A former deputy Honolulu prosecutor already convicted of conspiracy with her retired police chief husband in Hawaii’s biggest corruption case pleaded guilty Tuesday to bank fraud, identity theft and protecting her brother from a drug-dealing investigation.
Katherine Kealoha’s husband Louis Kealoha was expected to plead guilty later Tuesday to bank fraud. The pleas follow their conviction in June in a plot to frame a relative to keep him from revealing fraud that financed their lavish lifestyle.
The guilty pleas are expected to end the federal prosecutions against the couple who are now estranged.
Louis Kealoha retired as chief after becoming target of the federal corruption investigation, his wife later stepped down from her job. Louis Kealoha filed for divorce last week.
A second trial for bank fraud and identity theft had been scheduled for January. They were so desperate to fund their lavish lifestyle, prosecutors say, the couple swindled more than a half-million dollars from banks, relatives and others. Prosecutors say Katherine Kealoha stole money in a reverse mortgage scheme of her now-100-year-old grandmother’s house and that she drained two children’s trust accounts.
She spent bilked money on her firefighter lover, a Maserati, Elton John concert tickets and a resort banquet when her husband became police chief, prosecutors said.
She was facing a third trial for separate drug-dealing allegations against her and her pain physician brother.
Katherine Kealoha is being held without bond because a judge expressed concerns she would try to obstruct justice. Louis Kealoha is free on bond.
Katherine Kealoha told a judge Tuesday that she used the children’s trust accounts to obtain a loan and used a forged police report to clear up her negative credit report.
“I was merely a trustee on the account,” she said. She said she got a friend at a bank to give her a statement that listed only her name on the trust account. She did that to “bolster the amount of liquid assets so I could easily qualify for the loan,” she said.
She also knew her brother was involved in drug-dealing but didn’t report it to federal authorities.
As part of the deal, the Kealohas agree to pay about $164,000 restitution to the now-adult children, about $46,000 to her uncle and about $263,000 to her grandmother. They will also forfeit $64,000 left-over from the sale of their home that went into foreclosure and a Rolex watch.
Federal authorities started investigating the Kealohas in 2015. 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.
Prosecutors say Katherine Kealoha’s uncle and grandmother had threatened to expose them for fraud, so she devised a scheme to silence them. She tried to have her grandmother declared incapacitated. She and her husband used members of a special, hand-picked police unit to frame the uncle, Gerard Puana, for stealing the Kealohas’ mailbox, prosecutors say.
Puana was arrested but a mistrial was declared in 2014 because then-chief Kealoha gave improper testimony about Puana’s criminal history.
At the couple’s conspiracy trial, Puana testified Katherine Kealoha discussed 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, an FBI forensic accountant testified.
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.
As part of the plea deal, Katherine Kealoha is cooperating with prosecutors.