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One day after a federal grand jury completed a two-year investigation into public corruption and abuse of power in Hawaii law enforcement, former Honolulu Police Chief Louis Kealoha and his wife, Katherine, a high-ranking city prosecutor, were arrested by the FBI and indicted on 20 counts of criminal conspiracy, fraud and obstruction of justice.

The Kealohas, who were arrested at their home around 6 a.m. Friday, have been at the center of the U.S. Justice Department’s criminal probe, which so far has led to the arrest of five other Honolulu police officers.

The Kealohas pleaded not guilty in federal court Friday, as did another co-defendant, Daniel Sellers, a Honolulu police officer who was also arrested and charged Friday. All three suspects were released on bond.

The U.S. Attorney’s Office tried to keep Katherine Kealoha in custody, saying she has a history of falsifying reports, obstructing justice and intimidating witnesses.

But U.S. Magistrate Judge Richard Puglisi denied the request.

The Kealohas walked out of the front doors of the federal courthouse, holding hands and smiling. They wore lei and were hugged by some bystanders on the courthouse steps.

“We appreciate the continued community support and we look forward to our day in court,” Louis Kealoha told Civil Beat as the couple walked toward Halekauwila Street.

Katherine Kealoha was formally placed on unpaid leave Friday pending the outcome of the federal case, according to the prosecutor’s office, although she had already been on voluntary unpaid leave for months.

The Indictment

According to the indictment, the Kealohas allegedly orchestrated a conspiracy aimed at preventing “the discovery and disclosure of their precarious financial condition,” as well as the misappropriation of the trust funds of two children under Katherine Kealoha’s guardianship.

The case centers on the purported theft of the Kealohas mailbox in 2013, which they blamed on her uncle but federal investigators now say was an elaborate scheme to win a civil suit in which a lerge sum of money was at stake.

The conspiracy allegedly involved five current and former Honolulu police officers:

• Sellers, a 20-year veteran of HPD who was a sergeant in the Criminal Intelligence Unit at the time of the mailbox theft.
• Officer Minh-Hung “Bobby” Nguyen, a “footman” in HPD’s Criminal Intelligence Unit who is accused of lying to federal investigators about his involvement in the mailbox conspiracy and cover-up.
• Derek Hahn, a lieutenant in HPD with 20 years of experience. Hahn was a high-ranking member of the CIU when the mailbox theft occurred. Federal prosecutors have described him as one of the ringleaders of the alleged conspiracy. He once owned a business, Discount Energy Solutions, with Katherine Kealoha.
• Former HPD Maj. Gordon Shiraishi who was the captain of the CIU when Gerard Puana was allegedly framed for the mailbox theft. He left the department in April 2017 after he was notified he was a target of the Justice Department’s corruption investigation.
• Niall Silva, a retired officer who worked in CIU during the mailbox theft. Silva admitted to falsifying documents and lying to federal investigators. He also admitted to lying on the witness stand during Gerard Puana’s criminal trial. He pleaded guilty to conspiracy in December 2016, which set into motion Louis Kealoha’s eventual retirement from HPD.

The indictment portrays the Kealohas as spearheading the plot to frame Katherine’s uncle, Gerard Puana, for the theft of their mailbox to gain the upper hand in a family dispute involving a large sum of money.

The indictment also lays out a complicated financial scheme in which the Kealohas allegedly secured nearly $4 million in bank loans through false pretenses and forged documents.

Acting U.S. Attorney Alana Robinson of San Diego flew to Hawaii for Friday’s proceedings and address the press after the indictment was unsealed. Robinson’s office has been handling the grand jury investigation on behalf of the Justice Department.

She said the indictment lays out what motivated the police chief and his wife to become involved in an extraordinary deception.

The document, she said, set out 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.”

The most troubling aspect of the case, Robinson said, is that the Kealohas used their positions to manipulate the justice system for their own benefit.

Moreover, she said, the Kealohas used their influence to launch a “secret campaign” against their accusers, enlisting the help of HPD’s clandestine Criminal Intelligence Unit, which is tasked with fighting  organized crime and terrorism.

“Certainly this case has rocked the police department and this city for some time now, but today is a new beginning,” Robinson said. “It is our hope and our belief that today’s charges will ultimately deliver justice to those who betrayed their badges and bolster the reputation of the department that has suffered because of the actions of a corrupt few.”

The Background

At the time, Gerard and Florence Puana were suing Katherine Kealoha for allegedly duping them in a reverse mortgage deal and stealing hundreds of thousands of dollars that she then spent on lavish gifts for herself and her husband, including a $25,000 breakfast celebration at the Sheraton Waikiki after he was named chief.

Puana’s criminal defense attorney, Alexander Silvert, however, believed that the Kealohas had worked with several HPD officers to frame his client for the mailbox theft, so that they could undermine Puana’s credibility in the lawsuit.

Silvert began presenting his theory of the case during Puana’s criminal trial in December 2014, saying that he had uncovered information showing that HPD had withheld evidence and falsified police reports in an attempt to blame his client for the theft.

Even HPD’s surveillance video showing the purported theft was a fraud, Silvert said, because the man seen plucking the mailbox off its post did not look like Puana.

The trial ended in the mistrial, however, before Silvert could fully reveal the full extent of the conspiracy.

U.S. District Court Judge Leslie Kobayashi, who was presiding over the trial, threw out the case after Louis Kealoha took the witness stand and talked about Puana’s criminal past in violation of the courtroom procedure that aims to protect jurors from receiving potentially prejudicial information about defendants.

Silvert met with the U.S. Attorney’s Office after the mistrial and turned over all his evidence of alleged wrongdoing on the part of HPD and the Kealohas. Officials with the office then dismissed the case with prejudice, meaning the charges could not be brought again, and forwarded the matter to the FBI, which has been investigating ever since.

The Alleged Conspiracy

The first person charged with a crime was Niall Silva, a retired officer in HPD’s Criminal Intelligence Unit.

According to the charging documents, Silva and others falsified police reports and lied to federal investigators in an attempt to put Puana behind bars. He was also accused of providing false information while testifying on the witness stand during Puana’s trial.

Silva pleaded guilty to federal conspiracy charges in December 2015 and agreed to cooperate with investigators who were continuing to look into allegations of corruption within HPD.

Just days after the plea, Louis Kealoha — still chief at the time — received a target letter from the Justice Department informing him he was suspected of criminal activity.

At least four other officers within HPD received similar letters, including Nguyen and Shiraishi. Shiraishi retired amid the allegations while Nguyen was reassigned.

Kealoha initially wanted to place himself on restricted duty while the investigation played out, but instead was pressured into retirement by the Honolulu Police Commission.

The commission, however, approved giving Kealoha a $250,000 cash payout that was in addition to his estimated $150,000 a year pension. Kealoha has agreed to pay back the $250,000 if he’s convicted of a felony within six years of the deal.

Katherine Kealoha, meanwhile, had remained an integral part of the Honolulu Prosecuting Attorney’s Office. Her boss, Keith Kaneshiro, had vigorously defended her against the many allegations that have been lobbed against her about potential wrongdoing.

Acting Honolulu Police Chief Cary Okimoto said Friday that the department is reviewing how it oversees  the Criminal Intelligence Unit.

Okimoto also noted the toll the ongoing corruption investigation has taken on the department and the morale of its nearly 2,000 officers.

“I know my morale is not good today,” Okimoto said. “But it’s not about that. It’s about pressing on and doing our job and doing what we’re tasked with in the community.”

Read the federal indictment: