BY JIM DOOLEY – The newly-hired head of the state’s securities enforcement office allegedly defrauded a business associate in 2010 and failed to pay $900,000 in tax and child support debts over the past 10 years, according to public records.
Peter C. Hsieh was also reprimanded last year by the Hawaii Supreme Court for mishandling funds belonging to clients of his law practice in 2006, as reported March 30 by Hawaii Reporter.
Hsieh (pronounced Shay) disclosed the reprimand before the state Department of Commerce and Consumer Affairs hired him February 13 as its senior securities enforcement attorney, DCCA Director Keali’i Lopez said last week.
Lopez said today the department “did not know about” Hsieh’s tax and child support debts or the fraud allegation lodged against him in February in U.S. Bankruptcy Court.
“We are extremely concerned and we have begun our own internal investigation,” Lopez said through spokesman Brent Suyama.
The civil fraud allegation was filed February 21– after Hsieh took the state job — by attorney Joseph Huster, who provided legal services to Hsieh’s law firm on a contract basis, according to court records. (See the Huster suit here)
Huster alleged that Hsieh “stole and/or fraudulently transferred” tens of thousands of dollars in legal fees owed to Huster for work performed in 2007-08.
Hsieh declared personal bankruptcy last year, disclosing that he owed more than $600,000 to the IRS and more than $146,000 in state tax arrearages. Hsieh bankruptcy
Hsieh also reported that he owed his ex-wife $141,000 for unpaid child support, education and medical coverage obligations.
Hsieh was discharged from bankruptcy earlier this year and some of his tax debts are believed to have been forgiven.
But other tax debts are covered by liens filed against him and he is obligated to pay them. Child support debts are not dischargeable in bankruptcy.
One lien filed against him in 2008 by the state Tax Department said Hsieh owed $29,000 in general taxes for the years 2005, ’06 and ’07; $12,298 for unpaid 2006-07 withholding taxes; and $1,947 in 2007 Honolulu rail tax surcharges.
One IRS lien filed against Hsieh in 2009 said he owed $139,531 for 2006-07 personal income tax arrearages.
Hsieh did not respond to questions submitted by Hawaii Reporter to him via email and telephone.
Huster said today he was “shocked” to learn from Hawaii Reporter that the state hired Hsieh as its top securities enforcement lawyer. He did not respond to a request for additional comment.
In the fraud claim, Huster said Hsieh paid him $27,000 in 2010 for his past legal bills, but the payment was “far short” of the total amount owed.
Huster alleged that Hsieh first told him the $27,000 payment covered all of Huster’s outstanding bills, then later said that he “lacked sufficient funds” for additional payments to Huster, according to court files.
Huster claimed that Hsieh received “far in excess of the amount” owed when contingency fees were paid in a lawsuit handled by Hsieh.
Hsieh was under a fiduciary obligation to segregate Huster’s fees from his own, but failed to do so, Huster alleged.
Mishandling of segregated funds was the cause of Hsieh’s Supreme Court reprimand last year.
The state Office of Disciplinary Counsel, an arm of the Supreme Court, said that Hsieh: took money from his client trust account in six matters before he earned them; took fees for nine matters when his clients did not have funds in the account; did not reconcile his ledgers in 2006; and did not list his client trust balances which agreed with the reconciled client trust account bank balances for each quarter of 2006.
The Hawaii Supreme Court issued a public reprimand of Hsieh in October 2011.
Hsieh owes $3,975 to the Office of Disciplinary Counsel for costs it incurred in pursuing the case against him, according to bankruptcy records.
Public records show that last year Hsieh cited the then-pending disciplinary action as a reason to reduce the level of child support owed to his ex-wife.
He told a child support hearings officer that because the Disciplinary Counsel wanted to suspend his law license for three months he could not find work with a private law firm.
Hsieh said his Disciplinary Counsel problems were caused by “the mishandling of client trust accounts by his bookkeeper.”
A hearings officer declined to reduce the level of Hsieh’s child support and said his unpaid support bills as of December 2010 totalled nearly $48,000.
Lopez of DCCA said last week that when Hsieh applied for the securities enforcement job, he “gave a detailed and reasonable explanation about the facts surrounding” the Supreme Court reprimand.
“Given those details and Peter’s depth of experience, we felt the people of Hawaii would benefit from his addition to our team,” Lopez said.
Hsieh has been a litigation attorney for 30 years. His DCCA duties include oversight of four attorneys and seven investigators in a branch that is “heavily involved in litigation cases.”
Lopez added: “Peter has been with DCCA for a short time, but has demonstrated his willingness to serve the public and make the most of this opportunity.”