Kealohas plead not guilty in public corruption case: ‘We look forward to our day in court’

Former Honolulu chief of police Louis Kealoha and his wife, Katherine, a deputy prosecutor, were arrested Friday morning following a federal grand jury indictment.

The couple self-surrendered to federal agents at 6 a.m. at their condominium.

Another police officer, Sgt. Daniel Sellers, was also arrested Friday. All pleaded not guilty in federal court.

The Kealohas were released from federal custody on $100,000 bond each.

U.S. attorneys had unsuccessfully argued to keep Katherine Kealoha in federal custody, claiming she poses a risk of obstruction.

“We appreciate the continued community support and we look forward to our day in court,” Louis Kealoha said as the couple exited federal court.

“In your opinion, what they handed you today in court, were those valid documents?” KHON2 asked.

“No,” said Katherine Kealoha.

A spokesperson from the Department of the Prosecuting Attorney says Katherine Kealoha has been placed on leave without pay pending the outcome of the federal court case.

The 20-count indictment against the Kealohas includes conspiracy, obstruction, false statements, and bank fraud.

Acting U.S. Attorney Alana Robinson says their actions, and those by members of an elite police squad, cast a shadow over the Honolulu Police Department.

“The most troubling aspect of this case is the way these powerful defendants allegedly manipulated the justice system for their own purposes,” Robinson said.

Read the full indictment here (PDF).

In addition to Sellers, the FBI arrested retired major Gordon Shiraishi and current officer Bobby Nguyen on Sunday, and current Lt. Derek Hahn on Wednesday.

All four officers were working in the department’s Criminal Intelligence Unit at the time.

The arrests are tied to an alleged plot to frame Katherine Kealoha’s uncle, Gerard Puana, in the 2013 theft of the Kealohas’ mailbox.

Puana was tried in federal court, accused of stealing the mailbox outside the Kealohas’ home. The case ended in a mistrial.

In the indictment, authorities say the mailbox plot was carried out to hide the “precarious financial condition and prior malfeasance” of the trust accounts of Gerald Puana and Katherine’s grandmother, Florence Puana.

“No one, not a police chief, not a prosecutor, is above the law. Starting today, these defendants can’t use the power of their offices to act as if they are.”
– Acting U.S. Attorney Alana Robinson

“What makes clear is it’s far more than a case about a stolen mailbox,” said FBI Special Agent in Charge Paul Delacourt. “It’s an ongoing investigation that began following the mistrial of Gerard Puana, subsequent allegations that Honolulu police officers had falsified evidence and testimony in that investigation. The investigation thereafter uncovered much more.”

“The 20-count indictment describes a complex web of fraud, deception, and obstruction by a husband-and-wife team so desperate to fund their lifestyle and maintain their self-professed status as Honolulu’s power couple that they swindled hundreds of thousands of dollars from banks, credit unions, and some of the most vulnerable members of the community, including a disabled uncle, a 98-year-old grandmother, and two minor children who were under Katherine Kealoha’s guardianship,” said Robinson.

The FBI sifted through more than 30 separate bank accounts controlled by the Kealohas.

Documents claim that in 2004, Katherine Kealoha while employed as a private attorney was appointed as the trustee and guardian of two children age 10 and 12 at the time. The court ordered that Katherine open trust accounts for the minor children and deposit $167,000 into them.

While the court order included Katherine and her co-counsel to control of all disbursements and transactions in these accounts, she instead identified only herself as trustee.

The indictment alleges that between May 2004 and February 2012, Katherine Kealoha used almost all of the funds without notice or approval from the children or her co-counsel to pay the Kealohas’ personal expenses, including collateral for personal loans, payment of personal expenses including mortgage payments and the cost of refinancing their home, and overdraft charges on the Kealohas’ personal bank account.

When Katherine Kealoha’s co-counsel asked about the status of the trust accounts, the FBI says Katherine provided false and misleading information, including the creation of a fictional assistant named Alison Lee Wong to send emails to her co-counsel, conceal her lies, and make it appear relevant documents were being prepared.

“However, something was very much amiss.The funds were gone,” said Robinson.

The FBI indictment also goes into more detail on the misappropriation of funds from the Puanas dating back to 2007.

The documents allege that Katherine Kealoha told her uncle that she had access to an investment club (“hui”) with a high return, then used the money Gerard Puana gave her to pay for personal expenses.

In order to hide the use of her uncle’s funds, authorities allege Katherine periodically withdrew cash and gave Gerard Puana a debit card to withdraw “returns” in the initial investment of $25,000.

Gerard Puana ultimately handed over about $70,000 to Katherine Kealoha and received $23,739.

In 2009, documents allege that Florence Puana approached Katherine Kealoha to purchase a condominium for Gerard Puana. Katherine Kealoha recommended a five-step process that included a reverse mortgage loan on her grandmother’s home to make the purchase, then to have the Kealoha’s purchase the unit from her, then ultimately selling the condominium back to her uncle while acting as the lender.

Katherine Kealoha then allegedly requested a Durable Power of Attorney to manage the reverse mortgage of $513,474.

Authorities say Katherine then placed the proceeds into a joint account held by her and her grandmother. The funds were supposed to be used to purchase a condominium for Gerard Puana, to “consolidate” debts of the Kealohas, and the pay expenses for Florence Puana included payments for the reverse mortgage.

The FBI says Katherine Kealoha instead used the funds for their personal expenses and was not making interest payments on the reverse mortgage. Because the interest payments weren’t being made, the outstanding balance of Florence Puana’s loan grew substantially over time.

The reverse mortgage was used to pay a total of $92,355.09 of the Kealohas’ expenses including car payments on a Mercedes Benz and Maserati, air conditioning, and even the induction brunch at the Sheraton Waikiki when Louis Kealoha became chief of police.

Expenses (Top 10 listed here, full list in indictment) Amount
Sheraton Waikiki – Police Chief Induction Brunch for L. KEALOHA (26,394.80)
Car payments for Mercedes Benz & Maserati (10,663.58)
HVAC installation at home of K. KEALOHA and L. KEALOHA (7,800.00)
Payment to realtor (7,000.00)
Insurance Payments (5,846.00)
Travel Expenses (3,596.12)
Donations to Charity (3,000.00)
Elton John Concert Tickets (2,161.70)
Hawaiian Telcom (2,070.51)
ATM Withdrawals (1,582.25)

In order to hide the financial crimes, documents allege that the conspirators targeted members of the community including the Puanas and sought to discredit and intimidate them by falsely alleging they had engaged in criminal activity or were incompetent.

“When family members became concerned about investments, the Kealohas used their power and influence to launch a secret campaign to cover up their financial crimes and discredit their victims with the help of a few friends, members of elite Criminal Intelligence Unit,” said Robinson.

This is where, the federal government alleges, the Kealohas came up with an elaborate scheme to frame Gerard Puana, using conspirators to fabricate, alter, and conceal evidence in order to support false claims of criminal conduct.

Retired officer Niall Silva accepted a plea deal alleging a cover-up in Dec. 2016. Silva pleaded guilty to felony conspiracy — accused of falsifying records, obstructing an official proceeding, and making false statements — and implicated other officers in a conspiracy to frame Puana.

Always Investigating asked Robinson, who took the mailbox, if not the previously alleged?

“That is the question of the hour, and I believe in this litigation, all the answers will be forthcoming,” she replied. “We know that already certain pieces of evidence have been destroyed. The allegation is the defendants were involved and, in fact, directed the destruction of evidence, things that could have answered the question about what happened to the mailbox.”

“Every day, hardworking men and women of the Honolulu Police Department put their safety on the line for a difficult job. Abuses of power undermine that position,” said Delacourt.

Defense attorney claims indictment designed to ‘contaminate the well’

Myles Breiner, the Kealohas’ attorney, says federal prosecutors are tainting public opinion, but in the end, they will not be able to prove their case beyond a reasonable doubt.

“I submit that they had it right the first time, and that is Gerard Puana in the video and Gerard Puana should have been prosecuted or reprosecuted for the theft of the mailbox,” he said.

Breiner says the testimony federal prosecutors are counting on to prove their case isn’t reliable, and the Kealohas were not having money problems, so there’s no motive.

Breiner says the indictment presented in court lays out a lot of details that are designed to paint a very harsh picture of the Kealohas, and meant to justify the two years of investigation by federal investigators.

“This is designed to get the public’s attention to contaminate the well to convince the public that they must be guilty, otherwise why would we have indicted her? So by the time they come into court, it’s going to be impossible to find a panel of jurors that doesn’t have an opinion about this case,” Breiner said.

Breiner also discredits Silva and Gerard Puana, who provided testimony to the grand jury.

“Both individuals, particularly Niall Silva, has lied repeatedly to the government, to government agents, and to the grand jury, and the government acknowledges that,” he said.

As for a motive for Kealohas, Breiner says there really isn’t one.

“Everyone has money problems in Hawaii, but money problems, it’s all relative,” he said. “No, as far as I’m aware, neither Kat Kealoha or her husband had money problems. They both were working full time as deputy prosecutor and chief of police.”

We also asked Breiner about Katherine Kealoha’s alleged alias and fictional assistant, Allison Lee Wong. Breiner says that never happened.

When asked if they framed their uncle, the Kealohas told Always Investigating in an April 2016 interview:

“No, absolutely not,” Louis Kealoha said. “We would never do something like that.”

“It throws around a lot of facts that people are like ‘woo’ but there is no substance,” Katherine Kealoha said.

“If we did that, a police officer did that, I tell you what — we have difficulty keeping secrets,” Louis Kealoha added. “This would be out in the public. If more than two people know about it, game over.

“If any of that was true,” the former chief continued, “we’d have cops coming out and saying yes, because the cops who work in this unit are the same ones that will have no problem going to the FBI when they see something wrong with another officer, and they’ve done it in the past.”

Alexander Silvert, the attorney who represented Puana in the criminal trial for the mailbox theft, says this day was a long time coming.

“Mr. Gerard and his family who have been the ones who have been put through the ringer,” Silvert said. “He was arrested. He was put in prison. He was subject to the news for two years where everybody presumed he was guilty. It’s a long time coming for them.”

Where does HPD go from here?

Given the allegations, how can the department move forward?

“The future of CIU is still… has a job to do. We monitor them very closely. I meet with them every other day, find out what they’re doing. There’s been a changeover in personnel. Like any other group or any other division in the police department, you need supervision to be very, very tight, to make sure they’re doing what they’re supposed to do. When you don’t have that, and you don’t have those controls in place, things like this could happen real easily,” said acting Chief of Police Cary Okimoto. “Right now, I think that we have enough to manage and have the oversight. As a new chief comes in, he or she needs to understand that like any other division, any other district, you need your personnel to be held to a high standard, and you need to supervise these people to make sure that you know what they’re doing and what they’re not doing.”

Honolulu Mayor Kirk Caldwell released the following statement:

“The FBI investigation has reached the highest levels in the Honolulu Police Department and Prosecutor’s Office, and this shows that no one is above the law. Oahu residents deserve to know what happened and expect justice to be served. I thank the men and women of our police force who have continued to do their jobs every day with professionalism and without hesitation. Throughout this investigation I believe the department has been managed well under Acting Police Chief Cary Okimoto and his team at HPD. Honolulu remains one of the safest large cities in the entire country and that won’t change with these arrests.”

Under Honolulu’s current statutes, the mayor has no direct oversight of the prosecutor’s office, and doesn’t directly control the police department.

Until a recent charter vote, even the police commission had fewer teeth when it came to firing a chief.

The commission released the following statement Friday: “We at the Police Commission respect the decisions that the grand jury has made and leave the question of whether crimes were committed to the criminal justice system. We at the Police Commission will focus on the future, on selecting a new Chief, and on supporting the men and women of HPD as best we can.”

Federal authorities declined to address our questions of whether U.S. Department of Justice oversight could be in the cards.

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