Hawaii power couple convicted in plot to hide fraud

HONOLULU — A jury has found a former Honolulu prosecutor and her now-retired police chief husband guilty in a plot to frame a relative to silence him from revealing fraud that financed their lavish lifestyle, a case that shook the top levels of law enforcement.

The verdict came Thursday in what has been described as Hawaii’s biggest corruption case. The jury found both Kealohas not guilty in one count of attempting to obstruct an official proceeding and one count of making false statement.

Neither Katherine nor Louis Kealoha testified during the closely watched trial. Their defense attorneys argued the case was built on weak and circumstantial evidence.

Katherine Kealoha left the courthouse without commenting. Her husband said, “It’s still a lot to take in.” He thanked the community for “continued love and support.”

The judge scheduled a bail hearing for Katherine Kealoha on Friday after a federal prosecutor asked that she be jailed.

They were on trial over allegations they conspired with officers to frame her uncle for stealing their home mailbox.

Prosecutors say the Kealohas used officers from a secret police unit hand-picked by the chief to frame Gerard Puana for stealing their home mailbox to try to discredit him in a lawsuit he and his mother filed saying Katherine Kealoha stole money from them in a mortgage scheme.

Alexander Silvert, the federal public defender who represented Puana, said the verdict sends a strong message to law enforcement.

“If you use your power to frame an innocent man you will be held accountable,” Silvert said.

The Kealohas had a powerful motive: maintaining their “power and prestige,” said Joseph Orabona, a special U.S. prosecutor.

The peculiar case of a mailbox reported stolen in 2013 from the Kealohas’ home in an upscale Honolulu neighborhood led to a two-year federal investigation and corruption-related charges against a couple at the top levels of law enforcement and current and former officers.

Prosecutors said Katherine Kealoha bilked relatives, banks and children whose trusts she controlled and spent the stolen money on Maserati car payments, a firefighter lover and a hotel breakfast banquet when her husband became police chief.

A judge split a 2017 federal indictment into two trial trials. The mailbox conspiracy is the first trial, which began in May. A second trial will focus on bank fraud and identity theft charges. Katherine Kealoha also faces a third trial for a separate indictment alleging she and her pain physician brother dealt opioids.

Prosecutors relied on weak and circumstantial evidence, said defense attorneys, who maintained there was no conspiracy.

The jury also found a Lt. Derek Hahn and Officer Bobby Nguyen guilty of conspiracy.

Retired major Gordon Shiraishi was found not guilty.

Nguyen was married to Katherine Kealoha’s niece and lived in the couple’s pool house, while Hahn was Katherine Kealoha’s partner in a solar business and Shiraishi was in the same recruit class as Louis Kealoha.

Defense attorneys for the current and former officers disputed prosecutors’ characterization of the police unit as “secret.” There was no conspiracy, they said.

A jury of seven men and five women heard about 16 days of testimony. None of the defendants testified.

Puana testified that he and his niece were once close and that he trusted her enough to invest money with her. Retired Officer Niall Silva testified for the prosecution that he conspired with a lieutenant and another officer to lie about surveillance footage taken from the Kealoha home of a man seen hoisting the mailbox into a car.

Jurors watched a deposition from Puana’s mother, Florence Puana, now 99. Because of her failing health, she was unable to testify in person.

The Puanas say Katherine Kealoha came to them with an idea about taking out a reverse mortgage on her grandmother’s home to help buy a condo her uncle wanted. Kealoha said she would consolidate her debts — which prosecutors described as massive — and promised her uncle and grandmother that she would pay off the loan.

She used the money to buy her uncle’s condo, but instead of paying off the loan, she drained about $150,000 that was left over in about six months, FBI forensic accountant Laurice Otsuka testified. Kealoha used it on personal expenses, including a nail salon visit, a Maui resort bill and Elton John concert tickets, Otsuka said.

Much of the testimony also focused on the alias Alison Lee Wong, which prosecutors say Kealoha invented to forge documents.

Kealoha stepped down from the prosecutor’s office as the investigation intensified and her husband agreed to retire, receiving a $250,000 settlement package that he agreed to pay back if convicted of a felony.

The wide-ranging investigation also has targeted Honolulu’s elected prosecutor, who was Katherine Kealoha’s boss, and the city’s top civil attorney. Prosecuting Attorney Keith Kaneshiro and Corporation Counsel Donna Leong went on paid leaves of absence after the FBI informed them they are targets of the investigation.