A Honolulu man was arrested Wednesday on allegations that he fraudulently obtained more than $12.8 million in federal coronavirus relief funds.
Martin Kao, 47, the chief executive officer of Martin Defense Group, previously known as Navatek LLC, was charged with two counts of bank fraud and one count of money laundering.
Federal law enforcement officials announced the charges at a virtual press conference Wednesday afternoon.
“We are talking about an individual who is extremely greedy to exploit a global pandemic,” said Wayne Chan, supervisory special agent with the Internal Revenue Service — Criminal Investigations.
“Mr. Kao stole money meant for honest, hardworking Americans who are trying to make ends meet and struggling American businesses who are trying to stay afloat,” Chan said.
Kao will make his initial appearance today at 9:30 a.m. before U.S. District Court Judge Kenneth J. Mansfield.
The complaint, filed in the Hawaii District and unsealed Wednesday, alleges that Kao submitted at least two fraudulent Paycheck Protection Program loan applications and received approximately $12.8 million — $2 million of which he transferred to his own personal account.
According to the charges, Kao inflated the number of employees on the loan application and falsely certified that the applicant and its affiliates would not receive, and had not received, another PPP loan.
Kao’s company sent the following statement in response to the charges:
“Navatek is a highly reputable company with a long record of service to its clients and the people of Hawai‘i. 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.”
The PPP program is part of the federal CARES Act, which was enacted by Congress in March to provide emergency financial aid to those suffering the economic effects of the COVID-19 pandemic.
In Hawaii, some 25,000 PPP loans were distributed to struggling businesses, accounting for $2.4 billion in relief funds.
“The charges announced today send a very clear message to COVID-19 fraudsters,” U.S. Attorney Kenji Price said. “That message is very simple: 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.”
Martin Defense Group, which in July changed its name from Navatek LLC, is known as a research, engineering, design and innovations company that specializes in novel systems for the Department of Defense and other entities in science and academia.
Headquartered in Honolulu, it has branch offices in eight states and Washington, D.C. Kao owns 99% of the company, which is the sole manager of four other companies.
The Martin Defense Group lists its “core values” on its website, including the following: “We are committed to holding ourselves, and our partners, accountable — always.”
The PPP application process requires a company to submit a loan application to a participating lender and certify that no other PPP loan will be received during 2020.
According to the complaint, Kao, on behalf of Navatek, submitted an application for a $10 million PPP loan to Central Pacific Bank on April 3.
The application said the company had 490 employees when it only had 140, and it included inaccurate payroll information, in an apparent effort to qualify for the larger loan amount, the complaint says.
On April 17, the bank gave $10 million to Navatek, and only a few days later $2 million of that total was put into Kao’s personal bank account at Merrill Lynch.
As part of the application, Kao was required to certify that it would not apply for or receive another PPP loan this year.
But only a few days later, he applied for another PPP loan — this time for $2.8 million — from Radius Bank, an online-focused community bank based in Boston.
The application included fraudulent information, including employees who were not eligible, but the loan was approved anyway, according to the complaint.
The complaint also describes how Kao attempted to pressure bank officers by using his connections with politicians and how he unsuccessfully tried to get a PPP loan from First Hawaiian Bank.
Price said PPP fraud is far from being confined to Hawaii. Overall the Department of Justice has arrested 60 people for PPP fraud, representing $100 million in losses.
Price said his office is helping with other current PPP fraud investigations.
Earlier in the year, a law enforcement group was formed in Hawaii to investigate crime related to the pandemic. Members of the group include the FBI, IRS, Secret Service, state Department of Commerce and Consumer Affairs and the Hawaii Attorney General’s Office.
The group has uncovered schemes to defraud the government of not only PPP loan money but unemployment benefits and stimulus checks, Price said.
Two days ago federal agents arrested a person who tried to cash a phony stimulus check at Central Pacific Bank, he said. The teller noticed, however, and called the Honolulu Police Department.
“The defendant is now now facing federal charges,” Price said.
Some Hawaii scammers, he said, are using the identifications of others to collect unemployment.
“These investigations unfortunately reveal what experience teaches: When the federal government distributes money, there’s generally a fraudster out there who is going to try to get his or her hands on it the illegal way. My message to that fraudster is that the federal law enforcement community is working diligently to investigate your misconduct and find a home for you in federal prison,” Price said.
This case was investigated by IRS-Criminal Investigation and the SBA’s Office of Inspector General. Trial Attorney Tom Tynan of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Craig Nolan for the District of Hawaii are prosecuting the case.
Anyone with information about allegations of attempted fraud linked to COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or via the NCDF Web Complaint Form at bit.ly/3n38qq6.