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DAVID Y. IGE
GOVERNOR

CLARE E. CONNORS
GENERAL

 

STATE OF HAWAII DANA o. VIOLA
DEPARTMENT OF THE ATTORNEY GENERAL 
TAX a. CHARITIES DIVISION
425 QUEEN STREET
HONOLULU, HAWAII 96813
(805) 536-1470 (TAX)
(308) 586-1480 (CHARITIES)

June 19, 2019
VIA ELECTRONIC MAIL AND USPS

James E.T. Koshiba, Esq.
Jonathan E. Spiker, Esq.
Koshiba Price Gruebner
707 Richards Street, Suite 610
Honolulu, Hawaii 96813

Re: Kline Welsh Behavioral Health Foundation
Dear Mr. Spiker:

I am writing in response to the email you sent Elizabeth Korsmo on May 31, 2019
regarding the above-named organization. Unfortunately, after reviewing this matter, it appears
that Kline Welsh Behavioral Health Foundation did not timely comply with the terms which
were either agreed upon, or represented as voluntary actions being taken by the organization and
which are incorporated into the overall agreement, nor does it appear that the organization
understands the reason for these terms.

Your letter of March 13, 2017, indicated that a number of elements would be dealt with to
remedy some of the multiple issues identi?ed in the December 2016 report of Management
Search Consulting, Inc., which was commissioned by the organization. Speci?cally, your
letter proposed a change in Executive Of?cer and Executive Director Salary, an increase of the
number and independence of the board of directors as well as term limits, the development of a
succession plan, and ?nally the claw back provision.

We considered these items to be a compromise with our of?ce meant to address the
following issues: (1) the organization's payment of excessive of?cer and director compensation;
(2) the apparent lack of oversight provided by the board; and (3) the apparent con?ict some
members of the board exhibited between their loyalty to the organization as part of their ?duciary
duties, and their loyalty and reliance upon Mr. Henderson. These problems were identi?ed
within the report from Management Search Consulting, Inc.

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As noted, the discussions between you and my former colleagues, Mr. Jones, and Ms.
Nakamura, appear to have resulted in your March 13, 2017 proposal in order to satisfy the
Department. One of the most signi?cant of these were that Mr. Henderson?s salary was to be
aligned with the amount proposed within the report of $168,000 as base pay; bonus opportunity
of up to 35% of the base and a cap on compensation at $226,800. It must be noted here, that the
numbers provided by the consultant were based upon the fact that Mr. Henderson "were to be
resident in Hawaii for the entire work-year. Nevertheless, it appears that my former colleagues
chose to exercise a light hand, and did not place that condition upon the amount of executive

salary.

Despite the lenience shown by our Of?ce, no plan of succession was presented until
recently on June 6, 2019, and Mr. Henderson?s pay went above the cap proposed while on the
board?s watch. Whether or not he paid back the difference does not change the fact that the
system in place allowed Mr. Henderson to be paid more than was agreed to by the Attorney
General.

The single most telling point in the behavior of the organization is that, despite
assurances in March of 201 7, which described the claw back provisions of the arrangement, no
money is represented as having been paid back by Mr. Henderson until the day a?er receipt of
our letter dated May 3, 2019. The explanation in your letter of May 21, 2019 is that . .he
always intended to pay but got distracted.?

Whether or not Mr. Henderson became "distracted" is less important than the fact that the
board did not follow up to ensure that the items proposed by the organization and agreed upon by
the Hawaii Department of the Attorney General, were carried out as represented. The described
matters were not dealt with for nearly two years and not until the Department of the Attorney
General sent two letters requesting the information.

It is not clear to us whether this is due to the board's lack of understanding of its duties, or
if it simply did not take the agreement with our of?ce seriously. Either way, this is not
acceptable to us.

It is highly encouraged that the board reacquaint themselves with the Management Search
Consulting, Inc. report it commissioned, the laws which apply to the organization, the duties it
owes as board members, and the penalties which may be levied against the organization for
violations of law.

Please be advised that this letter constitutes a memorialization of the original agreement
between the organization and our of?ce as evidenced by your March 13, 2017 letter and our
of?ces response dated March 30, 2017. For the reasons noted above, we do not believe that your
client ful?lled the agreement in a good faith and timely manner. As such, we intend to closely
monitor the organization and the board?s activities for compliance with all of the terms of the
original agreement in addition to the laws that apply to it including but not limited to the

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Solicitation of Funds from the Public Act at Hawaii Revised Statutes (HRS) 467B-1 et seq, the
Hawaii Non-Pro?t Corporations Act at HRS 414D and any relevant common law.

Please also be advised that our of?ce will approach any future corrective action with an
appropriately increased level of enforcement, including formal legal action.

Very truly yours,

 

Supervisi' Deputy Attorney General

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