Two Hawaii island lawyers are among four alleged co- conspirators in what federal authorities call a housing scheme that defrauded Hawaii County of millions of dollars and deprived its residents of affordable housing.

“They enriched themselves to the tune of more than $10 million,” said Clare Connors, U.S. attorney for the District of Hawaii, at a joint news conference Monday with the FBI.

A federal grand jury Thursday indicted attorneys Paul Joseph Sulla Jr., 76, and Gary Charles Zamber, 53, who were each charged with six counts of honest services wire fraud and conspiracy. Sulla is also charged with laundering the proceeds of the conspiracy to hide the money’s source, location and ownership.

The scheme also involved Alan Scott Rudo, 55, a housing specialist for the Hawaii County Office of Housing and Community Development; and Rajesh Budhabhatti, 62, a businessman. They were charged by information in separate court documents with conspiracy to commit honest services wire fraud. In an agreement with the government, Rudo pleaded guilty July 18. His sentencing is set for Oct. 31. Budhabhatti is scheduled to plead guilty Aug. 1.

The four allegedly fraudulently obtained at least $10.9 million in land and excess affordable housing credits.

As a result, Hawaii island residents were deprived of affordable housing units that were purportedly being developed in South Kohala, Kailua-Kona and Waikoloa.

As a housing specialist, Rudo’s “role was to assist the county in its affordable housing crisis in providing affordable housing by working with developers to ensure that affordable housing was provided to Hawaii County citizens,” Connors said. Instead, “Mr. Rudo abused his public official position by soliciting and accepting kickbacks and bribes” from the other three, she said.

He got involved in the conspiracy that began December 2014 and ended in October, the indictment says.

The FBI first learned of the scheme in 2018, but the alleged illegal transactions occurred a few years earlier, Connors said.

Connors said a news reporter with Environments Hawaii uncovered the information, and a county employee involved in approving the documents was made aware of the activity and informed the FBI.

FBI Special Agent-in-Charge Steven Merrill said the funds were meant to provide decent, affordable homes for citizens, including low- income residents. Instead, the defendants used it for their own purposes and conveyed land and housing credits worth $10.9 million and sold them to other developers.

The FBI spent three years investigating the case, and Merrill said his team seized over $2.3 million and traced 45 affordable housing credits.

Rudo agreed to forfeit his interest in $2.3 million in funds that he personally received, and also agreed to a monetary judgment of $2.1 million.

It is unclear whether the county would receive any of the money or property seized by the U.S. government.

Connors said the county “had come up with an elaborate set of rules to address their affordable housing crisis,” and Rudo was “creating and shepherding through the county approval process agreements that would allow developers to avoid the obligation to build affordable housing.”

They created three entities: Luna Loa Developments LLC, West View Developments LLC and Plumeria at Waikoloa LLC.

The four owned, managed, controlled and used the companies to make it appear as if they would develop affordable housing, the indictment said.

According to the indictment, the county had a policy requiring residential developers to include affordable housing in their projects or contribute to affordable housing off-site. Developers could satisfy this requirement by building a certain number of affordable units in their projects or within 15 miles of a project site. Or they could convey land to the county or to approved nonprofits.

They could also earn affordable housing credits and could earn excess AHCs by constructing new units that exceeded the county’s requirements. The excess credits could be sold or transferred to other developers to satisfy affordable housing requirements for other projects.

Rudo’s job with the county was to review proposed developments and make recommendations on whether they should enter into affordable housing agreements, and recommended whether to accept land conveyances.

He drafted the AHAs to benefit the three companies, falsely promising they would develop affordable housing, the indictment said.

They were intended to serve “solely as conduits to receive both land and AHCs that could then be sold, with the proceeds distributed among the conspirators,” the indictment said.

Luna Loa had an agreement to develop 106 affordable housing units for the county on 4.6 acres in South Kohala that it did not own. They got 212 AHCs or credits.

Connors said, “No affordable housing units were built. None.”

Budhabhatti allegedly emailed Rudo in 2015, thanking him for the “valuable list” of landowners because “with judicious use, we can generate a market frenzy” for the purchase of the credits, the indictment said.

West View, according to the indictment, promised to build 52 affordable housing units on a 13-acre Kailua- Kona property in Kealakehe Homesteads that it did not own. It received 104 AHCs in exchange, then later bought it for $14,076 with money from Luna Loa. The four received proceeds of $1 million, but the government seized $938,000 from that.

Plumeria was falsely listed as a nonprofit, and Rudo took steps to obtain OHCD’s approval of a company to develop land and satisfy an affordable housing obligation to the county by donating 11.8 acres to Plumeria. Rudo later got the county to release the developer from its obligations to provide affordable housing since Plumeria was represented as a nonprofit.

They made a profit of $1.4 million from Plumeria, and the government seized $1.38 million of that, Connors said.

The lawyers allegedly created trusts to formalize Rudo’s involvement while concealing it.

The Honolulu Star-Advertiser sought comment from the mayor’s office and the OHCD but did not receive a response.

Conspiracy to defraud and honest services wire fraud are punishable by up to 20 years’ imprisonment and a fine of twice the property’s value, which is more than $1 million in this case.