Posted on: Sunday, December 26, 2004

Unity House ties to politics examined

By Jim Dooley
Advertiser Staff Writer

Unity House Inc., the $42 million tax-exempt labor organization seized by IRS agents last week, was an active player in Island politics and those political activities "will be examined to make sure the tax exempt status of Unity House has not been compromised," an attorney for the company now running Unity House said.

Brook Hart, attorney for EG&G Technical Services, the court-appointed company now running Unity House, said the receiver is poring over the books and analyzing the activities of Unity House in the face of federal government threats to revoke the nonprofit's tax exempt status.

"There are many areas that may be ripe for investigation," said Hart, the attorney for the receiver.

A 13-count federal criminal grand jury indictment against Anthony "Tony" Rutledge Sr. and his son, Aaron, was unsealed earlier this month and alleges the two misused money belonging to the labor organization. The indictment charges the Rutledges with mail and wire fraud and tax fraud conspiracy in connection with the use of the money. Both have pleaded not guilty.

Unity House lawyers are fighting the government's takeover, arguing that they should have been given a court hearing on the move before it took place. That issue will be decided in federal court next month.

Nonprofits such as Unity House are allowed under federal law to engage in a limited amount and type of political activities, including lobbying, but unreported or excessive politicking can expose an organization and its officers to tax penalties and even criminal charges.

State records show that over the past four years, Unity House donated some $85,000 to Isle political campaigns and causes. It employed a full-time lobbyist, Cliff Laboy, at the state Legislature.

A Unity House employee, state Rep. Romeo Mindo, last year introduced legislation that allowed Tony Rutledge Sr. to solidify his control over Unity House assets.

After the little-noticed bill passed the House and Senate last year, it moved to the governor's office, where former Unity House employee Bob Awana works as Gov. Linda Lingle's chief of staff.

Awana said this week that Unity House staffer Michael Tanaka called Awana about the Mindo bill after it had been approved by the Legislature.

"He just said it had passed downstairs and asked me to take a look at it," Awana said.

Awana said he did not speak to Lingle about the bill or tell her about Unity House's interest in the measure. Lingle signed the bill into law in May 2003.

Awana said neither his past work for Unity House nor Lingle's own more remote connections to the nonprofit affected their consideration of the worthiness of the legislation.

Awana worked as a consultant for Unity House in 2000-2001. Lingle worked for Unity House founder Art Rutledge, the father of Tony, for about a year shortly after she arrived in Hawai'i in 1975, editing a newsletter and handling press releases for Teamsters Union Local 996 when Art Rutledge headed the union.

She later was named by the senior Rutledge to the board of directors of an organization called the Hawaii Pacific Cinema Development Foundation, which controlled a $1 million fund that Art Rutledge said was to be spent developing the film and television industry here.

Questions to Lingle about Unity House and the Cinema Foundation were answered by Awana, who said the governor couldn't remember when she served on the board or when she resigned. The Advertiser quoted Lingle in November 1981 as saying that she was resigning because of the press of her duties as a newly elected member of the Maui County Council.

The foundation was dissolved by the state in 1993 but reincorporated by Tony Rutledge Sr. in 1998 and it is named in one of the criminal charges filed last week against Rutledge. The indictment alleges Tony Rutledge improperly diverted $50,000 of Unity House money to the foundation in 2002 for investment in a film project called "Hawaii Port of Call." Rutledge did not tell the Unity House board that he held a personal financial stake in the project or that he "stood to gain financially if that project turned a profit."

Tony Rutledge and his son Aaron, Unity House treasurer, are scheduled to go to trial on the wire fraud, tax fraud and conspiracy charges next month, but a delay is expected because federal prosecutors have moved to disqualify Tony Rutledge's lead attorney for a conflict of interest.

Former state Rep. Mindo — he lost his bid for reelection last month — is not charged in the case. Until Dec. 14, when IRS agents seized Unity House and froze its assets, Mindo worked as the nonprofit's government and community affairs coordinator.

The new Rutledge indictment raises questions about a $40,000 unsecured Unity House loan that Tony Rutledge made to Mindo in January. The indictment alleges the Unity House board of directors wasn't told about the loan until this summer when "the grand jury requested information about this loan and the absence of any repayment."

Mindo's lawyer, Eric Seitz, said the loan was for home repairs and was unconnected to the 2003 Unity House legislation.

"He owes the money and is going to repay it," Seitz said.

Seitz noted that passage of a legislative bill is a complex process that Mindo could not control.

Awana was asked this week if the governor would take another look at the law now that the federal grand jury has raised questions about its origins. "That's a matter for the Legislature to take up," Awana said.

Awana said he was called to testify before the federal grand jury investigating Unity House. He declined to discuss his testimony.

State Campaign Spending Commission records show that Unity House gave Mindo's campaign $2,000 this year, the maximum amount allowed.

Unity House made no monetary contributions to Lingle's 2002 gubernatorial campaign, but the organization, which benefits some 20,000 active and retired union members and their families, endorsed her candidacy at the height of the general election campaign.

Late last year, Unity House donated $25,000 to a Lingle-sponsored education advisory committee.

That advocacy group, called Citizens Achieving Reform in Education (CARE), was created to lobby legislators for passage of education reform initiatives backed by the governor. It ran into problems in April when it was revealed that the committee was working out of offices in the state Capitol. The state Ethics Commission ruled that an improper use of state personnel and resources and CARE vacated the offices and repaid the state $29,843.

The largest beneficiary of Unity House political giving over the past two years has been the Hawaii Republican Party, which received a total of $12,000. The Democratic Party received $10,000 from Unity House.

Mufi Hannemann's successful 2004 mayoral campaign received $2,500 from Unity House, records show. When Hannemann ran unsuccessfully for mayor in 2000, his campaign received another $2,000 from Unity House and rented headquarters space on Kapi'olani Boulevard from the nonprofit, paying $1,000 a month.

The executive director of Unity House in 1999 and 2000 was Patrick Kubota, a former Hannemann staffer at the City Council and a "grassroots coordinator" for Hannemann this year.

During this year's mayoral campaign, charges arose that recipients of Unity House scholarship money and other financial aid were being pressured to work as unpaid interns for the Hannemann campaign.

KITV4 News reported that one University of Hawai'i scholarship recipient complained of being directed by Unity House to work for the Hannemann campaign.

Kubota said Friday that during the campaign, Unity House called the Hannemann campaign and asked if "we needed volunteers to work on the campaign."

Kubota said several Hannemann grassroots coordinators "took them up on it."

Students receiving Unity House scholarships were required to complete a certain number of hours of "volunteer services" and organizations that benefited from those services had to sign paperwork showing that it had been performed, Kubota said.

"I was at one sign-waving event and a student came up and said he was from Unity House and asked me to sign his paperwork," Kubota said. "I did that several times."

He said there was never any indication that the volunteers were compelled to work for the Hannemann campaign.

Kubota, who worked at Unity House at the same time as Bob Awana, was also called before the Unity House federal grand jury to give testimony. He declined Friday to discuss his testimony.

Brook Hart, attorney for the court-appointed company now running Unity House, said "any ties between political activities and scholarships or other financial aid would be a matter of investigation for us."

Reach Jim Dooley at 535-2447 or jdooley@honoluluadvertiser.com.