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US probe alleges corruption by top Honolulu law enforcers

Last Updated Oct 20, 2017 at 9:40 pm EST

Former Honolulu Police Chief Louis Kealoha, right, and his wife, Katherine Keahola leave federal court in Honolulu, Friday, Oct. 20, 2017. Kealoha and his wife, a city prosecutor, have pleaded not guilty to federal corruption charges. U.S. Magistrate Judge Richard Puglisi on Friday released Louis and Katherine Keahola on $100,000 bond each. They entered the pleas Friday after a federal grand jury indicted both of them in a public corruption case. Authorities claim the couple used their positions to bilk clients and relatives out of hundreds of thousands of dollars to fund their lavish and overextended lifestyle and then used their power to target anyone who threatened them. (AP Photo/Caleb Jones)

HONOLULU, Hawaii – A curious allegation of mailbox theft unraveled into a tale of corruption that reached the highest levels of Honolulu law enforcement, culminating in a U.S. investigation that found the former police chief and his prosecutor wife bilked clients and relatives out of hundreds of thousands of dollars to spend on their lavish lifestyle and then used their power to orchestrate a plot within the police department to target anyone who threatened them.

Officers hand-picked by former Police Chief Louis Kealoha for an elite unit that investigates terrorism, organized crime and other serious crimes helped the couple frame a relative to discredit him in a family financial dispute that threatened to unveil the schemes to pilfer money, according to a federal indictment unsealed Friday.

Kealoha and his wife, Katherine, surrendered Friday and were released on $100,000 bond each after pleading not guilty. An indictment against the couple and four current and former officers includes charges of conspiracy, obstruction, bank fraud and identity theft.

“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,” said Alana Robinson, acting U.S. attorney for the Southern District of California, whose office handled the case.

She said the couple bilked money from a disabled uncle, a 98-year-old grandmother and two children who were under Katherine Kealoha’s legal guardianship. But Robinson said the most troubling part was how they manipulated the justice system for their gain.

“The Kealohas used their considerable power and influence as public officials to launch a secret campaign to cover up their financial crimes and to discredit their victims with help from a few friends in the police department’s elite Criminal Intelligence Unit,” Robinson said.

Louis Kealoha said he and his wife would defend themselves.

“We appreciate the continued community support and we look forward to our day in court,” he told reporters as the couple left the federal courthouse holding hands and wearing lei.

Louis Kealoha retired earlier this year, and Katherine Kealoha, a deputy city prosecutor, is on leave without pay pending the outcome of the case.

The unraveling began in 2013, when the Kealohas reported the mailbox at their house stolen. The couple and some officers staged the theft and edited surveillance video, prosecutors said.

The Kealohas named the suspect: Gerard Puana, Katherine Kealoha’s uncle with whom she was embroiled in a financial dispute.

He was charged, but the case ended in a mistrial when Louis Kealoha, a 30-year Honolulu police veteran, gave improper testimony about Puana’s criminal history. The charges were dismissed, but Puana’s federal public defender believes the chief intentionally gave the testimony to prevent illegal actions from being uncovered.

The attorney, Alexander Silvert, said he uncovered troubling evidence, including falsified reports and illegal surveillance, and took those allegations to federal prosecutors and the FBI.

Years earlier, Katherine Kealoha was a private attorney when she was appointed as trustee and guardian for two children in 2004 and told to create trust accounts for them with $167,000. Over eight years, authorities allege she spent about $150,000 on expenses including personal loans and mortgage payments.

She also is accused of taking about $70,000 from Puana — her uncle — that she promised to invest for him. She used about $45,000 on personal expenses.

Katherine Kealoha arranged a reverse mortgage on her grandmother’s home to fund a new condo for Puana. Instead of paying the loan, prosecutors say Kealoha spent more than $92,000 on brunch at a Waikiki resort when her husband was made police chief, car payments for a Mercedes Benz and a Maserati, Elton John tickets and a trip to Disneyland.

Puana and the grandmother were suing for those funds when the mailbox case emerged.

Some of the officers charged in the investigation knew the Kealohas socially or in business: one was an ex-boyfriend of Katherine Kealoha and another was her partner in a solar company business.

Retired Officer Niall Silva pleaded guilty last year to falsifying documents and altering evidence in the mailbox case. He is facing sentencing, and his co-operation helped build cases against Officer Minh Hung “Bobby” Nguyen, Lt. Derek Hahn and retired Maj. Gordon Shiraishi.

Nguyen and Hahn allegedly conspired with others to alter evidence and provide false information to federal officials, according to court documents. Shiraishi, who retired in March, lied to a grand jury about the mailbox case, the documents said.

Sgt. Daniel Sellers was arrested Friday and accused of lying to a federal grand jury and the FBI. He pleaded not guilty and was released on $50,000 bond.

The Honolulu Police Commission, a civilian oversight panel, said it’s focusing on the future, selecting a new chief and on supporting officers.

Silvert, who was the uncle’s federal public defender, said when he got the mailbox case, he figured it would be a straightforward guilty plea.

“I never for a minute imagined it would become this,” he said, later adding, “This is an abuse of power by people in the highest authority.”

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Associated Press writer Audrey McAvoy contributed to this report.