The private negotiations resulting in the $250,000 retirement settlement for former police Chief Louis Kealoha were handled by the city’s former corporation counsel and Police Commission chairman before the proposal was given to commissioners shortly before they voted on it, according to a former commissioner.

Former commissioner Steven Levinson, a retired associate justice of the Hawaii Supreme Court, told the Honolulu Star-Advertiser that Max Sword, then police commission chairman, asked commissioners for permission to work with Donna Leong, then the city’s corporation counsel, on the structure of an agreement to get Kealoha to resign his position.

“We were briefed on it (the settlement) in executive session by Donna, and there were some questions. We asked about the agreement, and there were some suggestions about certain changes to the agreement and Donna told the commission, ‘I’ve done all the negotiating I am going to do.’ That’s almost a quote,” said Levinson. “It was very clear this was take it or leave it. In the course of Donna briefing us, there was some question about where that money was going to come from. We didn’t get a good answer. The sense of it was, ‘Don’t worry about it.’ The impression I was left with, that the money was coming out of department funds, that seemed understandable and reasonable to me. We weren’t given any particulars as to where the funds were coming from or how that payoff would be structured. None. Nothing.”

Commissioners never saw a copy of the settlement until Leong briefed them on it. Shortly after that briefing, commissioners voted 4-1 to approve it. Levinson has not been questioned by federal investigators.

Sword’s attorney, William C. McCorriston, did not respond to a Star-Advertiser request for comment. Leong’s attorney, Lynn Panagakos, also did not reply to a request for comment.

Leong, Sword and former city Managing Director Roy Amemiya were taken into federal custody Wednesday after a Dec. 16 indictment accusing the trio of conspiring to defraud the government in connection with the Kealoha settlement was unsealed. Leong, Sword and Ame­miya entered pleas of not guilty, and each is free on an unsecured $50,000 bond. Their trial is scheduled for 9 a.m. March 14.

The Honolulu Police Commission in January 2017 approved a $250,000 payment to the then-indicted chief to leave the department under a “retirement agreement.” Because he was convicted of a felony, the agreement requires Kealoha to return the $250,000 to the city.

The payout and Kealoha’s departure came after a seven­-year term dogged by allegations of police misconduct. Kealoha was sentenced to seven years in prison, and his estranged wife, former Deputy Prosecuting Attorney Katherine Kealoha, received 13 years in December 2020, after being convicted of conspiracy, fraud and obstruction of justice in a probe that started with a report that the Kealohas’ mailbox was stolen.

Levinson said he was appointed to the Police Commission in December 2016 by former Mayor Kirk Caldwell to help “light a fire” under commissioners.

“This is when the Mayor was very interested in bringing things to a head. That’s basically why he put me on the commission. The matter of what to do about chief Kealoha … (At the time) Chief had received a target later but no indictment had come down or had been unsealed. The department was in turmoil and something needed to be done,” said Levinson.

Levinson said he agreed with Leong’s assessment that a 2016 change to the Honolulu City Charter allowing commissioners to fire the police chief with or without cause was not retroactive and therefore would not apply in Kealoha’s case. There appeared to be enough conduct to terminate Kealoha for cause, he said, specifically the actions he took that led a federal judge to declare a mistrial in the criminal case involving Katherine Kealoha’s uncle, Gerard Puana, and the theft of the couple’s mailbox.

Levinson voted for the settlement because a cost benefit analysis suggested that if they did not settle, Kealoha was prepared to file suit against the city. The cost of defending that lawsuit would likely have cost more than the agreement proposed by Leong.

“The probability that he would sue the city was the probability the sun would rise the next day,” said Levinson, who spent 17 years as a litigator before becoming a judge. “My sense was, at the time, if Louie strung the thing (lawsuit) out, it would cost the city more than $250,000.”

The special prosecutor assigned to the Kealoha case, assistant U.S. Attorney Michael G. Wheat, and Kelly Thornton, director of media relations for the U.S. Attorney’s Office of the Southern District of California, declined comment.

Wheat has targeted a number of former and current government officials in the aftermath of the Kealoha convictions. Amemiya, who served as the city’s managing director under Caldwell, received a federal target letter in June.

He is the highest official in Caldwell’s administration to be named as a target of the federal investigation. Leong was put on paid leave in January 2019 after receiving a target letter.

On Nov. 8 Caldwell told the Star-Advertiser he had not received a target letter. Caldwell’s attorney, Lex Smith, did not respond to a Star- Advertiser request for comment on the settlement negotiations or whether he had been contacted by federal investigators since Leong, Amemiya and Sword turned themselves in to the FBI.

According to an indictment filed Dec. 16 and unsealed Wednesday morning, the trio conspired to “embezzle, steal, obtain by fraud and otherwise without authority” money from a city program receiving more than $5,000 in federal funding and conceal the source of city and federal funds used to make the $250,000 payment from the Honolulu City Council and the public.

The three allegedly pushed HPD to pay part of Kealoha’s settlement with city money meant for vacant funded positions and then lied 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 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.

The City Council sent a letter to Sword asking whether 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 solely or primarily concern the use of city funds,” according to the indictment.

He then met on Jan. 13, 2017, with acting HPD Chief Cary Okimoto, who told him they could not make the payment without cutting police services. Okimoto pressed Sword about why they needed to settle. Sword allegedly told Okimoto they needed to agree to the proposed settlement structure to avoid City Council scrutiny and a vote.

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

Loretta Sheehan, a former deputy city prosecutor and assistant U.S. attorney, was the lone vote against the Kealoha settlement. She said she doesn’t know whether Leong, Amemiya or Sword broke the law but that the secrecy of the entire process speaks to the larger issue of a lack of government transparency in Hawaii.

“It’s been my unfortunate experience that many of those in government feel entitled to withhold information from the public — even as they spend public money and direct public resources. I’m baffled as to the source of this sense of entitlement. Legislators convene investigative committees when auditors reveal facts that certain agencies would rather leave hidden. Commissions go into Executive Session just because it’s easier to discuss things without people watching. Police departments feel that they don’t have to answer for CARES money spent on robot dogs. The list goes on and on,” she said.

The indictment against Leong, Amemiya and Sword indicates that people in city government — Okimoto and Koyanagi — questioned the legality of the scheme to structure Chief Kealoha’s severance, said Sheehan.

“Why couldn’t they have spoken out — to the Police Commission, to the press, to the Office of the Mayor — as it was happening? What would have been so terrible about a City Council hearing where members of the public explain their positions on the severance package? Why was that something to be avoided at all costs?” said Sheehan. “It’s clear to me that the culture has got to change. Those in government have got to start remembering exactly who they work for. They work for us.”