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.

Cory Lum/Civil Beat

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

The FBI investigation began in December 2014, shortly after then-Chief Louis Kealoha caused a mistrial in a federal criminal case involving Gerard Puana. In 2013, the Kealohas had accused Puana of stealing their mailbox.

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.