What can explain the deafening silence? Worried that I’d been dropped off the Free Enterprise Action Fund’s mailing list for making too much fun of its bumbling antics, I went to its Web site to see if there was any news there. But nary a whisper did I find. Could it be that the Fund is embarrassed at how overwhelmingly Goldman Sachs’ shareholders recognized the Fund’s agenda as bogus. Only 178 votes were cast for the resolution, or less than one-tenth of a percent of the total shares voted.

Why hasn’t infamous junk-science, “climate change and tobacco smoke are good for you” pundit-for-hire Steve Milloy been made available to speak about this? I don’t understand it. The public has a right to know when a front group for corporations desperate to avoid being made accountable for their environmental sins fails so abjectly. Luckily, thanks to the Internet, no misstep by Steve Milloy and company goes unnoticed. Thanks to Treehugger for the tip about the vote, and thanks to Goldman Sachs shareholders for giving the Free Enterprise Action Fund exactly the amount of respect it deserves.

Before getting into the details, let’s just state for the record that the Free Enterprise Action Fund is a pathetic front for anti-environmentalist propaganda. As noted here previously, Milloy has spearheaded several advocacy groups and Web sites largely funded by ExxonMobil, the world’s No. 1 corporate foe of attempts to cut back on greenhouse gas emissions. If one were disposed to be charitable, one could call Milloy’s attempts to sally forth against the consensus of climate scientists and vast preponderance of evidence as quixotic.

But we’re not so inclined. At How the World Works, we think Steve Milloy is a bad, bad man. Our one worry is whether by paying any attention at all to his witless machinations we’re just giving him exactly the publicity he craves. That keeps us up at night.

The Free Enterprise Action Fund dresses up its resolutions in language that purports to represent the interests of shareholders. Milloy and his band of merry pranksters saw their opening in the widely publicized decision by Goldman-Sachs earlier this year to make a pro-environment platform central to its corporate mission. The company even backed up its rhetoric by donating an island in Chile to the Wildlife Conservation Society.

But how, asks a letter sent by the fund to Goldman-Sachs shareholders, does such environmental advocacy benefit shareholders? How can protecting biodiversity possibly help an investment bank’s bottom line? Since Hank Paulson is chairman of the board of the Nature Conservancy, and his daughter is on the board of advisors to the Wildlife Conservation Association, Paulson is clearly guilty of a pernicious conflict of interest! Throw in a few references to the Washington Post’s huge 2003 exposé about a host of shenanigans at the Nature Conservancy, and there’s just no hiding the scandal! Off with his head.

Put aside for the moment the niggling little fact that in the first quarter of 2006, Goldman-Sachs registered the largest quarterly profit — some $10 billion — any investment bank anywhere has ever enjoyed. Where Milloy and company really part ways with rationality is their failure to understand that true responsibility to one’s shareholders now requires paying serious attention to environmental issues.

As we noted here last week, European insurance companies are getting increasingly nervous about being on the hook for legal damages incurred by the executives of companies who behave irresponsibly with respect to climate change. And just today, an investors group released a significant report that evaluates 100 American and foreign corporations on their corporate governance records with respect to climate change. As the report notes, “Shareholders and financial analysts will increasingly assign value to companies that prepare for and capitalize on business opportunities posed by climate change — whether from greenhouse gas regulations, direct physical impacts or changes in corporate reputation.”

By committing to invest in green energy, sustainable development and environmental protection, Goldman-Sachs is being as responsible, in the most important legal sense of the word, to its shareholders as it can be. And to the world, to boot.

Some day, if we survive climate change, we’ll look back at the antics of Steve Milloy and laugh. In the meantime, though, it’s hard to do anything else but seethe.

The latest example of how the financial deck is stacked against the average investor is the revelation that banking behemoths like Citigroup, Credit Suisse First Boston and Goldman Sachs regularly doled out hard-to-get shares in hot IPOs to favored customers, among them corporate big shots and politicians.

Given the very cozy connection between Wall Street and Washington — “You scratch my back, and I’ll scratch my name on the front of a big, fat campaign check with your name on it” — it should come as no surprise that political insiders, some of them on congressional committees investigating these IPO practices, have been getting in on the ground floor of fast-rising IPO elevators for years.

Among the prominent politicians of both parties who were moved to the front of the line at the IPO feast: Sens. Barbara Boxer, Judd Gregg, Robert Torricelli, Jeff Bingaman and Fred Thompson; Reps. Nancy Pelosi and John LaFalce; and former senator Al D’Amato and former speaker of the House Tom Foley. This special access only reinforces the indubitable contention that corporate America and official Washington have grown far too close for the comfort of the rest of us.

The allocation of these goodies was no small perk. At the height of the tech bubble, when every morning seemed to bring another cash-gushing IPO — initial shares of Priceline.com, for instance, skyrocketed more than 300 percent in value on its first day of trading — being cut in on a hot IPO was like being handed the combination to Bill Gates’ wall safe, a stable boy’s pick in the featured race at Aqueduct, and the map to the fountain of youth. All on the same day.

Among those able to quickly cash in — or, in the parlance of the game, to “flip” — their IPO shares for big bucks was former WorldCom CEO Bernie Ebbers. He earned more than $11 million from shares in 21 separate IPOs allocated to him by brokers at Citigroup subsidiary Salomon Smith Barney, who were after WorldCom’s business.

Ebbers’ fellow WorldCom slimeball Scott Sullivan and former Qwest CEO Joe Nacchio also made it onto the VIP list at the very exclusive Club IPO. As did W’s dad, George I, whose $80,000 pre-IPO stake in now bankrupt Global Crossing ballooned to $14 million after the company went public. Democratic National Committee chairman Terry McAuliffe even did ol’ 41 one better, flipping his $100,000 pre-IPO Global shares into an $18 million windfall.

The IPO outrage is just another in a long list of examples proving that cleaning up the corporate stench that has been filling the air and the headlines for close to a year still remains to be done.

Instead of worrying about their investments, here’s what our leaders should be doing now. Not after the election. Not after a change of regime in Iraq. Let’s start by closing the loopholes that allow IPO favoritism to imbalance the financial playing field. And then let’s move on to treat stock options as the expense that they are, strengthen whistleblower protections, institute real reforms to regulate lobbyists and pension account managers, and make bridging the great wall between stock analysts and their investment banker cohorts illegal.

During the wild times of the late ’90s, IPOs were hailed as a modern manifestation of the American dream: Build a better mousetrap and the world will make you a market millionaire as soon as your company goes public. But now they have been revealed for what they really are — just one more way of trapping small investor mice for the fat cats.

On Wednesday, Goldman Sachs CEO Henry Paulson sounded a rare and welcome note of realism and alarm. “I can’t think of a time when business overall has been held in less repute,” he told a luncheon. And he blamed this year’s spate of corporate scandals — Paulson only named Enron, but it’s hard not to think he was referencing Global Crossing, Andersen, Merrill Lynch and all the others — for the stock market’s refusal to validate the supposed economic recovery with a new surge. “I think this speech is a month or two late,” Paulson admitted with rare candor.

Paulson is right: Why should battle-scarred investors return to their bullish ways when next to nothing has been done to restore their trust in the smooth and efficient (not to mention fair) functioning of our free markets? In the last two years, 433 public companies have declared bankruptcy, 2 million Americans have lost their jobs and $4 trillion in market value has been lost on Wall Street, leaving the NASDAQ looking like the tech bubble never existed. Every day brings more reasons for shellshocked investors to hide their money in the mattress.

And yet unlike other eras of corporate corruption, our own hasn’t spawned much of a political movement for reform. We can’t expect the Bush administration to act — Bush, Cheney Inc. is a wholly owned subsidiary of corporate America, and President Bush likes to be known as “the MBA president.” While his do-nothing anti-regulation approach to business might have gotten him more criticism when Enron imploded in scandal, he was able to use the Sept. 11 attacks and the war on terror to hide from blame. On Thursday Bush acted belatedly to reorganize his messed-up homeland security apparatus; don’t hold your breath to see him take on the SEC and other agencies that are botching their regulatory responsibilities.

But as Paulson’s warning shows, someone needs to reform those agencies, before the stock market finds a new bottom. The latest blow to investor confidence is the revelation that conflicts of interest among supposedly impartial stock market analysts are even more widespread than first believed. Last week brought word that, over the last year, the Securities and Exchange Commission has opened 10 separate inquiries into analyst wrongdoing, five of which have been upgraded to formal investigations. In addition, the in-house securities watchdogs — the New York Stock Exchange and the National Association of Securities Dealers — have launched 37 investigations into analyst misconduct.

It turns out that Merrill Lynch was just the appetizer to a smorgasbord of greed, corruption and insider dealing. Many on Wall Street and in Washington may be ready to quickly move on, but the bill for this banquet is far from settled.

Over the last decade, an unsettling number of Wall Street analysts morphed from highly professional researchers offering investors independent and objective advice into highly paid marketing machines, stopping at next to nothing to help generate huge investment banking fees for their firms. Trying to sign a client and need a positive research report to close the deal? No problem. Need a “buy” recommendation to keep a company’s share price from dipping? You got it.

And since the shares of these companies go through the roof after you appear on television telling people to buy them, why not line one’s own pockets by buying and selling shares of the companies you tout? Who’s it going to hurt? I mean, other than ordinary shareholders not in the loop, in other words, the public.

Not surprisingly, the more investment-banking dollars analysts helped generate for their firms, the bigger their paychecks grew. At Smith Barney (now Salomon Smith Barney), for instance, analysts were given an end-of-the-year statement that showed just how much of their income was “earned” the new-fashioned way — by blowing kisses across the Chinese Wall that theoretically, and only theoretically, separates the firm’s banking and research departments. The amount was euphemistically labeled a “helper fee.” It should have been called a “help yourself fee.”

One analyst who most certainly did was Salomon Smith Barney’s Jack Grubman, the high-flying telecom power broker whose fence-straddling efforts netted him $20 million a year. He must have been very helpful indeed. “What used to be a conflict is now a synergy,” Grubman helpfully explained before the telecom bubble he helped create burst. “Someone like me who is banking-intensive would have been looked at disdainfully by the buy side 15 years ago. Now they know I’m in the flow of what’s going on.”

Last week, we learned just how “in the flow” Grubman was, with reports that he acted as an unofficial — and undisclosed to investors — consigliere to Global Crossing chairman Gary Winnick. Apparently, at the same time that Grubman was telling investors how bullish he was on Global, he was advising the company on everything from merger deals to major hiring decisions.

This check-to-cheek relationship paid off handsomely for Grubman, Winnick and Salomon, but cost investors who relied on Grubman’s opinion $57 billion when the company went belly up in January. Would a more objective analyst have maintained a “buy” rating on Global Crossing, as Grubman did, even as its stock price plummeted from a high of $61 to $1.07, at which point he finally cut his evaluation to “neutral”? Of course, back when he was Master of the Telecom Universe, Grubman had derided the very notion of objectivity, scoffing: “Objective? The other word for it is uninformed.” Translation: Only fools, suckers and outsiders play fair.

The truly shocking thing is that what Grubman did, while certainly sleazy, isn’t against the law. He tiptoed along the edge of illegality by refraining from writing about Global Crossing during the times he was counseling them on specific deals. But, as with so many of the rules governing Wall Street, those concerning so-called blackout periods are filled with loopholes and open to wildly divergent interpretations. Of course, everyone knew what the spirit of the policy was and what kind of behavior it was intended to stop, but that, you know, was for the “uninformed.”

For example, Grubman’s own employer felt he should wait at least six months after advising Global on its merger with another telecom company, Frontier Corp., before issuing new research reports on Global. This didn’t sit well with Winnick, who hated the idea of losing his most enthusiastic tout. So he complained to Salomon, which, not wanting to disappoint its big-fish client, reconsidered the rules and decided that Grubman only needed to lay low for two months.

The relationship between Grubman and Global Crossing has been described in press reports as “unusually cozy.” In fact, as we find out more and more about what really happens on Wall Street, “typically cozy” seems much more like it. The time has come to change that to “unacceptably illegal.”

But that’s never going to happen if we leave it up to the SEC and the industry’s self-regulating organizations. Nor will it come about solely on the efforts of crusading reformers like New York Attorney General Eliot Spitzer, whose groundbreaking investigation of Merrill Lynch ended disappointingly when the company was allowed to settle without having to admit guilt or wrongdoing or liability of any kind. I guess the banking giant forked over that $100 million out of the goodness of its heart.

The only thing that will end the abuses of the current system is a new wave of public outrage — fueled by a constant stream of disclosures detailing the sordid goings-on in corporate America. But even the awful truth isn’t coming out on its own. For instance, we never would have known about the latest SEC investigations had it not been for the efforts of Rep. Ed Markey, D-Mass., a senior member of the House Energy and Commerce Committee, who prodded Harvey Pitt to provide a report on what the commission was doing about conflicts of interest among stock analysts.

You can rest assured that the public, and even members of the press, would not have been given the same information — no matter how hard they begged Harvey Pitt’s minions for it. That’s why we have to count on our elected representatives.

“Mark Twain,” Markey told me, “used to say, ‘Sure enough a cat that gets burnt on a hot stove will never get on a hot stove again but won’t get on a cold one either.’ And tens of millions of scorched investors are now sitting on the sidelines, afraid that the books are cooked and that only insiders can win at this game. The government needs to step up and give the public confidence that the game isn’t fixed.”

And it’s essential that Markey and his cohorts on the Hill start enacting tough new laws immediately — especially because, historically, there has been a significant lag between efforts to reform the financial system and the restoration of public trust — which is the sine qua non of a thriving economy. Yet just last week, I wrote about the shelving of Sen. Paul Sarbanes’ accounting reform bill, a muscular measure that would strengthen the SEC, restrict accounting firms’ ability to double-dip as consultants and auditors for the same client and impose stringent conflict-of-interest rules on the investment banking world. Extra-strength lobbying by the accounting industry shoved the bill off course, and it’s not expected to be revived anytime soon.

Now Goldman Sachs CEO Paulson has added his voice to the cries for accounting reform, which ought to strengthen the spine of Congress. Paulson also wants limits on when corporate execs can sell their stock, to prevent the scandalous cashing out that made Enron leaders wealthy while the company’s workers lost their retirement savings. Let’s see if the CEO works with legislators to do more than talk about reform, but make it happen.

Still, even his words are welcome. But Paulson isn’t saintly; he’s smart. He knows we need to create a system in which the Merrill Lynches of the world have to admit guilt and liability, where the Jack Grubmans do not hold all the cards (including the “Get Out of Jail Free” one), where Enron execs don’t fleece energy consumers and their own workers. And we need to do it now, before investors completely give up on the market.

The princess wept

When Princess Bernice Pauahi Bishop reigned in Hawaii more than a century ago, it’s hard to imagine she could have ever foreseen the likes of “Baywatch” being filmed on the shores of her family’s enormous property.

After her death in 1884, Bishop — the final heir of King Kamehameha, who owned some 500,000 acres of waterfront land and fertile agricultural tracts that are now among the world’s most expensive real estate — bequeathed her property to a private trust known as the Bishop Estate; its sole purpose was to build the Kamehameha Schools, a private institution for children of Hawaiian ancestry. Approximately 3,000 students now attend the Kamehameha Schools from kindergarten through high school. Since being used to found the schools in the late 19th century, the princess’s largesse has helped educate thousands of Hawaiian children, many of whose families were too poor to afford private schools.

For decades, the Bishop Estate functioned as a proud legacy for the Hawaiian people, an agency of hope where members of a community often beset by rampant drug use, high crime and a sense of dispossession brought on by racial discrimination could find opportunities for a better future. Native Hawaiians often compare their status to that of Native Americans. In spite of their rightful claims to the islands, many Hawaiians are essentially locked out of profiting from the state’s real estate market and the financial rewards of its reputation as a shimmering playland for the rich. It’s no surprise then that the Bishop Estate, with its vast wealth and singular commitment, was long regarded as beyond reproach by the islands’ native population.

Today, the name Bishop Estate is as quintessentially Hawaiian as the Fiat-founding Agnelli is Italian. The Estate’s pockets have grown so deep that its endowment — now more than $6 billion — makes it one of the world’s richest educational institutions. And not only is the Bishop Estate Hawaii’s most powerful private trust, it is one of America’s wealthiest philanthropies.

The princess and her will

But all has not been perfect in this island paradise.

In what may have been a historic blunder that set the course for future Bishop Estate dealings, Princess Bernice posthumously granted Hawaii’s Supreme Court the authority to choose five trustees to monitor the Estate’s activities. This allowed Hawaii’s most powerful politicians to select their former colleagues as trustees.

Take Bishop Estate board member Henry Peters, for instance, who simultaneously served for a two-year period as a Bishop Estate trustee and speaker of the house — two king-of-the-hill positions that crowned him with colossal power and influence. The looming, 6-foot-plus Peters, a much-feared local political player, was indicted last year for first-degree theft in a Bishop Estate land deal. Though the charges were later dropped, Peters became the first trustee ever to be booked, fingerprinted and charged as a criminal.

Hawaiian insularity has also played a major role in the tainted machinery of the Bishop Estate. With eight primary islands spread over more than 250 miles, Hawaii has long operated its government with impunity. But it isn’t just geographic insularity that comes with great distance from the mainland. Hawaii’s government has long been driven by cronyism, favor banks, mafia-like associations and a curious enthusiasm for shadowy, conflict-of-interest-loving characters who happen to sit in powerful positions.

“There had long been questions about how the trustees were managing Estate assets,” says University of Hawaii law professor Randall Roth, an expert in trusts and estates and a self-described “thorn in the side” of the Bishop Estate. “You have to understand the raw political power of the Bishop Estate in Hawaii. It’s been considered political suicide for any politician to question what it was doing.”

The avatar

Attitudes toward the Bishop Estate began to change after 1993, though, when Lokelani Lindsey, a native Hawaiian and the former school superintendent of the Maui Schools, was appointed as trustee to oversee the Bishop Estate’s Kamehameha Schools. A grandmotherly figure with an iron will and three decades of experience as an educator, Lindsey had been asked by Henry Peters to join the board. When some of her fellow trustees told her they felt “out of the loop,” Lindsey hired an outside educational consulting firm to evaluate the schools’ programs. The firm revealed the schools’ elementary-aged children were reading below par. In 1997, Lindsey released what had been the confidential report, and promptly canceled what she felt were faltering programs and fired several veteran teachers.

Lindsey also came under attack for criticizing the schools’ popular president, Michael Chun. “The audit also found that financial aid accounts were being used as a slush fund for Chun to throw lavish parties,” says Lindsey.

But it was Lindsey’s clash with student body president Kamani Kualaau that caused the biggest stir. The showdown pitted two ambitious Hawaiians against each other — a young, striving student and a member of the older generation who saw herself as guardian of the island’s richest trust.

Kualaau, who would be leaving Hawaii that fall to attend Princeton, had worked in Washington as a page for the U.S. Senate. “I and a few of my classmates were drafting a letter to the Hawaii Supreme Court in support of president Chun,” Kualaau says. “Mrs. Lindsey found out about the letter and summoned me to her office. We had a cordial conversation at first. Then she told me I wouldn’t like it if she called Princeton and told them that I was a rabble-rouser.”

Lindsey remembers it slightly differently; nevertheless, she regrets the conversation. “I asked Kamani how he would like it if I called Princeton and tried to damage his reputation the way people were trying to damage mine. In retrospect, I should not have said that.”

This now-legendary exchange became a flash point for the ensuing scandal. In May 1997, students, teachers and alumni, angry with Lindsey for what they charged was micromanagement and interference with President Chun, marched from the Princess Bernice Pauahi Bishop monument to the Bishop Estate’s Honolulu headquarters. “They marched because the trustees refused to meet with them,” Kualaau says.

Henry Peters says Lindsey was excoriated for trying to raise the schools’ deteriorating standards. “Mrs. Lindsey was trying to improve the schools, and no one wanted to give her the chance,” says Peters. “She knew more about what the schools needed than Chun did, who had no experience as an educator. That is why the other trustees and I brought her to the Estate in the first place.”

Lindsey’s most vociferous critics have said she was swept into the power maelstrom created by Peters and Richard “Dickie” Wong, a fellow trustee and former president of the state Senate who was also indicted last year for taking kickbacks in Bishop Estate land deals. The charges were later dropped. Mr. Wong was not available to comment. “Lindsey was in over her head,” says Randall Roth. “Peters and Wong saw they could use her, and she was brought along, unwittingly at first.”

Whatever her fellow trustees thought of her did not help Lindsey’s popularity with students and faculty. They believed she was strong-arming her way through the school administration, that she was using her clout as a trustee to dictate school policy. Trustee solidarity did not last, though. Several months after the student march, two of Lindsey’s fellow trustees — Gerard Jervis of public bathroom fame, and Oswald Stender — turned on Lindsey and petitioned the courts for her removal on the grounds that she had breached her duties to the Estate.

Roth says the march and the opposition to Lindsey were symbolic for the same reasons Kualaau’s letter was significant. “Hawaiians were challenging the once-sacred power of the Bishop Estate trustees, who were also Hawaiian,” he says. “The trustees hired photographers to take pictures of the marchers so they could later be identified. People who marched risked reprisals from the trustees, risked having their children rejected for admission to the Kamehameha Schools.”

The attorney general

A few months after the march, Stender, a former CEO of Hawaii’s Campbell Trust, the state’s second-largest private landowner, insisted on meeting with then-Attorney General Margery Bronster.

“At that time, Mr. Stender urged me to investigate his fellow trustees for possible breach of their fiduciary duties,” Bronster says. “There had been suspicions about Bishop Estate trustees for years, and I’m not sure why none of the previous attorneys general [didn't] investigate them. Part of it, I suppose, is the fact that the Estate had always been notoriously secretive. Before 1997, it was almost impossible to get them to release documents. It was like trying to get information from the CIA. And everyone knew they ruled with fear and intimidation.”

Peters scoffs at Bronster’s assessment. “The Bishop Estate is a private institution. We have confidentiality agreements with our investment partners. Why should we not be secretive? The point is we make money for the princess’s children.”

Within several weeks of Bronster’s meeting with Stender, The Honolulu Star Bulletin published a lacerating article, co-authored by five high-profile citizens, including Roth, and demanding that Bronster investigate the Bishop Estate. The article indicated that since 1884, Hawaii’s Supreme Court had supposedly been monitoring the Bishop Estate but had never questioned the trustees about their performance or ethics, even as public accusations of their misdeeds became ever more frequent. The five authors demanded, among other things, sweeping changes in how trustees were chosen, as well as how the Estate’s activities should be monitored.

Bronster eventually accused four of the five trustees, including Lindsey and Peters, of helping themselves to the spoils and riches of the Bishop Estate’s accounts. In 1995, trustees paid Hawaii’s former governor John Waihee, who worked as a Washington lobbyist, to petition against a proposed federal law that would require officers at charitable organizations to receive only “reasonable” compensation. The bill also prohibited trustees of philanthropies from being paid percentages of trust income and assets.

“When their efforts failed and the bill was finally passed in 1996, the trustees were very upset,” Bronster says. “Mind you, basically every mainland charity supported this bill. The Bishop Estate was the only major U.S. charity that opposed it.”

Peters says the Bishop trustees initially supported the bill, but then realized “there were several onerous provisions that we felt would have been detrimental to the Estate.”

In 1998, a state law was passed in Hawaii setting the rules for charitable organizations to pay their officials. The state law adopted the same guidelines as the federal law. Paradoxically, after both the federal and the state laws were passed, the Bishop Estate’s trustees, still in office and embroiled in the controversies and charges against them, granted themselves raises from yearly salaries of approximately $800,000 per year to nearly $1 million.

“Our commissions were based on the income stream of the Estate,” Peters says.

Randall Roth disagrees. “A million dollars a year for a trustee of any charity anywhere is excessive. Period.”

Peters believes attacks against the Bishop Estate come down to race discrimination and cronyism.

“The only reason Bronster, Roth and the governor came up against us was because they were jealous of the money we were making as trustees,” Peters says. “It is also because they are anti-Hawaiian. All five of us trustees are either all or part Hawaiian. Bronster is not. Roth is not. The governor is Filipino. The money from the richest organization in the state was only going to Hawaiians.”

Peters added that Colbert Matsumoto, the court-appointed master who eventually found the trustees guilty of breach of duty, was the campaign chairman of Gov. Ben Cayetano when he ran for lieutenant governor. “They’re old buddies,” he says. “Don’t you think he’s going to tell the governor what he wants to hear?”

Lindsey, now a consultant to several private schools in Los Angeles, says, “The real story here is the terrible Hawaiian economy that has not improved in the five years the governor has been in office. The governor and his administration wanted to break the trust open, overrule the princess’s will, use the assets to help fund state programs and then turn the economy around.”

Island cowboys, Indians and the IRS

In 1995, Bronster says, the trustees tried to change the Estate’s legal domicile — so intrinsic to Hawaii — to a Cheyenne Indian reservation in South Dakota (which has a sovereignty agreement with the U.S. that allows it to self-govern). “If the Estate had been moved there, it would have escaped a lot of government oversight, especially from the state of Hawaii,” Bronster says.

Peters counters that the issue of the Indian reservation was a personal one for native Hawaiians. “We were not trying to escape anyone,” he adds, claiming that the trustees looked into the Indian reservation because of increasing interest among native Hawaiians in reclaiming their sovereignty.

In April 1999, nearly two years after Bronster’s investigation began, Hawaii’s Senate voted against her reappointment as attorney general. Considering the charges she had made against several former state senators who later become trustees, few in Hawaii were surprised her tenure ended prematurely.

But just as Bronster’s role was being written out of the script, a new act was being outlined. The IRS, which had been conducting an extensive audit of the Estate since 1996 as part of its investigation into allegations that trustees were receiving improper perks, threatened to revoke the Estate’s tax-exempt status if all the trustees didn’t resign.

Stender abdicated willingly, but the remaining four — including Lindsey and Peters — were forcibly removed by court order. Determined to keep their jobs as trustees, they did not officially resign until several months later. By then, the IRS had demanded their permanent removal. Lindsey is less than remorseful: “Our constitutional rights were violated,” she says. “We are not allowed to speak with anyone at the Bishop Estate, and several people who worked with us there, who were friends with us, were let go.”

The princess curtsies on Wall Street

Although Gerard Jervis’ salacious bathroom adventure was, surprisingly, among the only Bishop Estate events to be reported outside Hawaii, the once-stately trust got even more global attention — and another eye-opening chapter — when Goldman Sachs announced plans to go public last year. In its filings with the Securities and Exchange Commission, the tightly held, famously secretive white-glove firm revealed to the world that the Bishop Estate was one of its primary outside shareholders.

It now owns some 22 million shares of Goldman, worth more than $2 billion. Last week, the investment firm unveiled plans for a stock offering of 40 million shares to accelerate the timetable shareholders must follow to cash out. It also disclosed that none other than the Kamehameha Activities Association, the money-making investment subsidiary of the Bishop Estate, now plans to sell 11 million shares to boost the percentage of its shares that trade publicly. Approached for this article, Goldman Sachs refused to discuss its ties to the troubled Estate.

The Bishop Estate and Goldman Sachs may have not been such strange bedfellows. Until 1984, the Estate was land-rich and cash-poor. Of the trust’s estimated 500,000 original acres, a large percentage was leased to homeowners who eventually sought to buy the land under their homes. After an arduous 17-year legal battle to keep the leaseholds — a battle that wound its way to the U.S. Supreme Court — Bishop Estate lost, forcing the liquidation of thousands of acres, yielding more than $1 billion for its coffers. It was this bitter legal pill that ended up convincing the Estate’s once-conservative trustees to delve into aggressive, high-profile investments, particularly the 1992 Goldman Sachs deal.

Goldman Sachs certainly needed the Estate’s money. At the time, a dismal bond market was hampering the investment firm’s ability to procure capital. Like a poi-fattened piggy bank, the Estate forked over $500 million, which would be delivered by two cash infusions, one in 1992 and the next in 1994. With Sumitomo Bank of Japan, Bishop Estate became one of Goldman’s only two outside investors: a first in the firm’s 100-plus-year history. By the time Goldman held its IPO in May of 1999, Bishop Estate’s investment had mushroomed to $1.5 billion, yielding more than a 300 percent return. Not bad for an institution that had recently been strapped for dough.

Henry Peters takes credit for negotiating the Goldman Sachs deal. Peters also boasts that he was one of the primary forces behind the firm’s decision to go public.

“I pushed Jon Corzine [who became Goldman Sachs' co-chairman in 1993 and who is now running for a U.S. Senate seat in New Jersey] to change Goldman Sachs so that we could make a profit,” says Peters. “We couldn’t just park a half-billion dollars there if we weren’t going to get a return. People in the financial industry thought Corzine was a real renegade for doing what he did. But I’m sure that our investment played a big role in Goldman’s decision to go ahead with the IPO.”

Goldman Sachs declined to address Peters’ claim. Jon Corzine, who is no longer with Goldman Sachs, was not available to comment; a campaign press office staff member said Corzine played a “limited” role in the Bishop Estate’s investment in Goldman Sachs. One imagines he would prefer to keep this connection in the past.

Sex, suicide, golf, shopping malls and crystal meth

Meanwhile, the Bishop Estate limps forward. Bishop currently owns approximately 400,000 acres of primo land, including the Royal Hawaiian shopping plaza in Honolulu. It also commands major interests in a mainland China bank, the People’s Bank of California, Columbia Health Care Systems and, as Peters notes, “numerous lucrative re-insurance investments.”

“We are hard-nosed investors and tough negotiators,” he says, speaking in the present tense despite his removal as a trustee last year. It is clear he still thinks of himself as a part of the Estate, a keeper of its flame.

While serving as the trustee who managed — and made — the Estate’s major investment decisions, Peters’ influence extended beyond Goldman Sachs and inside the Beltway: He also brokered a Bishop Estate investment deal with late golf course designer Robert Trent Jones to develop an exclusive Virginia golf club with $75,000 initiation fees and an A-list membership that includes Supreme Court Justice Sandra Day O’Connor and Vernon Jordan, President Clinton’s golfing-and-girl-talk buddy.

Adding to the Estate’s colorful portfolio, Milton Holt, Bishop’s special projects director and a former state senator, admitted last year to charging more than $20,000 to Estate credit cards for numerous visits to strip clubs. He later tested positive for crystal methamphetamine and was sent to jail last July.

Last February, the IRS finalized an agreement that allows the Kamehameha Schools to retain its tax-exempt status. The deal requires the trust to pay $13.4 million in back taxes on its supposed “tax-exempt” activities. The Estate also agreed to pay out $46 million on its for-profit operations.

Meanwhile, the investigation continues under Earl Anzai, the new attorney general whose deputy confirms that the five ousted trustees will go on trial in September in what is being called “the surcharge trial.” The new attorney general’s office now alleges the Bishop Estate “lost a great deal of money under these five trustees, who were in breach of their duties. The state wants them to pay Hawaiian schoolchildren restitution,” says Deputy Attorney General Hugh Jones.

And if the timbre of odd events accompanying the Bishop Estate saga isn’t strange enough, Hawaii’s governor appointed Anzai as attorney general, despite the fact that he was terminated as the state’s budget director in the same Senate vote that ousted Bronster. Anzai continues to investigate the Bishop Estate, even though his wife once worked there and his children clerked last summer for a law firm representing the controversial trust.

A few months ago, the interim board of trustees voted to change the Bishop Estate’s name to Kamehameha Schools. This change, Jones says, is designed to “keep the focus on Princess Bernice’s beneficiaries, the schoolchildren, and to remind the public how their needs were neglected.”

Said Roth: “When you look back over all the charges, at who knows who, at the denials, at the legal maneuvers and the money wasted, oh, the money wasted, and you try to make sense of what has happened to this vital institution, it just makes your head hurt.”

“Baywatch” may never be the same.