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Ex-Honolulu Police Chief, Estranged Wife Plead Guilty

Jennifer Sinco Kelleher/AP

A retired Honolulu police chief and his wife, a former deputy city prosecutor, pleaded guilty Tuesday to bank fraud in order to avoid other trials against them, capping a federal corruption investigation that brought down the once-respected and powerful couple.

Updated 4:45 PM

As part of a deal with prosecutors, Louis and Katherine Kealoha pleaded guilty to bank fraud, saying in separate hearings Tuesday that they provided false information to obtain loans.

Katherine Kealoha, 49, also pleaded guilty to an identity theft charge, saying she got a police officer to forge a police report she used to explain negative information on a credit report. She also pleaded guilty to a charge involving protecting her brother from a drug-dealing investigation.

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.

Louis Kealoha, 59, retired as chief after becoming a target of the federal corruption investigation, and his wife later stepped down from her job. Louis Kealoha filed for divorce last week.

"As this long case has evolved, Mr. Kealoha has slowly realized the extent of his then-beloved wife's and life partner's theft and deception despite her assurances of innocence," his defense attorney, Rustam Barbee, said in a statement.

After Katherine Kealoha's guilty plea, her defense attorney, Gary Singh, showed reporters her handwritten note that said, "Today I took responsibility for my actions and I sincerely hope that the court and the community will see that Louis had no part in my criminal conduct."

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 got a police officer to forge a police report using another officer's name, she said.

She said she also knew her brother was involved in drug-dealing but didn't report it to federal authorities and used her position to protect him from an investigation.

"I knew my wife and I submitted a loan application claiming that we received rental income from the pool house," Louis Kealoha said. Their niece and her husband, both police officers, were living in their pool house but weren't paying rent, he said.

As part of the deal, the Kealohas agree to pay about $165,000 restitution to the now-adult children, about $46,000 to her uncle and about $263,000 to her grandmother. They could also forfeit $64,000 left over from the sale of their home that went into foreclosure and a Rolex watch.

A 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.

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.

The investigation continues, Special U.S. Attorney Michael Wheat said.

As part of the plea deal, the Kealohas are cooperating with prosecutors.

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