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Hawaii Bribery Scandal Casts A Shadow Over Lahaina’s Ruins

 

For years, a local businessman paid off officials in exchange for lucrative contracts. The system he exploited has been left largely unchanged.

By Blaze Lovell

 

An examination of one of the state’s largest bribery cases reveals a county procurement system that may be ill-equipped to handle the millions of dollars it will spend following the devastating wildfires on Maui. (Phillip Jung for The New York Times)

 

Blaze Lovell, who reported from Honolulu and Maui, examined loopholes in Hawaii’s government contracting system as part of The Times’s Local Investigations Fellowship.

The mayor of Maui County, Michael Victorino, was outraged.

 

He appeared on television in September 2022 and called for swift action in response to what was then just emerging as one of the largest government bribery cases in Hawaii’s history.

Milton Choy, the businessman who paid off county officials to win no-bid wastewater contracts worth $19.3 million, must be “punished to the fullest extent of the law,” the mayor told his audience. So must those in county government who accepted payoffs.

Victorino also told the public that “yesterday,” he had ordered an immediate audit into all of Choy’s contracts.

 

But no one told Lance Taguchi, the Maui County auditor, who said he only heard about the audit on the news.

“I wasn’t consulted,” Taguchi said. “Quite frankly, I wasn’t quite sure who was to do it, or who would be doing it.”

 

Milton Choy walking into court in Honolulu on Aug. 29. He was sentenced to more than three years in prison for bribing a Maui County official in exchange for more than $19 million in government contracts. (Phillip Jung for The New York Times) 

 

Though there were calls around the state for sweeping corrective measures following the bribery scandal, no audit was ever completed, and the flawed contract-monitoring system that Choy exploited has been left largely unchanged.

 

An examination of his case reveals a county procurement system with few checks and balances, one that may be ill-prepared to handle the millions of dollars that the county will spend in the aftermath of the inferno that destroyed much of Lahaina and killed at least 99 people.

 

The case prompted some county officials to begin phasing out sole-source contracts — which are awarded without competitive bidding when officials determine that only one vendor is able to supply a particular good or service — but the practice is still in use in the county.

 

Emergency orders have suspended most of the county’s procurement rules to speed up the response to the fires. Some state regulators and good-government advocates worry that the lack of competitive bidding and other deep flaws in the system could leave the door open for some contractors to take advantage of the disaster or for government money to be wasted.

Much of the money to rebuild from the devastating fire will flow through the Maui County government, which had already issued more than $3 million worth of contracts in the first several weeks after the fires, and millions more are expected.

 

Most of the money spent so far has gone to local construction companies, including Goodfellow Bros., one of Maui’s largest building firms, and Alpha Inc. which was hired to clear debris from roads and to manage traffic in the burned area. Consultants from Purdue University were hired to assess the damage to Lahaina’s water system, and Tetra Tech, a California-based engineering and consulting firm that was brought on to develop a temporary holding facility for toxic debris near the Central Maui Landfill.

 

Most of the contracts awarded so far went through without competitive bidding.

In 2016, Milton Choy’s company delivered new filtration systems to the Kahului Wastewater Treatment Plant in Kahului, Hawaii. (Phillip Jung for The New York Times) 

Federal and state orders to upgrade county wastewater infrastructure created opportunities for Choy’s business, H2O Process Systems. (Phillip Jung for The New York Times) 

Abuse of single-source contracts were at the heart of the scandal involving Choy, and while his company also won government contracts on Kauai and Oahu, Maui County is where he made the most money that way.

 

A computer analysis of publicly available county records shows that Choy’s company, H2O Process Systems, was awarded about $12.7 million in sole-source contracts by Maui County between 2015 and 2022 — more than any other vendor received, and more than 13% of the county’s total spending on such contracts. Federal prosecutors put the total amount of all contracts paid to H2O Process Systems by Maui County at around $19.3 million since 2012.

 

Maui County does much more of its spending through sole-source contracts than the state does. That type of contract accounts for less than 1% of spending by state agencies, but Maui County has used them for 7% of its contract awards since 2015.

 

It is a small universe of contracts and vendors, one with holes Choy and others were able to exploit. The process is so problematic that the agency in charge of Maui’s sewers halted its use of sole-source contracting this year. But the method is still in use countywide and can be used for purchases related to disaster relief efforts.

 

The suspension of competitive bidding is not the only hole in a county contracting system that is about to handle millions of dollars in spending, as the state rebuilds from the wildfires, which caused at least $5 billion in damage.

 

The county purchasing office that checks agency requests for no-bid contracts has only a handful of employees — sometimes as few as two — who monitor purchases from the county’s 15 departments, according to two former employees.

Taking down the flag outside the main county building in Wailuku. (Phillip Jung for The New York Times) 

The wildfires that swept across parts of Maui caused at least $5 billion in damage. (Philip Cheung for The New York Times) 

 

The Maui County Board of Ethics, which is responsible for investigating possible wrongdoing by public officials, has neither a dedicated budget nor the staff necessary to conduct investigations — even now, after two county officials and two lawmakers from Maui who took bribes from Choy have been sent to prison.

 

Choy was charged with one count of bribery last year and sentenced to more than three years in prison. During his sentencing hearing on Aug. 29, Assistant U.S. Attorney Kenneth Sorenson said that Maui County could not articulate how things might have played out differently if all of Choy’s contracts had been competitively bid.

 

The what-ifs mattered little to Choy, who stood up in court in a black fitted suit and dark polka dotted shirt to offer an apology to the court and the sparse gallery, where his wife and children were notably absent.

 

He apologized to his competitors, the people of Maui and most of all, he said, to his family for the harm his criminal acts caused them.

“My children were raised to be honest and law-abiding,” Choy said in court. “I pray I may be able to restore their trust and respect for their father.”

Milton Choy and his lawyer, Michael Green, left, outside court. Two Maui officials and two state lawmakers who took bribes from Choy have been sent to prison on bribery-related charges. 

The Rise Of A Wastewater King

 

Former associates of Choy recalled him as a charming salesman who could deftly navigate his way to the people who would buy his products and services. He sold wastewater equipment from manufacturers on the mainland.

 

Introductions and back-room deals were often hashed out over dinners, where Choy would occasionally flash a list of his contacts with direct lines to politicians and public officials. He was comfortable in the state’s culture of gift-giving.

 

He got a head start in the business working for Chris Hong, a former sewer superintendent in Honolulu and one of the first wastewater salesmen in Hawaii, who introduced Choy to public officials during site visits to Maui in the mid-1990s, according to former county employees.

Soon, orders from the state health department and the U.S. Environmental Protection Agency to upgrade county wastewater infrastructure created business opportunities for  Choy and his contemporaries.

 

Choy opened his own company, H2O Process Systems, in 2008. His business flourished. Competitors and former officials who dealt with him described a man adept at finding solutions to water processing issues and one who sold top-of-the-line equipment.

It also helped that he invited Hawaii officials and friends to soirees in Las Vegas, where the guests would be treated to stacks of gambling chips, food and drinks at Choy’s private suite in the Mirage hotel and casino, according to John Leslie, a former business partner in another venture who witnessed some of those parties.

 

“It was just real dirty,” said Leslie, who had distanced himself from Choy.

H2O Process Systems was awarded multimillion dollar contracts to provide filtration systems for a wastewater treatment plant. Shortly after, Choy deposited thousands of dollars into bank accounts controlled by a county official. (Phillip Jung for The New York Times) 

Then came a series of contracts for new filtration systems, including one at an estimated cost of $3.5 million for the Kahului Wastewater Plant in April 2016.

 

Filtration is one of the last steps in the wastewater treatment process and makes the treated water suitable for purposes like irrigation.

Most of the sole-source purchases coming out of the Department of Environmental Management were maintenance-related: replacement pumps and parts for broken-down clarifiers and electrical equipment that the department needed to get quickly.

But buying an entirely new system from Choy’s company that way was out of the ordinary, and it puzzled Greg King, who was in charge of the office that oversees contracts and purchases in Maui County. Why not bid it out competitively?

 

In an interview, King recounted posing that question to his boss, Danilo Agsalog, who was the county’s finance director at the time and had final say over any purchases exceeding $25,000.

The finance department approved the request anyway, on May 4, 2016. Agsalog, who now lives in Texas, did not return calls requesting an interview. Prosecutors have not alleged that Agsalog engaged in any wrongdoing.

 

Over the following two weeks, Choy deposited $20,000 into bank accounts controlled by Stewart Stant, the former director of the Maui County Environmental Management Department, according to federal officials.

 

County governments in Hawaii rely on a finance director as the only review for contracts recommended by department heads, including sole-source purchases. That made it easy for Stant, the former department head, to steer nearly $20 million in no-bid contracts to H2O Process Systems. Beyond that, no other official has oversight responsibilities over sole-source contracts.

The information justifying the sole-source request for the filtration system should have been checked by department officials, who are typically required to collect data on what other municipalities have paid for similar items and to rigorously vet any sole-source purchase.

 

Maui County Auditor Lance Taguchi said he plans to review the county’s procurement practices with a particular eye toward how the county spent emergency funds during the Covid-19 pandemic. (Phillip Jung for The New York Times) 

That job would have fallen to Wilfredo Savella, a maintenance supervisor who received more than $40,000 from Choy.

 

“If anything looked funny, he’d be in a position to ask questions,” said Victor Bakke, Savella’s attorney, arguing that his client was just following orders. “The two guys doing the deal, Choy and Stant, they would just tell him what to do.”

 

Choy spent more than $2 million between 2012 and 2018 bribing Stant, who was sentenced to 10 years in prison for his role in the scheme. Savella pleaded guilty in December 2022 to bribery-related charges. He is serving a 16-month prison sentence.

 

The system in Maui County is unlike those of many U.S. city and county governments, which require approval from a local council for contracts over a certain size. For example, the city of Anchorage requires its assembly to approve all sole-source purchases over $30,000.

“That way, the purchaser cannot be too cozy with a certain vendor,” said Scott Lee, Anchorage’s internal auditor. “We have another set of eyes looking at us, watching us. Let’s not do anything stupid.”

 

Alan Arakawa, who was mayor of Maui County when Stant was head of the environmental department, said he took a hands-off approach to county agencies and did not involve himself in day-to-day operations and contracts.

“My relationship with the departments was very simple: If you can handle it, you handle it,” Arakawa said.

 

When Stant pleaded guilty last year, he admitted receiving more than $1.3 million in direct payments from Choy between 2012 and 2018, in addition to hundreds of thousands of dollars worth of goods and services, including Las Vegas gambling chips, according to court records. Stant did not report any of it on annual financial disclosure forms required by the Maui County Board of Ethics, which has the authority to investigate officials and subpoena documents from private entities, such as banks.

Their business relationship was rumored for years in Maui government circles. But not a whisper of that made it to the volunteer board, according to Caleb Rowe, the board’s lawyer.

The ethics board’s resources, however, are limited to what is allocated to it by the Maui Corporation Counsel; the board has no budget of its own, and only a few part-time staff members who also have other duties in the corporation counsel’s office.

 

In Maui County, the process for awarding no-bid contracts involves just a few officials. (Phillip Jung for The New York Times) 

Little Has Changed

The system was inadequate at catching Choy and Stant, leaving Choy to pursue other ventures.

He set up a handful of businesses doing consulting work in the energy and construction sectors.

He also made other inroads in politics.

 

His family, employees and business associates began donating heavily to Hawaii politicians, with about $87,000 going to politicians from Maui. Among the recipients were a former lieutenant governor; state lawmakers, including a senator who has since admitted to taking bribes from Choy; Mayors Victorino and Arakawa; and members of the Maui County Council.

 

The bribery scheme involving Choy and Stant did not come to light until 2018, when several county wastewater employees raised concerns over procurement practices involving Stant to Elle Cochran, who at the time was a Maui councilwoman.

“It sent us down a rabbit hole,” said Sarah Pajimola, who was Cochran’s chief of staff in 2018.

Rep. Elle Cochran, who was a Maui County councilwoman when Choy was awarded sole-source contracts, turned over information to the FBI. that prompted an investigation into his business dealings. (Phillip Jung for The New York Times) 

 

Five of Cochran’s staff members and a volunteer researched the sole-source contracts issued to H2O Process Systems and the campaign donations from Choy and his associates.

Cochran spoke out against funding for a new grit system at the Kihei Wastewater Treatment Plant in South Maui. Work on part of that system was seemingly destined for Choy’s business.

The staff met privately with wastewater employees to collect information about payments to H2O Process Systems and eventually turned what they had gathered over to the FBI,  Pajimola said.

Their tip eventually led to the arrests of Choy and Stant. Choy agreed to cooperate in an ongoing investigation into public corruption and was not charged in other bribery cases involving two state lawmakers.

 

His cooperation led the two former state lawmakers, Sen. J. Kalani English and Rep. Ty Cullen, to plead guilty in February 2022 to bribery-related charges from their time in office. English was sentenced to more than three years in prison and Cullen was sentenced to two years.

Arakawa, the former mayor, defended Stant, whom he still considers a close friend.

“He admitted it. He had dealings with Milton. He defended Milton. The guy has integrity,” Arakawa said.

 

Little has changed in Maui’s system of accountability since the scandal broke, and there appears to be little will to change.

Alice Lee, the chairwoman of the county council, floated the idea of an investigation into Choy’s no-bid contracts in September 2022, shortly after Victorino said he had ordered an audit.

But in a recent interview, Lee said that she was not sure a review of no-bid contracts “would serve any purpose at this stage.”

 

“I believe he was sentenced,” Lee said, referring to Stant. “Maybe there’s an interest, but we have so many other things.”

Most of Maui’s attention is now focused on the aftermath of the wildfires.

Taguchi says he plans to review the county’s procurement practices with a particular eye toward how the county has spent emergency funds during the Covid-19 pandemic, “to see if there’s any kind of lessons that can be learned from it, and how we can do things better,” he said.

Maui’s oversight bodies, including the county’s Board of Ethics, remain short of resources. The county purchasing office, which raised concerns over some of Choy’s contracts in 2016, has about the same size staff now as it did then, and the county’s new budget does not give the office any additional funds.

 

Shayne Agawa, who now holds Stant’s former post as director of environmental management, started phasing out those sole-source contracts earlier this year, but acknowledged that there are some rare instances where there truly was only one vendor for a particular good or service.

In September, the department issued a $320,000 no-bid contract to Hawaii Engineering Services for replacement parts for disinfection systems at treatment plants in Kihei and Lahaina and a pair of no-bid contracts totaling $623,000 to Hawthorne Pacific for repair work on Caterpillar equipment.

Agawa said that limiting the use of sole-source contracting could “help or hurt” the county. But the way he sees it, making the procurement process more transparent and open to competition is better for the public in the long run.

 

“I’m not the same person that Mr. Stant was,” Agawa said. “Not to throw anybody under the bus, but my personal integrity wouldn’t allow me to allow what happened in the past to happen again.”

 

Eric Sagara and Irene Casado Sanchez contributed reporting.

This article was reported in partnership with Big Local News at Stanford University.

About the Author

  • Blaze Lovell

    Blaze Lovell is spending a year as a local investigations fellow with The New York Times. He was previously a reporter for Civil Beat. Born and raised on Oahu, Lovell is a graduate of the University of Nevada, Las Vegas. You can reach him at blaze.lovell@nytimes.com.

 

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