A federal indictment alleges the president of a telecommunications company that serves Hawaiian home lands residents siphoned off $4 million of the corporation’s money for a decade to pay for personal expenses, including $92,000 in massages, a $1.3 million house and $1.3 million in false wages for his wife and three children.
A federal grand jury on Wednesday indicted Albert S.N. Hee, president of Waimana Enterprises Inc., the parent company of Sandwich Isles Communications Inc., on seven counts of corrupt interference with the administration of Internal Revenue Service laws and six counts of submitting a false tax return for the years 2007 to 2012.
Hee is also president of Sandwich Isles, a subsidiary of Waimana, which provides broadband Internet and landline and wireless telephone service to customers living on Hawaiian home lands.
Last year federal regulators substantially cut a subsidy Sandwich Isles was receiving because it found that the company had certain expenses that appeared grossly excessive and unreasonable.
The Federal Communications Commission said Sandwich Isles spent millions of dollars with affiliated and related entities, owned by private trusts of Hee’s three children, for services that appear unrelated to the provision of a broadband-capable network.
Wednesday’s indictment replaces a one-count indictment in September that charged Hee with filing a false tax return in 2007.
U.S. Attorney Florence Nakakuni said the superseding indictment alleges that from 2002 to 2012, Hee tapped Waimana Enterprises Inc. — a company Hee incorporated and owns stock in — to pay $4 million of his personal expenses, including:
» $752,082 for tuition, books and rent for Hee’s three college-age children;
» $1.3 million for a house in Santa Clara, Calif., used exclusively by two of Hee’s children;
» $92,000 for massages for Hee;
» $121,878 in credit card charges by Hee;
» $722,550 in false wages paid to Hee’s three children, who did no work for Waimana;
» $590,201 in false wages paid to Hee’s wife, who did no work for Waimana;
» $443,103 in false employment benefits paid on behalf of Hee’s three children and wife;
» and $28,216 in cash withdrawals by Hee.
Hee is president, vice president, secretary, treasurer and a director of Waimana Enterprises, the Department of Commerce and Consumer Affairs’ online records show. His wife and three children are listed as directors.
Steven Toscher, Hee’s California-based attorney, reached by phone Wednesday, said, "Mr. Hee is innocent and we look forward to defending the charges in court."
A spokesman for Sandwich Isles said the indictment has no effect on the company’s operations.
The indictment also alleges Hee instructed an employee of Waimana Enterprises to pay some of the expenses and classify them as business educational expenses. Hee’s tax return preparer then allegedly reclassified the expenses as loans, according to a news release issued by the U.S. Attorney’s Office.
The indictment says that Hee did not claim the $4,063,294.39 in personal expenses that Waimana Enterprises paid, which should have been reported as income on his personal tax returns filed for the years 2002 to 2012, resulting in personal federal taxes due in the amount of $425,988.
Because Hee allegedly improperly deducted some of the personal expenses as business expenses, Waimana Enterprises underpaid its federal corporate taxes by $140,651, the indictment said.
If convicted, Hee faces up to three years’ imprisonment and a fine of up to $250,000 on each of the 13 charges.
The investigation of this case was conducted by the Internal Revenue Service’s Criminal Investigation Division.
In September 2014, Hee was charged with making a false statement on his 2007 income tax return.
A federal grand jury indictment said Hee reported that his income was $183,464 when it was really $438,928.
On May 10, 2013, the Federal Communications Commission’s Wireline Competition Bureau denied a request by Sandwich Isles for a waiver that would have exempted it from new federal regulations that cap the amount firms can draw from a ratepayer-funded account to cover the expense of running phone lines to rural and remote areas.
Sandwich Isles had been getting a federal subsidy from a program funded by a fee of up to $2.75 charged on every phone bill. The FCC, which oversees the program, said in 2013 it was cutting the subsidy to $250 per Sandwich Isles customer from about $830 per customer.
Hee is the brother of former Hawaii state Sen. Clayton Hee.
