Federal prosecutors investigating public corruption in Hawaii have a story to tell about Louis and Katherine Kealoha.
The U.S. Justice Department is in the midst of preparing for a criminal trial in which the retired Honolulu police chief and his wife, a former city prosecutor, are accused of framing Katherine’s uncle, Gerard Puana, for the theft of their mailbox in 2013.
It’s a scandal of historic proportions for Hawaii, one that’s ensnared at least five other police officers and has expanded into new areas of investigation, including prosecutorial misconduct and drug trafficking.
Louis and Katherine Kealoha face a litany of charges related to allegations they framed a family member to hide their financial misdeeds.
Cory Lum/Civil Beat
But federal prosecutors say that in order to be successful in the mailbox case — which is scheduled to begin trial on March 18 — they need U.S. District Court Judge J. Michael Seabright to allow them to bring evidence of the Kealohas’ alleged financial crimes into the trial.
They say that those crimes — and the fact that Puana threatened to expose them — were the motive for the frame job.
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“Without knowledge of that underlying fraud, the story does not make sense: Why would two public servants — a Chief of Police and a supervisory Deputy Prosecuting Attorney — risk it all by fabricating a criminal case against a poor uncle?” Assistant U.S. Attorney Colin McDonald wrote in a motion filed in federal court this week.
“The story begs for a motive and the web of fraud propping up the Kealohas’ make-believe public image supplies it.”
When the Kealohas were indicted in October 2017, the financial crimes were combined with the mailbox conspiracy in a single 47-page indictment that included 20 felony charges.
Also named in that indictment were Derek Hahn, Minh-Hung “Bobby” Nguyen, Gordon Shiraishi and Daniel Sellers, four police officers that were part of a secretive police squad that was accused of helping the Kealohas carry-out and cover-up the frame job.
But in May, Seabright agreed to split the case into two separate trials, one for the mailbox conspiracy that would include all six defendants, and a second trial for the Kealohas that only focused on their alleged financial crimes.
It seemed like a win for the defense, particularly the four officers. The government’s new motion could change all that.
The Beginning: 2013
In prose better suited for a crime novel than a legal brief, the motion contends that the key to understanding why the Kealohas would enlist the help of a covert police force to help pull off a fake mailbox heist is a 2013 lawsuit Puana and his mother filed against Katherine Kealoha.
That lawsuit alleged Katherine Kealoha had stolen hundreds of thousands of dollars from Puana and his mother, Florence — now 99 years old — through a sham investment scheme and shady reverse mortgage deal involving Florence’s home.
Beyond that, McDonald wrote, the civil lawsuit had the potential to expose other possible crimes that Katherine and her husband were involved in, including identity theft and bank fraud.
Gerard and Florence Puana say Katherine Kealoha stole hundreds of thousands of dollars from them.
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It revealed the Kealohas’ “dire” financial situation, one that was hidden by a lavish lifestyle that included a million-dollar home in Kahala, Maseratis and a $26,000 party for Louis after he was named Honolulu police chief.
“In short, Gerard and Florence Puana’s civil lawsuit posed a serious risk of exposing the Kealohas’ interrelated financial misdeeds, which funded their make believe public image,” McDonald said. “The stakes were high: If the Puanas were not silenced, the Kealohas entire house of cards could come crashing down.”
McDonald then warned of the danger of going to trial without the proper context and motive for the conspiracy.
He said that’s exactly what happened in the Puanas’ civil case against Katherine. Her lawyer, Kevin Sumida, was able to paint Gerard as a criminal miscreant while putting Katherine, a well-to-do city prosecutor, on a pedestal.
“Trials come down to who can tell the best story with the evidence they can get in.” — Ken Lawson, University of Hawaii law professor
The jury ultimately bought the story and awarded Katherine $658,000 in damages.
“Without the underlying evidence of financial distress and fraud, the United States would be forced to tell a story missing its formative chapters,” McDonald said. “Indeed, that is precisely what occurred at the prior civil trial involving Katherine Kealoha and Gerard Puana.
“The civil jury knew nothing about the Kealohas’ true financial situation. That allowed K. Kealoha to falsely portray herself as a gainfully employed pillar of justice; a motiveless victim of a so-caricatured deadbeat criminal leech. As explained below, that picture could not be further from the truth.”
Alexander Silvert was Puana’s federal public defender in the mailbox theft case, and along with his investigators, was the first to uncover the conspiracy to frame his client.
Alexander Silvert is credited with uncovering the framing of Gerard Puana.
Cory Lum/Civil Beat
Silvert said the government’s motion is impressive in the way it lays out a series of complicated and intertwined financial crimes. He said it includes even more detail about how the Kealohas, and in particular Katherine, executed the fraud and deception she’s been accused of.
The motion, he added, is a must-read for anyone wishing to understand how the government hopes to prove its case against the Kealohas and their co-defendants.
“This is the first time the motive has been laid out in a chronological pattern and sequence of events that shows exactly what happened and why,” Silver said. “It’s compelling because if we don’t know why they did this, then the crime is happening in a vacuum.”
Ken Lawson, who teaches criminal law and evidence at the University of Hawaii’s Richardson School of Law, said defense lawyers representing the Kealohas could argue that outlining the motive will prejudice a jury against them by presenting evidence of unproven financial crimes — that trial’s not til June, three months later.
The officers, Lawson said, can argue that any evidence of the Kealohas’ alleged financial crimes could unfairly taint their image in the eyes of the jury.
“It’s really strategic, it’s like playing chess,” Lawson said. “Trials come down to who can tell the best story with the evidence they can get in. And when you look at the story the government is telling with the evidence they have it’s very compelling.
“This motion lets you know in detail that there was some stuff going on that just shocks the conscience and it helps explain why the Kealohas would do something like this.”
‘You Are Making Me Nervous’
The motion is laid out in a chapters that help explain the complexities of fraud and deception the Kealohas have been accused of perpetrating.
Chapter 1, which the prosecutors titled, “K. Kealoha, as guardian, steals more than $140,000 from two children,” focuses on the deception of Ransen and Arian Taito.
The Taitos, who are brother and sister, were just 11 and 9 when Katherine Kealoha came into their lives. She was appointed as their trustee after their father, who later died of cancer, settled a medical malpractice lawsuit for $1.3 million.
Kealoha and Honolulu attorney James Bickerton were supposed to set up trust accounts for the siblings, whose father died shortly after the settlement. Each of the children was to receive $83,884, money that would be held until they were 18.
Ransen Taito, now an adult leaves the U.S. District Court of Hawaii in January 2018.
Anthony Quintano/Civil Beat
According to the motion, the accounts were supposed to be set up in such a way that both Kealoha and Bickerton would have to jointly authorize any payments from the Taitos’ accounts.
Instead, the motion states Kealoha omitted Bickerton from the process and opened up an account in her own name along with the Taitos. Over the next several years, prosecutors say Kealoha siphoned off all the money while keeping Bickerton in the dark.
In 2011, when Ransen turned 18, the motion states Bickerton started asking questions about the accounts and the money. Kealoha, however, kept dodging him.
“What is the hold up?” Bickerton asked in an email. “You are making me nervous.”
Weeks later Kealoha responded saying she was out on medical leave and that she would have her assistant “Alison Lee Wong” get him the information. But Wong doesn’t exist, according to investigators. She’s a made up person that Kealoha was using to cover her tracks.
“If I don’t hear back from you this week, I will assume the worst (that the children did not get their money) and proceed accordingly.” — Jim Bickerton to Katherine Kealoha
In fact, Alison Lee Wong was a persona often used by Kealoha to help carry out her various schemes, investigators say. Wong even submitted laudatory testimony to the Hawaii Legislature when Kealoha was appointed by former Gov. Linda Lingle to the Hawaii Office of Environmental Quality Control.
Bickerton, however, remained persistent. In follow-up emails, he told Kealoha there seemed to be a “real problem” with what was going on with the Taitos’ trust accounts and that if he didn’t get answers soon he’d have to turn to the courts to ensure that everything was on the level.
Months passed, and in May 2012, the motion says Bickerton sent another email to Kealoha asking for details about the Taitos’ trust fund.
“I need to hear from the two children directly that they have been paid in full and the amounts they received,” Bickerton said. “Please follow up on this promptly. If I don’t hear back from you this week, I will assume the worst (that the children did not get their money) and proceed accordingly.”
Prosecutors said Bickerton’s fears were warranted. Starting in 2009, Kealoha had drained the accounts of $140,000 effectively leaving the siblings with nothing.
Former Honolulu city prosecutor Katherine Kealoha is accused of stealing $140,000 from siblings whose father left the money for them after he died.
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Bickerton had alerted the state Office of Disciplinary Counsel of the situation in 2012. The ODC — the main oversight agency for Hawaii’s lawyers — can investigate misconduct.
But in Kealohas’ case, the ODC did not act. Instead an official at the time sent this email to Bickerton:
“We are filing this material with no further action on our part at this time. ODC cannot practice law, offer legal advice or assist members of the bar with legal issues.”
In January 2018, Ransen Taito pleaded guilty to conspiracy for helping Kealoha cover up for her theft by agreeing to lie to federal investigators. According to Taito, Kealoha had told him his mother would go to jail if he didn’t lie for her.
Bad Credit, Theft And Forgery
The rest of the motion lays out a familiar story — albeit with some new details — about how exactly Katherine Kealoha allegedly bilked her uncle, Gerard Puana, and grandmother, Florence, out of hundreds of thousands of dollars.
At the core is a shady reverse mortgage deal that Kealoha executed on Florence Puana’s home so that Florence could help her son, Gerard Puana, purchase a condominium.
The Puana’s received $513,000 from the reverse mortgage with $360,439 going to the condo.
The rest went into a bank account controlled by Kealoha that she used to buy her and her husband lavish gifts, including a$26,000 party at the Sheraton Waikiki, Elton John concert tickets and other travel expenses
Some of the money also went to Kealoha’s secret lover, Jesse Ebersole, who worked for the Hawaii County Fire Department on the Big Island.
Jesse Ebersole pleaded guilty to lying to investigators about the affair he was having with Katherine Kealoha.
Cory Lum/Civil Beat
Kealoha is also accused of tricking her uncle into giving her $70,000 to take part in an “investment hui,” but prosecutors say she kept most of the money for herself.
The motion details how Kealoha moved money around to avoid detection, almost as if she were running an elaborate pyramid scheme.
When she needed money to give to Puana she would use funds taken from the Taitos and vice versa, all to give the impression everything was OK. But the truth, prosecutors say, was that the Kealohas were running out of money.
“Even while stealing hundreds of thousands of dollars from the Taitos and Puanas, the Kealohas still required supplements to fund their lavish lifestyle,” McDonald wrote.
“Between 2004 and 2017, the Kealohas opened and controlled over thirty separate financial accounts with various institutions. Bad credit followed. Thus, in order to continue securing loans, the Kealohas turned to fraud.”
Over the course of eight years, prosecutors say, the Kealohas engaged in lies, forgery and identity theft to convince lenders to approve their financial applications.
‘TWISTED LIES!’ And Broken Hearts
The Puanas slowly started to realized they might have been duped when Gerard tried getting money from Katherine Kealoha so he could buy a car. She told him all cash was “tied up in an investment” so she couldn’t give him the money.
Kealoha also wasn’t paying down the reverse mortgage, which caused the principal balance to balloon. When Florence Puana learned of this, she wrote a letter Kealoha, telling her she was “brokenhearted.”
“As you know, I’ve tried again and again to talk to you by phone, offered to meet with you at any time or place,” Florence wrote to her granddaughter. “You have not been truthful and have turned your back on me.”
She added that she was severing ties with Kealoha as her attorney, and that if she didn’t hear back within a week she would “take whatever steps necessary to legally correct this mess.”
The Kealohas have pleaded not guilty to all the charges against them, and have asked the court to keep out evidence of alleged financial crimes from the first trial.
Cory Lum/Civil Beat
Kealoha’s response was swift and defiant. She defended herself in a strongly worded letter punctuated with exclamations and capitalizations.
“I HAVE NEVER, WILL NEVER OR WOULD NEVER BORROW, TAKE OR EVEN REQUEST to BORROW ANY MONEY FROM FLORENCE PUANA!” Kealoha wrote.
“I WILL seek the highest form of legal retribution against ANYONE and EVERYONE who has written or verbally utted those LIES about me! They will rue the day that they decided to state these TWISTED LIES!”
On March 7, 2013, Florence and Gerard Puana filed their lawsuit against Kealoha.
Because the Kealohas’ alleged fraud was so intertwined — from the Taitos to Bickerton to the investment hui and the reverse mortgage — The Puanas’ case threatened to unravel everything all at once for the city prosecutor and her police chief husband.
“Public embarrassment was not something the Kealohas could afford,” McDonald wrote.
“They needed to maintain their carefully crafted public image. But their image (and future) was being seriously threatened by someone who knew the truth and was capable of making it known: Gerard Puana.”
The Kealohas, meanwhile, have urged Seabright not to allow the prosecutors to submit any evidence related to their alleged financial crimes. They’ve also asked that any evidence from Ebersole’s guilty plea not be allowed to come into the case.
The post So Why Would Anyone Fake Stealing A Mailbox? The Feds Make Their Case appeared first on Honolulu Civil Beat.