Hawaiian defense contractor with Maine offices charged with bank fraud

A Hawaiian defense contractor whose business has offices and employees in Maine has been accused of falsifying loan applications to receive $12.8 million in federal funds from a coronavirus relief program.

Martin Kao was arrested Wednesday and charged with bank fraud and money laundering. The news was first reported by Civil Beat, a Hawaii-based investigative news organization.

According to a 37-page criminal complaint filed by the U.S. Department of Justice, Kao is suspected of lying on two applications to receive funds under the Paycheck Protection Program for small businesses, part of the CARES Act passed by Congress in late March to address the pandemic. Maine Sen. Susan Collins was a co-author of the act.

Kao and several of his employees have donated to Collins’ reelection campaign, and the two appeared together in Maine last summer when Collins announced an $8 million federal contract to his company, Navartek LLC, now known as Martin Defense Group.

Investigators believe Kao, when applying for PPP loans, deliberately overstated his company’s need for relief, inflated the number of his employees and used a subsidiary company so that he could apply twice. They also allege Kao transferred $2 million in PPP funds to a personal bank account.

The complaint also indicates that Kao told officials at the banks that were delivering the PPP loans that he works closely with unamed U.S. senators and said some senators or their staff had advised him on the application process.

“[The Senator] is suggesting a conference call with his Banking Committee and SBA staff director . . . SHE HELPED WRITE THE PPP RULES. . . . . ,” he wrote in an email to a bank executive, according to the complaint. “She has confirmed directly that CPB should and is obligated to fund once SBA issues the approval number. Any additional review the bank does should be perfunctory… at best.”

No senators were named in the complaint.

“If you game the system to get money that businesses so desperately need in Hawaii, we will find you, we will expose you and we will hold you accountable to the fullest extent of the law,” Kenj Price, U.S. Attorney for the District of Hawaii, said during a press conference Wednesday announcing the charges against Kao.

Kao issued a statement to Civil Beat through his public relations firm, CommPac.

“Navatek is a highly reputable company with a long record of service to its clients and the people of Hawaii,” the statement read. “The government’s actions today were a complete surprise. As a company, we will address the allegations and have retained legal counsel to review these claims.”

Collins is seeking reelection to a fifth term, and in her campaign she has highlighted the PPP as critical for businesses hurt by the pandemic. Nearly 30,000 small businesses in Maine alone have received funds. But there also have been cases in several states where people have been charged for improperly applying for PPP funds or for spending the money inappropriately.

Kao found Navatek LLC in 1979. The Honolulu-based company designs ship hulls and has been awarded tens of millions of dollars in federal defense contracts. It has offices in several continental U.S. states, including in Portland and Bangor, according to the complaint.

Last August, Kao appeared with Collins in Portland when she announced an $8 million contract to Navatek by the U.S. Navy Office of Naval Research. According to a press release from Collins at the time, Navatek would work directly with Front Street Shipyards in Belfast to pursue “new science and technology for safer hulls and hybrid-electric propulsion systems for fast boats.” At the time, Navatek employed about two dozen people in Maine.

“As a senior member of the Defense Appropriations Subcommittee, I strongly advocated for the funding that made this research possible and am so proud of the work Navatek and other Maine industries do to support our Navy and our nation’s defense,” Collins said in a statement.

Her office did not immediately respond to a request for comment on Kao’s arrest or the charges against him.

Kao donated the maximum amount of $5,600 to Collins’ reelection campaign in 2018 and 2019, according to Federal Election Commission records. His wife, Tiffany Jennifer Lam, also donated the maximum amount, as did several other Navatek employees, according to Civil Beat. Many of the donations came on the same day, Aug. 18, less than two weeks after Collins visited Navatek’s offices in Portland to celebrate its contract, Civil Beat reported.

Kao has donated regularly to Hawaii’s Sens. Brian Schatz and Mazie Hirono and Congresswoman Tulsi Gabbard. He also made contributions to Sens. Jeanne Shaheen of New Hampshire, Tammy Baldwin of Wisconsin and Chris Coons of Delaware, all Democrats and – like Collins – all members of the Senate Appropriations Committee, according to FEC records.

In February, before the pandemic hit, Kao was targeted in a complaint to the FEC over a $150,000 donation made to 1820 PAC, an independent group that is supporting Collins’ reelection. The donation was made by a company called the Society of Young Women Scientist and Engineers LLC. The LLC’s registered agent and manager was Jennifer Lam, Kao’s wife. The FEC complaint, filed by the Washington, D.C.-based Campaign Legal Center, alleges the company was founded to shield the original source of funding.

“Because (Society of Young Women Scientist and Engineers) does not have a website, social media account, search engine presence or business record, the available facts do not suggest that (it) conducted any business or had sufficient income from assets, investment earnings, business revenues, or bona fide capital investments to cover the $150,000 contribution to 1820 PAC at the time the contribution was made, without an infusion of funds provided to them for that purpose,” the complaint reads.

Federal election laws prohibit making “contributions in the name of another.” That complaint has not been resolved.

The 1820 PAC, which has supported Collins’ bid for a fifth term, has been linked to the U.S. Chamber of Commerce.

According to the criminal complaint against Kao, a former Navatek executive told investigators that the company was not suffering financially because of the COVID-19 pandemic and has actually hired employees and opened branch offices after the pandemic hit. Additionally, the executive said the number of employees listed on the application for PPP funding was inaccurate.

Investigators also reviewed bank records that showed Kao transferred $2 million in PPP money from Navatek to a personal account. The complaint does not say how, or if, that money was spent.

Civil Beat in Hawaii reported that Kao is scheduled for a hearing Thursday morning and that the U.S. Attorney’s Office is requesting that he be held without bail because he’s a flight risk.

This story will be updated.

Use the form below to reset your password. When you’ve submitted your account email, we will send an email with a reset code.

Source Article