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On Feb. 9, nearly 1,200 people gathered at Moanaloa Gardens for a luau to celebrate the inauguration of Honolulu Mayor Kirk Caldwell, who had just completed a grueling election in which he defeated former Gov. Ben Cayetano and incumbent Peter Carlisle.

About 300 attendees were given free tickets, while many others paid $25 to get in. Those who wanted VIP treatment spent anywhere between $2,500 and $10,000 to get better access to the stage, more convenient parking and beer and wine service.

VIPs also received commemorative bowls with inscriptions memorializing the event.

But serious ethical questions have been raised about the luau, including whether it was a vehicle used by city contractors and lobbyists to curry favor with the new mayor. It’s also opened up the debate over whether Honolulu’s ethics laws need to be strengthened to close any loopholes regarding gift-giving.

The party was put together by Caldwell’s campaign manager, Lex Smith, a local attorney who had created a new nonprofit in December to help the mayor hire his cabinet and get settled into his new office in Honolulu Hale.

The “Mayoral Transition Committee” — a 501(c)4 or “dark money” group as they came to be called during the last election cycle — sought out donations from many of Caldwell’s political supporters, telling them that unlike contributions regulated by the Hawaii Campaign Spending Commission, there was no limit on what could be given.

“This is a non-political entity, and accordingly there is no limit on the amount that may be contributed to it by any one individual,” a Dec. 11 email said. “We are hoping that each of you might consider contributing or raising $5,000 (or more) to support the transition and Inauguration festivities.”

The fundraising campaign was highly successful, raking in nearly $400,000 from influential donors, such as Castle & Cooke, Hilton Worldwide and United Public Workers. Some donors gave as much as $10,000.

But this drew suspicion. The Honolulu Ethics Commission received complaints that the funds were being used to buy influence at Honolulu Hale. It launched an investigation into whether there was any impropriety, and on Friday, the commission .

The 19-page opinion found that of the 102 donors to the transition team, 25 had “significant business relationships” with the city. This included donors who paid lobbyists to represent them in city business, two cabinet members, and donors who have contracts with the city to provide services.

These 25 donors, whose names have not been released by the Ethics Commission, contributed $127,000, or about one-third, of all funds to the transition committee.

The commission found that these donations violated ethics laws, but it also said Caldwell was not guilty of any wrongdoing. The commission believed there was no way the mayor could have known he was violating gift-giving rules since the money was solicited by the committee and he did not have any direct involvement with its operation.

The fact that the money went to an independent committee and not to Caldwell also clouded the commission’s ruling. Inaugural committees are traditionally funded by private money, the commission said, and the city doesn’t have any ethical guidelines or legislation regarding such groups.

Still, the commission was unequivocal in its desire to write new rules. These laws would act as “safeguards to protect the integrity of government officials who benefit from the financial support for transitional and inaugural purposes.”

The rules would also seek to eliminate any of the business and financial relationships between a new administration and the donors.

Some possible changes include preventing city employees, prospective city employees, lobbyists and businesses that work with the city from donating to the committees. The commission is considering requiring that committees publicly disclose the source of the donations and how the money is spent.

“This case underscores serious concerns about the integrity of city government when large donations are made for a mayor’s benefit from those who have much to gain or lose from their business relationships with the city administration,” the commission report said.

“Government officials are restricted in receiving gifts because of the reasonable concern that gifts to an official may lead to the appearance or reality of preferential treatment by the official to the donor. Preferential treatment is inconsistent with the official’s ethical duty to treat all members of the public fairly and equally.”

In the case of the mayor, this duty is all the more important, the commission said, because he has “broad discretion to act in a manner to directly or indirectly promote the success of a person or company that has or would like to have business with or a license from the city, or is regulated by or is trying to influence the direction of the city.”

But while the Ethics Commission expounded on the importance of tightening up gift laws to eliminate the perception that influence can be bought with a donation, Caldwell and the head of his transition team shrugged off the report.

Even before the commission released its report, a public relations firm issued a press release saying that Caldwell had been “cleared of any improprieties” and that the transition team had acted within the scope of current law.

“I am gratified that the Commission found that I did nothing wrong while transitioning into the office of the Mayor,” Caldwell said in a statement from that press release. “Frankly, I was surprised that there was even an investigation to begin with, as the Mayoral Transition Committee followed the traditional practices used by our mayors and governors for as long as any of us can remember.”

In an interview with Civil Beat, Smith echoed this sentiment and called the Ethics Commission’s investigation a “stretch.” He pointed to a paragraph in the report in which the commission breaks down how much Caldwell actually benefited from the 25 donors who helped pay for the luau.

The commission found the cost to put on the luau was about $121 per person. When considering the 25 questionable donors gave about one-third of the contributions that amount is cut to $40 per attendee. The commission assumed Caldwell and his wife both would have personally benefited, resulting in a “personal gift” of $80 to the mayor. When divided by 25 the amount is about $3.50, which is well beneath the city’s gift limits.

The commission said that although the gift value is small, the “full weight of the contributions” is much larger since it helped Caldwell build political goodwill in the community.

“It’s in the eye of the beholder how big of a problem this is,” Smith said. “If you take the commissions numbers then two-thirds of the money that we received came from people who didn’t have any ethical issues. You might take that as most of the people who contributed to our event and our activities didn’t have anything to gain from it.”

Smith would not identify the 25 donors mentioned in the commission’s report, saying he’s made no effort to figure out who they are.

He also reiterated that the transition team is no different than those used in Hawaii and elsewhere to help newly elected candidates put on inaugural balls and galas. Smith noted that even President Barack Obama’s inauguration was paid for with private donations.

“We followed the law,” Smith said. “New regulations have now been proposed by the Ethics Commission, and whatever the law is, I’ll be sure to follow it.”

There’s still a substantial amount of money left over from the transition team’s fundraising activities. According to the commission’s breakdown of the numbers, of the $381,000 raised, $51,000 was used on actual transition activities and $11,000 was spent on the inauguration ceremony. The luau cost $145,000.

Smith said the leftover money will be donated, but that the committee has yet to make a decision.

Read the full Ethics Commission opinion here:

Read Smith’s brief he filed in response to the Ethics Commission investigation here: