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The Honolulu Advertiser
Posted on: Tuesday, November 18, 2008

Scam came wrapped in rhetoric

By Peter Boylan
Advertiser Staff Writer

Local companies that allegedly conned homeowners out of hundreds of thousands of dollars by selling fake bonds to avoid foreclosure, are also promising to negate property taxes and eliminate credit card debt, according to victims and lenders.

The FBI is investigating companies that allegedly market a "Royal Hawaiian Treasury Bond" to homeowners behind on their mortgage payments on O'ahu, Maui, the Big Island and Kaua'i. The sellers promise that for a fee of $2,500 to $10,000, the bond will cover any outstanding debt because the bond holder's property will be part of an "untouchable Hawaiian nation."

The schemes also promise to block property taxes and override credit card debt, all packaged with the promise of ownership in the true Hawaiian nation, which the schemes claim is legally exempt from U.S. regulations, according to victims and lenders.

Douglas Gillman, a 78-year-old retiree from Waialua, gave $2,500 to a woman on Maui claiming to be an officer of the Hawaii Loa Foundation, a Native Hawaiian group with "ownership rights" to swaths of local land.

Gillman wanted to create an irrevocable trust for properties owned by him and his late wife.

He was initially offered a $1 million bond that would cover any outstanding mortgage. He told the woman the lands were paid off and she responded by saying she could ensure that his annual property tax bill of $4,000 would disappear if he paid her $2,500.


Gillman accepted and gave her the money while filling out paperwork that he filed with the city. He said he is flying to Maui on Thursday to meet with her to discuss using the $1,000,000 bond to pay off five credit cards.

He said he has become skeptical of the scheme since he learned of the FBI probe.

"If they send a $1 million bond to the companies I owe, that's not going to work. I'm not sure the property tax exemption is going to work," said Gillman. "We'll see Thursday what they say in the meeting."

Gillman said his friend in 'Ewa Beach recently bought a $1 million bond from the Hawaii Loa Foundation to cover his outstanding mortgage and that his friend is now dealing with foreclosure proceedings.

Several local lending institutions have foreclosed on five loans after mortgage holders stopped sending payments.

The FBI has contacted the mortgage divisions of local banks about the bond scheme, including Bank of Hawaii and Central Pacific Bank.

Central Pacific Bank has foreclosure proceedings going against one property in connection with the scheme but a bank spokesman would not discuss details and could not say if the bank has any bogus bonds on file.

"It is bank policy not to comment on pending litigation and private customer transactions," said Cedric Yamanaka, CPB spokesman.

Bank of Hawaii does not have any of the bogus bonds on file but was contacted by the FBI, according to a bank spokesman.

The companies pushing the bogus bonds, including several claiming to be affiliated with Native Hawaiian sovereignty movements, are targeting Native Hawaiian homeowners and others who are facing foreclosure.


Naomi Campbell, a broker with Hawaii's Mortgage Consultants on Maui, said the scheme was hatched on her island and has been spread like a "cult."

Campbell said that in March clients and community members started asking her if the scheme was real. A friend fell for the scheme and his home is in foreclosure, she said.

She said she has witnessed "at least 100 people" at some of the scheme's seminars, which are moderated by a "mesmerizing" Native Hawaiian woman who acts as the company's pitchman.

"Her following is enormous. She'd have 100-plus people listening and she knows it does not work. She's telling people not to pay property taxes," said Campbell. "It was all packaged with the false hopes of Hawaiian sovereignty. People believe it and continue to give money."

After attending the seminars, families are told that a $1 million "Royal Hawaiian Treasury Bond" will be sent to the homeowners' bank with a letter explaining that it will cover the outstanding balance of the mortgage.

The companies running these seminars tell the homeowners that because they are members of the "Hawaiian nation," the bank will no longer be able to demand money from them because they are the land's "rightful owners."

The banks eventually figure out the bonds are bogus and inform the homeowners that they are in default.

As part of the scheme, the "mortgage counselors" tell their clients to ignore the banks' threats of foreclosure because the counselors are monitoring the situation and will respond on their behalf.

Many in the community have heard of the scheme and have friends or relatives who have been caught up in it.

Reach Peter Boylan at pboylan@honoluluadvertiser.com.