Ethics Complaint against Kirk Caldwell, Mayor, City and County of Honolulu

News Release from www.Djou.com

(October 21, 2016, Honolulu, Hawaii)-Today the Djou for Mayor campaign committee, filed the following complaint against Kirk Caldwell, Mayor, City and County of Honolulu (“Caldwell”) and request that the Ethics Commission of the City and County of Honolulu (the “Ethics Commission”) investigate Caldwell and take all appropriate actions.

On January 29, 2016, Caldwell filed his annual financial disclosure as required by City law. Under item 3, “Ownership or Interests in Businesses in the State,” Caldwell listed a “beneficial interest” in Territorial Bancorp Inc. (the “Bank”) as “O”- between $900,000-$999,999.[1]  The Bank’s 2016 Annual Report, however, noted that Caldwell “beneficially owned” 72,997 Bank shares worth approximately $1.9 million at the time of Caldwell’s 2016 financial disclosure.[2]  Today Caldwell’s holdings in the Bank’s stock are now worth at least $2.1 million.  This discrepancy by Caldwell is a violation of the City’s ethics disclosure law.

Caldwell may note that a portion of his Bank stock holdings were in the form of stock options.  It is important to note that under Internal Revenue Service Topic 427, stock options that are payment for services are recognized as taxable income, even if the stock options are not specifically exercised.[3]  It should be further noted, that the City ethics law requires public officials disclose items that include, “(1) any money; (2) thing of value; and (3) economic benefit conferred on or received by any person in return for services rendered.”[4]

Clearly, even if a portion of Caldwell’s “beneficial ownership” in the Bank may have been in the form of stock options, such options are a “thing of value” and should be disclosed under both Federal tax and City ethics rules.

Furthermore, the City’s ethics law clearly states that elected officials are required to disclose any personal or private interests that may cause a reasonable member of the public to question the independence or objectivity of the official.[5]  Stock holdings, whether in the form of direct ownership or as an option, worth millions of dollars should fall within this classification.  Caldwell’s failure to fully disclose the true nature of his stock holdings runs afoul of this ethics provision.

If the Ethics Commission were to allow public officials, such as Caldwell, to not disclose the ownership of stock options, the commission would effectively legalize bribery in the City.  A bad actor in the future, rather than offer an explicit bribe, could instead just grant an “option” to cash in at some unknown future date for a nefarious quid pro quo exchange to successfully avoid any public disclosure rules.

We also respectfully note, that Caldwell’s stock holdings in the Bank have dramatically increased under his term as mayor from roughly $300,000 to over $2 million via stock awards given by the Bank to Caldwell, while Caldwell served as mayor.  According to the Bank’s annual reports, Caldwell owned 15,396 shares in the Bank worth approximately $323,000 in 2012 - the year before Caldwell became the mayor.[6]  But today, due to stock awards given by the Bank to Caldwell while he served as mayor, his stock holdings in the Bank now reach at least $2.1 million.  Caldwell stated to earn this massive financial interest he “serves” at the Bank approximately 1 to 2 hours per month.[7]  The Bank disclosed that Caldwell was retained, not for any legal or banking expertise, but rather because he has “significant understanding of the communities in which we operate.”[8]  The Bank even noted that Caldwell is “uniquely positioned” to advise the Bank on community and economic developments affecting the City.[9]  In short, Caldwell was selected to serve on the Bank’s board of directors and receive his enormous multi-million dollar financial compensation and stock awards precisely because of his elected position and political connections.

Based on the foregoing, we respectfully request that the Ethics Commission promptly investigate Caldwell and take all necessary and appropriate action, including referral to the City Prosecutor for criminal action if warranted. 

Filed by Charles K. Djou,

October 21, 2016.

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PDF: From Mayor to Millionaire

PDF: Caldwell Financial Disclosure

SA: Djou files complaint over mayor’s stock assets

CB: Djou Says Caldwell Lied About Bank Compensation

HNN: Djou files ethics complaint against mayor over reported income