Change of Plea Letter from Mr. Craig Nolan to Magistrate Judge Kenneth J. Mansfield dated September 6, 2022 — USA v. Kao (Dkt. 102)

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U.S. District Court for the District of Hawaii · No. 1:21-cr-00061-LEK · Doc. 102 · 2023-05-30 · Docket on CourtListener

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U.S. Department of Justice 
 
 
United States Attorney 
District of Hawai’i 
 
 
PJKK Federal Building 
(808) 541-2850 
 
300 Ala Moana Blvd., Room 6-100  
FAX (808) 541-2958 
 
Honolulu, Hawaii 96850 
 
September 6, 2022 
 
By E-mail 
The Hon. Kenneth J. Mansfield 
United States Magistrate Judge 
District of Hawaii 
300 Ala Moana Blvd 
Honolulu, HI 96850 
 
Re: 
United States v. Martin Kao, Cr. No. 21-00061 LEK 
 
Dear Judge Mansfield: 
 
 
I write in anticipation that on September 7, 2022, the defendant Martin Kao 
will enter guilty pleas to all counts in the Indictment (ECF No. 31) in this matter.  
The parties have not entered into a plea agreement. 
 
Penalties 
 
 
The penalties for the offenses to which the defendant is pleading guilty 
include: 
 
1. 
As to each of Counts 1-3 (wire fraud), a term of imprisonment of up 
to 30 years and a fine of up to $1,000,000, plus a term of supervised release up to 5 
years.  
 
2. 
As to each of Counts 4-8 (money laundering), a term of imprisonment 
of up to 10 years and a fine of up to $250,000 or twice the amount of the criminally 
derived property involved in the transaction, whichever is greater, plus a term of 
supervised release up to 3 years.  
 
3. 
In addition, the Court must impose a $100 special assessment as to 
each count to which the defendant is pleading guilty. 
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4. 
Forfeiture.  Pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 
2461, forfeiture of any property, real or personal, which constitutes or is derived 
from proceeds traceable to a violation of a specified unlawful activity within the 
meaning of 18 U.S.C. § 1956(c)(7) or a conspiracy to commit such offense; and 
pursuant to 18 U.S.C. § 982(a)(1), forfeiture of any property, real or personal, 
involved in an offense in violation of 18 U.S.C. § 1956, 1957, or 1960, and 
property traceable to such property.  The amount subject to forfeiture is not less 
than $12,841,490 and may be greater. 
 
5. 
Restitution.  The Court must also award restitution pursuant to Title 
18, United States Code, Section 3663A, to the persons and entities victimized by 
the defendant’s offenses.  The restitution amount the defendant must pay is not less 
than $13,181,787.62 and may be greater, which consists of loan principal, accrued 
interest, and processing fees as of December 17, 2021 for the Paycheck Protection 
Program loans fraudulently obtained by the defendant in connection with the 
charged scheme and upon which the defendant and his companies defaulted, 
resulting in the purchase of the defaulted loans by the Small Business 
Administration, which had guaranteed the loans. 
 
Elements 
Counts 1-3: Wire Fraud (18 U.S.C. § 1343) 
1. 
The defendant knowingly devised, intended to devise, or participated 
in a scheme to defraud or to obtain money or property by means of false or 
fraudulent pretenses, representations, or promises. 
2. 
The statements made as part of the scheme were material, that is they 
had a natural tendency to influence, or were capable of influencing, a person to 
part with money or property. 
3. 
The defendant acted with the intent to defraud, that is, the intent to 
deceive or cheat. 
4. 
The defendant used, or caused to be used, an interstate or foreign wire 
communication to carry out or attempt to carry out an essential part of the scheme. 
5. 
The violation affected a financial institution, or involved a 
presidentially declared major disaster or emergency. 
 
 
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Counts 4-8: Money Laundering (18 U.S.C. § 1957) 
1. 
The defendant knowingly engaged or attempted to engage in a 
monetary transaction. 
2. 
The defendant knew the transaction involved criminally derived 
property. 
3. 
The property had a value greater than $10,000. 
4. 
The property was, in fact, derived from wire fraud. 
Factual Basis 
 
If this matter were to proceed to trial, the government would prove the 
following facts through the introduction of witness testimony, forensic digital 
evidence, company, bank and other records, statements by the defendant and his 
co-conspirators, and other evidence. 
 
The Defendant and the Navatek Entities 
1. 
During the period from approximately March 2020 through July 2020, 
Defendant Martin Kao owned 99% of Navatek LLC, and served as its Chief 
Executive Officer.  Headquartered in Honolulu, Hawaii, Navatek LLC was a 
research, engineering, design, and innovations company that specialized in novel 
systems for the Department of Defense (“DOD”) and other partners in academia 
and other scientific fields.  Nearly all of Navatek LLC’s revenue was from the 
DOD.  On approximately July 27, 2020, Navatek LLC changed its name to Martin 
Defense Group, LLC.  Navatek LLC was the sole member and manager of Navatek 
CFD Technologies LLC, Navatek Lifting Body Technologies LLC, Navatek 
Alternative Energy Technologies LLC, and Navatek SHC LLC (collectively, the 
“Navatek Subsidiaries”). 
 
The Paycheck Protection Program 
 
2. 
On March 13, 2020, the President of the United States declared a 
nationwide emergency pursuant to Sec. 501(b) of Stafford Act, 42 U.S.C. § 5121 et 
seq., due to the COVID-19 pandemic.  In March 2020, Congress enacted the 
Coronavirus Aid, Relief, and Economic Security (“CARES”), which provided for 
the establishment of the Paycheck Protection Program (“PPP”).  To obtain a PPP 
loan a qualifying business was required to submit a PPP loan application signed by 
an authorized representative.  The PPP loan application required, among other 
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things, the representative to acknowledge the program rules; make specified 
affirmative certifications; state the applicant’s average monthly payroll expenses 
and number of employees, which were used to calculate the amount of money the 
applicant was eligible to receive under the PPP; and provide documentation 
supporting the payroll expenses. 
 
Counts 1–3: Wire Fraud (18 U.S.C. § 1343) 
 
3. 
During approximately March 2020 through July 2020, the defendant 
knowingly devised and intended to devise a scheme and artifice to obtain money 
for which the defendant, Navatek LLC, and the Navatek Subsidiaries were not 
eligible to receive under the PPP by submitting and causing to be submitted false 
and fraudulent PPP loan applications and representations to Bank 1, Bank 2, and 
Bank 3.  As a result the defendant fraudulently obtained more than $12.8 million 
in PPP funds for his companies and transferred approximately $2 million of those 
PPP funds to himself for his personal benefit. 
 
The Defendant’s PPP Loan Application to Bank 1 
 
4. 
On April 3, 2020, the defendant caused to be submitted to Bank 1, 
which was a Hawaii-based community bank, a PPP loan application in the name 
and tax identification number of Navatek LLC signed by the defendant seeking the 
maximum amount of $10 million in PPP funds.  The application contained 
materially false and fraudulent representations as to average monthly payroll, 
number of employees, and ownership of or common management with any other 
business (hereinafter, the “Bank 1 PPP loan application”). 
 
5. 
In the Bank 1 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek LLC had an average monthly payroll of 
$4,072,000, when the defendant knew that Navatek LLC and the Navatek 
Subsidiaries had a combined average monthly payroll of approximately $829,385 
during calendar year 2019 and through the application date. 
   
6. 
In the Bank 1 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek LLC had 490 employees, when the defendant 
knew that Navatek LLC and the Navatek Subsidiaries collectively employed 
approximately 140 employees during calendar year 2019 and through the 
application date. 
 
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7. 
In the Bank 1 PPP loan application, the defendant falsely and 
fraudulently responded “No” to Question 3 that asked: “Is the Applicant or any 
owner of the Applicant an owner of any other business, or have common 
management with, any other business?”  The defendant’s response was false and 
fraudulent because, as the defendant knew, the defendant owned and managed the 
Navatek Subsidiaries through his ownership and control of Navatek LLC.  By 
responding falsely and fraudulently, the defendant avoided listing all such 
businesses and describing the relationship of the businesses, as required for an 
affirmative response to Question 3. 
 
8. 
In the Bank 1 PPP loan application, the defendant falsely and 
fraudulently certified that, from February 15, 2020 to December 31, 2020, Navatek 
LLC “has not and will not receive another loan under the [PPP].” 
 
9. 
In the Bank 1 PPP loan application, the defendant falsely and 
fraudulently certified “that the information provided in this application and the 
information provided in all supporting documents and forms is true and accurate in 
all material respects.” 
 
10. 
In support of the Bank 1 PPP loan application, the defendant caused to 
be submitted a false and fraudulent spreadsheet used to calculate applicant Navatek 
LLC’s average monthly payroll and number of employees that, as the defendant 
knew, included costs for employees that did not exist and were not eligible for 
inclusion. 
 
11. 
During approximately April 2020 through July 2020, the defendant 
made additional false and fraudulent representations to Bank 1 in support of the 
Bank 1 PPP loan application, intending these representations to pressure Bank 1 
into quickly and without scrutiny approving the Bank 1 PPP loan application and 
to conceal the scheme. 
 
12. 
By April 18, 2020, Bank 1 issued and funded the requested PPP loan 
by depositing $10 million into Navatek LLC’s business checking account ending in 
9145 at Bank 1. 
 
13. 
In 2021 Navatek LLC defaulted on the $10 million PPP loan from 
Bank 1. 
 
 
 
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The Defendant’s PPP Loan Application to Bank 2 
 
14. 
On approximately April 20, 2020, the defendant caused to be 
submitted to Bank 2, which was mainland-based national bank, a PPP loan 
application in the name and tax identification number of Navatek CFD 
Technologies LLC signed by the defendant seeking $2,841,490 in PPP funds.  The 
application contained materially false and fraudulent representations as to average 
monthly payroll, number of employees, and ownership of or common management 
with any other business (hereinafter the “Bank 2 PPP loan application”). 
 
15. 
In an email accompanying the Bank 2 PPP loan application, the 
defendant falsely and fraudulently stated to a President of Bank 2: “[W]e did 
submit an application with a local Hawaii bank for a completely separate company, 
and that is the one that got fumbled.”  The defendant’s representation in the email 
was false and fraudulent because, as the defendant knew, the PPP application to 
which he referred in the email had been approved and funded by Bank 1, and the 
applicant for the Bank 1 PPP loan was not a “completely separate company.”  In 
fact, the applicant for the first PPP loan was Navatek LLC, the entity that owned 
Navatek CFD Technologies LLC. 
 
16. 
In the Bank 2 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek CFD Technologies LLC had an average monthly 
payroll of $1,136,596, when the defendant knew that Navatek CFD Technologies 
LLC had an average monthly payroll of approximately $276,450 during calendar 
year 2019 and through the application date. 
 
17. 
In the Bank 2 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek CFD Technologies LLC had 140 employees, when 
the defendant knew that Navatek CFD Technologies LLC employed approximately 
40 employees during calendar year 2019 and through the application date. 
 
18. 
In the Bank 2 PPP loan application, the defendant falsely and 
fraudulently responded “No” to Question 3 that asked: “Is the Applicant or any 
owner of the Applicant an owner of any other business, or have common 
management with, any other business?”  The defendant’s response was false and 
fraudulent because, as the defendant knew, the defendant owned and managed the 
Navatek Subsidiaries, including Navatek CFD Technologies LLC, through his 
ownership and control of Navatek LLC.  By responding falsely, the defendant 
avoided listing all such businesses and describing the relationship of the businesses 
as required for an affirmative response to Question 3, and thereby avoided the 
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possibility that Bank 2 and the SBA would determine that Navatek CFD 
Technologies LLC was not eligible for a PPP loan due to the Bank 1 PPP loan to 
Navatek LLC. 
 
19. 
In the Bank 2 PPP loan application, the defendant falsely and 
fraudulently certified that, from February 15, 2020 to December 31, 2020, Navatek 
CFD Technologies LLC “has not and will not receive another loan under the 
[PPP],” when the defendant knew that Navatek CFD Technologies LLC had 
approximately two days earlier received the Bank 1 PPP loan in the amount of $10 
million in the name of Navatek LLC. 
 
20. 
In the Bank 2 PPP loan application, the defendant falsely and 
fraudulently certified “that the information provided in this application and the 
information provided in all supporting documents and forms is true and accurate in 
all material respects.” 
 
21. 
During approximately April 2020 through July 2020, the defendant 
made additional false and fraudulent representations to Bank 2 and others in 
support of the Bank 2 PPP loan application and to conceal the scheme. 
 
22. 
By May 6, 2020, Bank 2 had issued and funded the requested PPP 
loan by depositing approximately $2,841,490 into Navatek LLC’s account ending 
in 9145 at Bank 1. 
 
23. 
On approximately May 4, 2020, after Bank 2’s approval of the PPP 
loan application and funding of the Bank 2 PPP loan, the defendant altered the 
previously-submitted, fully-executed promissory note for the Bank 2 PPP loan by 
deleting all references to the PPP.  The defendant then provided the altered note to 
others to conceal his scheme to defraud. 
 
24. 
In 2021 Navatek LLC and Navatek CFD Technologies LLC defaulted 
on the PPP loan from Bank 2. 
 
The Defendant’s PPP Loan Application to Bank 3 
 
25. 
On April 21, 2020, the defendant caused to be submitted to Bank 3, 
which was a Hawaii-based regional bank, a PPP loan application in the name and 
tax identification number of Navatek SHC LLC signed by the defendant seeking 
$2,852,839 in PPP funds and containing materially false and fraudulent 
representations as to average monthly payroll, number of employees, and 
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ownership of or common management with any other business (hereinafter the 
“Bank 3 PPP loan application”). 
 
26. 
In an email accompanying the Bank 3 PPP loan application, the 
defendant falsely and fraudulently stated to a Vice President of Bank 3: 
 
As we discussed, we dropped the ball with timing and process the first 
time. Our entire company structure is complicated to say the least. With 
operations/offices/employees and entities all over the country, we 
really got confused on how to apply. Long story…short…we 
discussed with SBA and figured it out…too late. We’ll [sic] here is 
hopefully our second chance. The SHC Entity is our (Salaries Hawaii 
Company) entity. We are applying under that entity alone and told that 
is the way to correctly do it. So the application is correct and all 
calculation have been reviewed to eliminate all salary amounts in 
excess of $100K. 
 
The defendant’s representations in the email were false and fraudulent 
because, as the defendant knew, the PPP loan application to which he referred in 
the email had been approved and funded by Bank 1. 
 
27. 
In the Bank 3 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek SHC LLC had an average monthly payroll of 
$1,141,136, when the defendant knew that Navatek SHC LLC had no payroll 
during calendar year 2019 and through the application date. 
 
28. 
In the Bank 3 PPP loan application, the defendant falsely and 
fraudulently stated that Navatek SHC LLC had 140 employees, when the 
defendant knew that Navatek SHC LLC had no employees during calendar year 
2019 and through the application date. 
 
29. 
In the Bank 3 PPP loan application, the defendant falsely and 
fraudulently responded “No” to Question 3 that asked: “Is the Applicant or any 
owner of the Applicant an owner of any other business, or have common 
management with, any other business?”  The defendant’s response was false and 
fraudulent because, as the defendant knew, the defendant owned and managed the 
Navatek Subsidiaries, including Navatek SHC LLC, through his ownership and 
control of Navatek LLC.  By responding falsely, the defendant initially avoided 
listing all such businesses and describing the relationship of the businesses as 
required for an affirmative response to Question 3, and thereby initially avoided 
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the possibility that Bank 3 and the SBA would determine that Navatek SHC LLC 
was not eligible for a PPP loan due to the Bank 1 PPP loan to Navatek LLC. 
 
30. 
In the Bank 3 PPP loan application, the defendant falsely and 
fraudulently certified that, from February 15, 2020 to December 31, 2020, Navatek 
SHC LLC “has not and will not receive another loan under the [PPP],” when the 
defendant knew that Navatek SHC LLC had approximately three days earlier 
received the Bank 1 PPP loan in the name of Navatek LLC. 
 
31. 
In the Bank 3 PPP loan application, the defendant falsely and 
fraudulently certified “that the information provided in this application and the 
information provided in all supporting documents and forms is true and accurate in 
all material respects.” 
 
32. 
From approximately April 2020 through July 2020, the defendant 
made additional false and fraudulent statements to Bank 3 in support of the Bank 3 
PPP loan application, false and fraudulent representations and certifications in 
revised submissions of the Bank 3 PPP loan application, and false and fraudulent 
statements to Bank 3 and others to conceal the scheme. 
 
33. 
After a Vice President at Bank 3 informed the defendant that Navatek 
SHC LLC’s tax identification number was different from those stated on payroll 
forms submitted in support of the loan application, the defendant falsely and 
fraudulently stated in an email to the Vice President: “[T]he varying entities have 
employees, but all payroll is ‘cleared’ through SHC (Salaries Hawaii Company, 
LLC).”  The defendant’s statement was false and fraudulent because, as the 
defendant knew, payroll was not “cleared” through Navatek SHC LLC.  In 
response to the defendant’s email, the Vice President instructed the defendant to 
submit applications in the names of the entities that paid the employees. 
 
34. 
After the defendant submitted revised Bank 3 PPP loan applications in 
the names and tax identification numbers of Navatek LLC and Navatek CFD 
Technologies LLC, Bank 3 determined through SBA systems that each of those 
two entities had already been approved for a PPP loan.  When so advised by the 
Bank 3 Vice President, the defendant falsely and fraudulently stated in an email to 
the Vice President on or about April 29, 2020: “After much a do [sic] last night and 
this morning, we have made no progress on getting to the bottom of this and with 
SBA on getting the actual approval notifications or numbers.”  The defendant then 
abandoned his efforts to obtain additional PPP loans from Bank 3. 
 
 
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The Interstate Wires 
 
35. 
In executing the charged scheme, the defendant caused to be 
transmitted by means of interstate wire the following: 
 
Count Approximate Date  
Description 
1 
04/03/2020 
Submission of a PPP Application to Bank 1 via 
Internet Portal 
2 
04/20/2020 
Submission of a PPP Application to Bank 2 via 
Email 
3 
04/21/2020 
Submission of a PPP Application to Bank 3 via 
Email 
 
Each of the foregoing three electronic loan application submissions traveled across 
state lines from Hawaii and through servers on the United States mainland. 
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Counts 4-8: Money Laundering (18 U.S.C. § 1957) 
36. 
On the following dates, the defendant deposited into the specified 
accounts the specified checks payable as specified and drawn on Navatek LLC’s 
account ending in 9145 at Bank 1.  As the defendant knew, each deposit included 
more than $10,000 of proceeds derived from Bank 1’s approval of the defendant’s 
fraudulent PPP application charged in Count 1 as wire fraud.  Each deposit 
affected interstate commerce by, among other things, utilizing interstate systems 
for the electronic transfer of funds between and among financial institutions in the 
United States. 
 
 
Date of 
Transaction 
Description of Transaction 
 
Disposition of Funds 
Transaction 
Amount 
04/21/2020 
 
 
 
Check no. 31029 payable to 
NAVATEK, LLC 
 
 
Deposited into 
Navatek’s Merrill 
Lynch account no. 
XXX-X3506 
$2,000,000 
 
 
 
04/22/2020 
 
 
 
 
Check no. 30986 payable to 
MARTIN KAO 
 
 
 
Deposited into 
Defendant’s Personal 
Merrill Lynch 
account no. XXX-
X2641 
 $2,000,000 
 
 
 
 
04/29/2020 
 
 
 
Check no. 31124 payable to 
NAVATEK, LLC 
 
 
Deposited into 
Navatek’s Merrill 
Lynch account no. 
XXX-X3506 
 $3,000,000 
 
 
 
05/07/2020 
 
 
 
Check no. 31127 payable to 
NAVATEK, LLC 
 
 
Deposited into 
Navatek’s Merrill 
Lynch account no. 
XXX-X3506 
 $3,000,000 
 
 
 
05/18/2020 
 
 
 
 
Check no. 31249 payable to 
MARTIN KAO 
 
 
Deposited into 
Defendant’s Personal 
FHB account no. XX-
XX1787 
 
 $20,200 
 
 
 
 
 
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Respectfully submitted, 
 
CLARE E. CONNORS 
United States Attorney 
District of Hawaii 
 
By: 
/s/ Craig S. Nolan 
 
CRAIG S. NOLAN  
 
Assistant U.S. Attorney 
 
JENNIFER L. BILINKAS 
 
Trial Attorney 
 
Criminal Division, Fraud Section 
 
U.S. Department of Justice 
 
 
 
cc: Victor J. Bakke, Esq., Attorney for Defendant 
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