD and Stocktrans Inc v. Dunster–represented in Portland Federal Court by lawyer Dubin. The litigation began with a lawsuit filed by penny stock shell company ‘Seedling Technologies’ against several of Dunster’s Cook Islands corporations and Synergistic Connections, Inc, a Delaware corporation owned by Fox. At dispute, the penny-stock touting agreement Dunster and Fox were supposed to implement on behalf of Seedling. The litigation ended after Seedling became insolvent and stopped responding to the Court.
Cooked Up or Big in Japan?
Synergistic would later pop up as co-owner of two HLH-related corporations before Fox shed the shell in favor of his current Hawaii-registered vehicle, the Japanese-eponymous for-profit corporation, Kitsune Sangha, Inc. When the Panama Papers became worldwide news in 2016, the real Komatsu Group in Japan issued a news release explaining it had no connection at all to one of Dunster’s Cook Island companies, Komatsu Investments Limited.
Lawyer Dubin also represented Dunster, 1997-98, in the second of three Dunster divorces. Then, just as Dunster’s third divorce went to trial in 2007, one of Dunster’s Cook Island trusts, Coelho Way Corp, sold Dunster’s $4M Nuuanu home for $1,000 to Nuu Corporation, a Nevada corporation owned by then-Dubin Law Firm attorney Long Vu. A few days later, Nuu Corp re-sold the home for $1,000 to another Nevada corporation, Greentree Properties, LLC, whose sole listed ‘Managing Member’ is Dubin.
One year later, Dunster’s JV Recovery LLC received ownership of a Mililani condominium as part of a scheme which eventually cost Dubin his mortgage license.
Current records indicate Dunster still lives in the Nuuanu home. Several of his companies are registered at his home address. According to Oahu TMK records, Dubin’s Greentree still holds title—encumbered by $2.5M in mortgages--and owes property taxes totaling $67,463 for 2017 and 2018.
Bizarrely, neither Dunster nor Fox has ever made a Hawaii campaign contribution, according to the Hawaii CSC database.