Honolulu’s former managing director, corporation counsel and police commission chairman are accused of conspiring to defraud the government by diverting federal funds toward the $250,000 payout of former embattled Honolulu Police Chief Louis Kealoha.

Former city managing director Roy Amemiya, former Corporation Counsel Donna Leong, and former Honolulu Police Commission Chairman Max Sword turned themselves in to the FBI at about 6:30 a.m. today in Kapolei after their attorneys were informed late Tuesday that they would be arrested in connection with an ongoing federal investigation into public corruption in Honolulu.

They were arraigned at 11:30 a.m. by U.S. District Judge Rom Trader and each entered pleas of not guilty through their attorneys. They will each be released on an unsecured, $50,000 bond and the trial is set for March 14 at 9 a.m.

According to an indictment filed Dec. 16 and unsealed this morning, from July 1, 2016 to June 3, 2017, the trio conspired to “embezzle, steal, obtain by fraud and otherwise without authority” more than $5,000 or more from a city program receiving federal funding and conceal the source of the funds from the Honolulu City Council and the public.

Louis Kealoha was sentenced to seven years in prison and his estranged wife, former Deputy Prosecuting Attorney Katherine Kealoha, received 13 years in December 2020. They were convicted of conspiracy, fraud and obstruction of justice after a failed attempt to to steal the proceeds from a reverse mortgage on the home belonging to Katherine Kealoha’s grandmother before trying to frame her uncle who caught on to the plan. In addition to the Kealohas, former HPD officers were also convicted in June 2019.

>> PHOTOS: Former city officials turn themselves in to FBI

The three allegedly “did induce HPD” to pay part of Kealoha’s settlement with city money meant for vacant funded positions and then made “materially false and misleading representations and omissions” to the City Council to get money to obtain a reallocation of city funds to cover the Kealoha payment, according to the indictment.

They allegedly persuaded HPD to conceal not to tell the Council that the department’s request for additional 2017 fourth quarter funds was caused by a “salary shortfall” caused by the payout to Kealoha in the third quarter.

Leong and Sword addressed the media on Jan. 6, 2017, to say a settlement with Kealoha was made and that he was retiring. On Jan. 10, 2017, Sword met with HPD leadership who told him they could not pay a settlement with money from their budget, according to the indictment. That same day Sword appeared before the Council’s Public Health, Safety and Welfare Committee but declined to respond to members questioning about the settlement.

The next day Leong allegedly met with HPD leadership and was told City Council approval for the settlement was needed. She responded that they could avoid the need for Council approval by “falsely claiming HPD had used the money to hire new employees” then request additional money from the council to cover the shortfall, according to the indictment.

Leong received an email from HPD’s acting chief the next day reiterating that council approval for a settlement that size out of HPD’s budget is required. Leong continued to push for the payment, according to the indictment, and re-stated her position that HPD claim the money was for new hires.

The City Council sent a letter to Sword asking if the payment was going to be presented to the full Council for a vote and requesting a briefing before the police commission voted to approve Kealoha’s settlement. Sword replied in writing that the settlement “was primarily based on Kealoha’s employment and retirement concerns and did not and did not solely or primarily concern the use of federal funds.”

He then met with HPD leadership Jan. 13, 2017, who told him they could not afford the payment without cutting services and pressed him about why they needed to cut the check.

“Oh the reason it’s very simple,” Sword allegedly said, according to the indictment. “So you don’t have to go to the seven bananas, I mean nine bananas up at the Council.”

Later that day, Sword participated in a call with Leong, the acting HPD chief, and the city budget and fiscal services director and Leong allegedly told the parties the money would come out of HPD’s salary fund and replaced later.

Assistant U.S. Attorney Micheal G. Wheat did not immediately return a request for comment about the charges against the trio. Wheat has served as a special attorney for the U.S. attorney general prosecuting inter-district conflict cases in Hawaii and Arizona since 2012.

Amemiya is one of many former and current government officials and business people who were under scrutiny by the U.S. Department of Justice. Wheat’s team of prosecutors is investigating allegations that law enforcement officers, elected officials and their supporters abused their positions to vanquish opponents.

Amemiya, who served as the city’s managing director under former Honolulu Mayor Kirk Caldwell, received a federal target letter in June.

In response to a request for comment, Caldwell’s attorney, Lex Smith, said in a statement “Ms. Leong, Mr. Sword and Mr. Amemiya have significant experience in public service and the private sector. The City hired them based on that experience. It is important to remember Ms. Leong, Mr. Sword and Mr. Amemiya are innocent unless and until proven guilty, and I will be interested in the coming days and weeks to understand the charges that have been brought against them.”

Amemiya and Leong are the highest-ranking officials in city government under the Caldwell’s administration to be arrested in connection with the investigation. Leong, the city’s civilian attorney, was put on paid leave in January 2019 after she got a target letter in connection with Wheat’s investigation.

Sword approved the Kealoha settlement while chairman of the police commission. His attorney, William C. McCorriston, said in a statement that Sword is both “shocked and disappointed” by the indictment because he cooperated with the U.S. Department of Justice investigation.

“His only alleged ‘misconduct’ was following the legal advice given to him by the Corporation Counsel’s office and the recommendations of the Administration, including the Department of Budget and Fiscal Services, which recommended the structure of the settlement,” said McCorriston in a statement. “Interested parties, including City Council Members, the Honolulu Police Department, and the public were allowed to give their input in a public hearing on this matter. The Corporation Counsel’s advice to the Honolulu Police Commission, including Mr. Sword, confirmed its recommendation for the settlement structure and its appropriateness for this case after hearing objections from the Honolulu Police Department and others…We will vigorously defend Mr. Sword from this unjust charge.”

Leong’s attorney, Lynn Panagakos, said in addition to being entirely legal, the severance payment to former Chief Kealoha was in the best interest of Honolulu as it quickly ended his tenure after his receipt of a DOJ target letter.

“It is beyond ironic that the same attorneys that prosecuted the Kealohas for corruption, are now accusing Donna Leong for legal actions she took in relation to the Honolulu Police Commission’s decision to expeditiously separate former chief Kealoha from HPD, for the benefit of HPD and the community,” Panagakos said in a written statement. “To suggest that a legal severance payment that accomplished this goal was somehow a crime is absurd. Ms. Leong is an attorney of great integrity, and is completely innocent. After being informed last night that an arrest warrant had issued, Ms. Leong made arrangements to voluntarily turn herself in this morning. Upon arrival to the FBI’s office, we let them know she was waiting outside. There was absolutely no reason for the theatrics which followed. Whoever tipped off the media so that Ms. Leong could be filmed while being handcuffed should be ashamed of themselves.”

Justice Department officials declined to comment on Panagakos’ assertions.

20220112 WEB City Official Indictment 3 by Honolulu Star-Advertiser on Scribd