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Federal Communications Commission lodges $50M fine against Hawaii telecom firm

GEORGE F. LEE / 2015
                                Albert Hee, shown exiting the federal courtroom, now is faced with one of the largest fines imposed by the FCC.
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GEORGE F. LEE / 2015

Albert Hee, shown exiting the federal courtroom, now is faced with one of the largest fines imposed by the FCC.

The Federal Communications Commission on Wednesday penalized a Hawaii telecommunications company and its founder, Albert Hee, with one of its largest fines ever.

The FCC imposed a $49.6 million fine against Sandwich Isles Communications along with parent company Waimana Enterprises and former sole shareholder Hee for what the agency contends was $27 million in undue payments received from the federal Universal Service Fund to establish and maintain high-cost communications network operations serving about 3,600 Department of Hawaiian Home Lands customers.

FCC Chairman Ajit Pai said in a statement that Hee engaged in a “long-running scheme” using money from a web of connected companies to pay for personal expenses for himself and family members over nearly 15 years.

“This was no accounting error or honest misunderstanding of the Commission’s rules,” Pai said. “It was a willful effort to defraud the Universal Service Fund — essentially, all taxpayers — for private gain.”

Hee was convicted in a 2015 federal tax fraud case over related claims that he booked nearly $3 million in personal spending as corporate expenses, including $92,000 for massages, $1.6 million paid to Hee’s wife and children while they did no work for Waimana, $505,502 for jewelry worn by his wife and two daughters, and $752,082 for college tuition, books and rent for his children.

Hee, who was given a nearly four-year prison sentence in 2016, is now free.

The FCC proposed its $49.6 million fine in 2016, and later considered responses from Sandwich Isles contesting the fine.

Anne Veigle, an FCC spokeswoman, said the commission found the company responses unpersuasive.

In addition to improper business expense claims, the FCC alleged that Sandwich Isles used taxpayer money to pay Waimana inflated rent and management fees as well as unjustified bonuses for Hee.

Pai said in his statement that the fine was the maximum allowed by law for violating FCC rules.

“It’s well-deserved in this case, given the repeated, willful violations involved, and it serves to reaffirm the Commission’s commitment to stamping out waste, fraud, and abuse in the Universal Service Fund,” he said. “The American people, and particularly, those living in the Hawaiian Homelands, deserve better.”

Sandwich Isles and an attorney representing the company did not respond to requests for comment Wednesday.

It is unclear whether the FCC, which in addition to the fine is attempting to recoup $27 million in Universal Service Fund payments to Sandwich Isles, can collect much if anything.

A sister company to Sandwich Isles, Paniolo Cable Co., was forced into bankruptcy in 2018 by private lenders claiming they were owed $257 million for financing Paniolo’s interisland network of telecom cables leased to Sandwich Isles.

Sandwich Isles operates telecom service on Hawaiian homesteads under an exclusive contract with DHHL awarded in 1995, but is heavily in debt and recently was stripped of its own assets.

The U.S. Department of Agriculture holds a $139 million court judgment against Sandwich Isles tied to delinquent loans, and a trustee appointed in U.S. Bankruptcy Court to oversee Paniolo has a $257 million judgment against Sandwich Isles on behalf of Paniolo’s creditors.

In March, Paniolo’s trustee was awarded ownership of all Sandwich Isles assets.

The trustee intends to auction assets of Paniolo and Sandwich Isles to generate proceeds for creditors, but that event previously scheduled for July is delayed because the trustee claims Sandwich Isles isn’t providing information about contracts, licenses, leases, easements and other things that are critical for prospective buyers to understand prior to an auction.

Meanwhile, Hee attempted to retain part of his former telecom empire in May by offering $2 million, through another interrelated family business called Blue Ivory Hawaii Corp., to buy 163 acres of land in Mililani partly used by Sandwich Isles.

A bankruptcy judge approved this sale, but the deal stalled in part because of the issue with Sandwich Isles allegedly not providing documents for the larger asset auction, according to court records.

Next month, the FCC plans to extend broadband service to unserved parts of Sandwich Isles’ former service area in Hawaii through an auction, and Pai said taxpayer funds available for this endeavor will be used to serve telecom needs of customers and “not for massages, vacations, and cars.”

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