The city will pay $250,000 to embattled Honolulu Police Chief Louis Kea- loha to leave at the end of February under a “retirement agreement” approved by the Honolulu Police Commission on Wednesday.

Kealoha’s departure will end a rocky, seven-year term that has been plagued by a string of stories of police misconduct and wrongdoing. Most recently, Kealoha and his wife, Katherine, a city deputy prosecutor, have been under criminal investigation by federal officials into allegations of corruption tied to a family dispute.

“The department has been under a dark cloud for the last two years with all this federal investigation and we believe that the police department needs to move on to get out from under that cloud,” said Commission Chairman Max Sword.

The seven- member commission voted 5-1 to approve the settlement package during a closed-door, four-hour meeting. Commission member Loretta Sheehan was the sole dissenting vote. Commission member Eddie Flores was absent.

The severance agreement “is expensive, unnecessary and very likely undeserved,” said Sheehan, explaining her “no” vote. The commission should have conducted a hearing “to examine the issues that have been raised regarding his leadership and management abilities,” she said, adding that the commission could have then made a decision on whether to remove Kealoha.

City Council Chairman Ron Menor questioned the large payout and the lack of information shared by the commission.

“This is a difficult and unfortunate situation involving the largest law enforcement agency in the state,” Menor said Wednesday night. “Many in the public have had significant concerns about the lack of transparency throughout the process, and they may be upset with what may seem to be an overly generous retirement package.”

However, Menor said, “we need to take into account whether the commission had to consider certain legal issues in arriving at their decision.”

While the chief’s departure has been set, there are many unresolved questions about the ongoing federal investigation, what the Kealohas and officers under the chief may have done, and whether there will be other consequences. No indictments have been handed down despite a two-year investigation. Wednesday’s announced settlement has no bearing on the proceedings taking place in U.S. District Court.

As part of the agreement, Kealoha must return the $250,000 if he is convicted of a felony within the next six years. “He has said he has done nothing wrong,” Sword said. “To back that up, we asked him to return the money if he is convicted of a felony, and he agreed to do so because he believes he has done nothing wrong.”

It’s unclear whether the settlement affects a lawsuit the Kealohas have brought against the city Ethics Commission alleging they were unfairly targeted by the commission and its former executive director, Chuck Totto. Sword said he could not discuss the issue.

Neither Louis Kealoha nor his attorneys, Kevin Sumida and Myles Breiner, could be reached for comment.

Sword told reporters after Wednesday’s four-hour meeting that besides hiring and firing the chief, the seven-member panel has a duty to do what’s best for the people and community of the city.

“We also are responsible in my view, and the commission’s view, that the morale and welfare of the police department is incumbent on what we do because it affects how they act or how they cover or support the community. So that has been our focus,” Sword said.

Factored into the decision was the financial cost of a protracted legal process, Sword said. “We believe that the $250,000 is a reasonable amount.”

In addition to the settlement, Kealoha will receive the standard pension and post-employment health insurance and other benefits that come with having served on the force for 33 years.

As chief, Kealoha’s salary is $182,088 annually. Sword pointed out that the $250,000 “severance payment” is less than half of what Kealoha would have earned had he remained as chief until his term expired Nov. 27, 2019.

Money for the settlement is coming from HPD’s salaries account, Sword said.

First selected by the commission to be chief in 2009, Kealoha was given a second term two years ago.

Commission member Steven Levinson, a retired Hawaii Supreme Court justice, voted with the majority.

“This was for me a very tough decision,” he said after the meeting. “In the end, I went the way I went on a cost-benefit analysis basis, which took into account not just money, but the effect on the department of a protracted dispute and other emotional costs and tolls that would have been taken on a lot of people individually, the public at large, the department, the smooth, optimal functioning of the department.

“So sometimes you decide it’s a wiser move to forego the satisfaction of hitting one out of the ballpark in order to avoid the costs of doing that,” he said.

Sheehan and Levinson were appointed by Mayor Kirk Caldwell last year after the commission came under fire for not doing enough to address the controversies involving Kealoha and other HPD officers.

Kealoha’s departure comes just as a federal investigation into alleged wrongdoing by the chief, his wife, and others is beginning to come into focus.

A grand jury is looking into the allegations of civil rights abuses and corruption over allegations that the Kealohas framed Katherine Kealoha’s uncle for the theft of the Kealoha’s home mailbox in a dispute over family finances.

A retired officer involved in the mailbox case pleaded guilty to conspiracy, and four other officers have received target letters from the FBI. FBI agents on Friday raided the city Prosecutor’s Office. Agents also conducted a warranted search of the offices of the city Department of Information Technology at the Frank Fasi Municipal Building on Jan. 12.

Kealoha announced Dec. 20 that he had put himself on “restriction of police authority” status, essentially paid leave, after the FBI sent him a letter informing him that he is the target of a criminal investigation. Kealoha had said for months that he would not step down because he had done nothing wrong.

Sword announced on Jan. 6 that the seven-member panel and the chief had reached a tentative agreement for him to retire, but that additional details had yet to be hashed out.

Caldwell said in a written statement that the agreement “allows the Honolulu Police Department to move forward in its search for a new leader. Failing to resolve this situation in a timely manner could have resulted in further delays and could have cost the taxpayers even more money, as the Police Commission would have been required to follow a termination procedure — if they decided to terminate him — that could have taken weeks, if not months or years, if appeals were taken.”

Kealoha’s retirement will begin March 1, which was selected because a 30-day notice is required, and the retirement begins on the first of the month following the 30 days, the commission said. Kealoha will continue to be on leave with pay until then.

Deputy Police Chief Cary Okimoto has been acting chief since Dec. 20, and he will continue in that role until a new chief is named. Sword said he hopes to begin discussions at the commission’s next meeting on how the new chief will be selected.

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Star-Advertiser reporter Leila Fujimori contributed to this story.