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The Honolulu Advertiser

Posted on: Friday, October 18, 2002

Ex-trustee handed 6-month sentence

By David Waite
Advertiser Courts Writer

Former Bishop Estate trustee Lokelani Lindsey was sentenced yesterday to six months in federal prison on money laundering charges in connection with her sister's 1995 bankruptcy case.

Lindsey, who once held one of the most powerful and influential positions in Hawai'i as a trustee for the multibillion-dollar charitable trust now called Kamehameha Schools, apologized to U.S. District Judge David Ezra through tears.

"I just want to say how sorry I am," she said, her voice breaking. "All I want to do is to stay home and take care of my husband."

But Ezra denounced Lindsey's "misguided sense of greed and arrogance" in the fraud and also ordered her to pay $35,000 in restitution.

Ezra allowed Lindsey to postpone the start of her prison term to care for her disabled husband, Stephen, who is scheduled to have surgery next month. The judge ordered her to report to federal prison on June 2.

Ezra emphasized that Lindsey's position as former trustee had no bearing on the fraud case or her sentencing. The fraud, however, occurred while Lindsey was a Bishop Estate trustee.

The judge yesterday also sentenced Lindsey's sister, Marlene Lindsey, to six months in prison and one year supervised release.

The Lindsey sisters were sentenced in Las Vegas since Lokelani Lindsey's lawyer, William Harrison, argued successfully for a change of venue last year, claiming it would be difficult for her to receive a fair trial in Hawai'i given the negative publicity arising from her forced removal from the trust's board.

Lokelani Lindsey and three other Bishop Estate trustees who made as much as $1 million a year were ousted in 1999 after state and federal investigators found evidence of what they claimed was mismanagement and abuse of power. A fifth trustee resigned.

The charitable trust, Hawai'i's largest private landowner, operates Kamehameha Schools for children of Hawaiian ancestry.

Lokelani Lindsey was indicted by a federal grand jury in December 2000 on five felony charges of conspiring to commit bankruptcy fraud and money laundering in connection with her sister's bankruptcy case.

Lokelani Lindsey pleaded guilty in June to money laundering and engaging in an illegal monetary transaction.

In a written plea agreement, Lokelani Lindsey acknowledged that she conspired with her sister by accepting $35,000 from her sister in repayment of a loan, knowing that the money she received had not been declared in Marlene Lindsey's bankruptcy proceedings.

In the plea agreement, Lokelani Lindsey admitted that:

• During 1994, she and Marlene Lindsey each got 100 shares of stock from the president of Atlantic Pacific International Services Inc. and on Jan. 20, 1995, Marlene Lindsey filed for bankruptcy but did not disclose her API stock ownership.

• In December 1995, Lokelani Lindsey and her sister met with the API president and discussed the fact that Marlene Lindsey's API shares were not disclosed in her bankruptcy case but should have been. The three agreed that in order to avoid being suspected of fraud, Marlene Lindsey's API stock would be transferred to Lokelani Lindsey, who would then sign it over to the API president.

• The Lindsey sisters were each paid $100,000 for their stock in API, with Marlene Lindsey's money being placed into an account controlled by a third party. Between December 1995 and February 1996, Lokelani Lindsey asked her sister to repay a portion of the debt.

• Lokelani Lindsey received the $35,000 on Feb. 13, 1996, knowing that it was part of the money that her sister got from selling her API stock, which was not disclosed to the bankruptcy court.

The case brought against the Lindseys stemmed from an investigation by the Internal Revenue Service in Honolulu. Assistant U.S. Attorneys Leslie Osborne and Michael Seabright prosecuted the case.

The Lindseys asked to be allowed to serve their sentences at Dublin Women's Prison in California. Marlene Lindsey was ordered to begin serving her term Jan. 6.

The Associated Press contributed to this report.