City’s top civil attorney included in feds’ Kealoha inquiry

City Corporation Counsel Donna Leong, the city’s top civil attorney, went on paid leave effective today after receiving a target letter from the U.S. Department of Justice earlier this month, Mayor Kirk Caldwell announced Monday.

Caldwell and Lynn Pana­gakos, Leong’s attorney, separately said the target letter is tied to the sweeping federal criminal investigation revolving around former Police Chief Louis Kealoha.

They said the letter centered on Leong’s role in advising the Honolulu Police Commission on its agreement with Kea­loha in late 2016 that allowed him to retire with full benefits and a $250,000 severance check.

News of the Leong target letter sent shock waves through Hawaii’s political and legal communities because it’s the first time a member of Caldwell’s Cabinet is under suspicion of criminal wrongdoing as part of the wide-ranging federal investigation.

Kealoha and his wife, former city Deputy Prosecutor Katherine Kealoha, have been indicted on public corruption and racketeering charges and are scheduled to stand trial in the coming months. Several other former police officers have pleaded guilty. Meanwhile, several city prosecutors received target letters. One of them is believed to be city Prosecutor Keith Kaneshiro, Katherine Kealoha’s boss.

A target letter generally suggests the subject is a target in a federal grand jury investigation involving a criminal offense, according to the Department of Justice website.

Caldwell, at a news conference Monday afternoon, said he and Leong “mutually agreed” Friday that she would go on paid administrative leave effective today. Caldwell first appointed Leong as the city’s top legal adviser in March 2013. A longtime attorney in private practice, Leong had been chief legal officer for hotel chain Outrigger Enterprises.

In a written statement, Panagakos said Leong did nothing wrong.

“It is my understanding that the Department of Justice’s investigation relates to the $250,000 paid to (Kea­loha) under the terms of his agreement to retire from the Honolulu Police Department … through its Honolulu Police Commission,” Panagakos said.

“I believe the evidence will show that this payment was properly authorized and processed,” Panagakos said. “Ms. Leong’s involvement in this matter was within the course and scope of her duties as Corporation Counsel.”

The exact source of the payout was never disclosed, an issue raised by several commissioners at the time. Leong and then-Police Commission Chairman Max Sword negotiated the separation package with Kealoha on behalf of the panel.

The panel voted 5-1 to approve the settlement after a four-hour, closed door discussion with Leong. Commissioner Loretta Sheehan was the lone “no” vote. She said the commission instead should have held a for-cause proceeding to determine whether Kealoha should have been fired.

Sheehan and Vice Chairman Steven Levinson said they asked questions about the payout’s source of funding and were not given clear responses. Meanwhile, then-HPD acting Chief Cary Okimoto and then-Deputy Chief William Axt raised concerns at a Feb. 1 commission meeting that the money would be taken from funding sources already dedicated to department operations. Okimoto said top HPD brass were not consulted about the payment.

Sword, at the time, said the money was paid out of HPD’s salaries budget. HPD was projected to have a surplus of more than $1 million in its current expenses account when the fiscal year ended June 30, he said.

He provided the Honolulu Star-Advertiser a copy of the Jan. 26, 2017, check and check stub, which indicated the funds came from an HPD account.

Neither the Honolulu City Charter nor the Revised Ordinances of Honolulu contain specific language allowing the commission the authority to spend HPD money or to instruct HPD to spend money.

The payment was never approved by the Council, and it’s unclear whether it was needed.

Sword could not be reached for comment Monday.

The mayor confirmed that federal investigators served a search warrant on the Department of Information Services at the Frank Fasi Municipal Building in connection with the case.

Caldwell on Monday was asked by reporters about why Leong went on leave more than a week after he first learned about the target letter, and why public disclosure about her target letter was delayed that long.

Leong received the target letter Jan. 3, “and she told me almost immediately,” Caldwell said. But Leong asked for time to retain a lawyer before the city made the news public, he agreed and she has since found one, he said.

Monday’s announcement was made several hours after TV news outlet Hawaii News Now broke the news about Leong’s leave status, but Caldwell said the decision to make the announcement was made last week. “We did it, I think, within a reasonable amount of time.”

Caldwell said that neither he nor anyone else in his administration had received a target letter, “as far as I know.”

Caldwell also said that he did not discuss with Leong the advice she gave to the commission.

First Deputy Corporation Counsel Paul Aoki is handling day-to-day functions of the city attorneys’ office in Leong’s absence, he said.