Sentencing Statement by Defendant Martin Kao — United States v. Kao (Dkt. 105, D. Haw. No. 1:21-cr-00061)

Record facts

U.S. District Court for the District of Hawaii · No. 1:21-cr-00061-LEK · Doc. 105 · 2023-08-02 · Docket on CourtListener

Full text

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LAW OFFICE OF VICTOR J. BAKKE  
 
VICTOR J. BAKKE 
 
5749 
700 Bishop Street, Suite 2100 
Honolulu, Hawaii  96813 
Telephone: (808) 369-8170 
Facsimile: (808) 369-8179 
E-Mail: vbakke@bakkelawfirm.com 
 
Attorney for Defendant 
MARTIN KAO 
 
IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF HAWAII 
UNITED STATES OF AMERICA, 
 
Plaintiff, 
vs. 
MARTIN KAO, 
Defendant. 
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CR. NO. 21-00061 JAO 
DEFENDANT’S SENTENCING 
STATEMENT; EXHIBIT “A”; 
CERTIFICATE OF SERVICE 
DEFENDANT’S SENTENCING STATEMENT 
 
COMES NOW, Defendant MARTIN KAO (“Defendant”), by and through 
his undersigned counsel, and hereby respectfully submits his Sentencing Statement 
in response to the Draft Presentence Investigation Report (1) [ECF No. 103] (the 
“PSR”) in this matter as follows: 
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1. 
Page 16, paragraphs #58, #59 and #60 “Loss”:   
Sentencing in Federal fraud cases is driven by loss amounts. To seek a 
higher sentencing guidelines range, the government often relies on a defendant’s 
“intended” loss,” rather than the “actual” loss. However, that approach was 
recently rejected by the Third Circuit in United States v. Banks, 55 F.4th 246, 255–
59 (3d Cir. 2022). 
In Banks, the court of appeals ruled that “loss” as stated in the U.S. 
Sentencing Guidelines §2B1.1 refers only to “actual” and not “intended” loss. 
At sentencing, the district court calculated an advisory Guidelines range 
under U.S. Sentencing Guidelines §2B1.1 based on Banks’ intended loss.  Section 
2B1.1 provides for a base offense level of seven and additional increases based 
upon the amount of “loss.”  Section 2B1.1 does not itself define loss, but the 
Sentencing Commission’s commentary states that “loss” is “the greater of actual or 
intended loss,” with “intended loss” being “pecuniary harm that the defendant 
purposely sought to inflict,” regardless of whether the loss “would have been 
impossible or unlikely to occur.” Id. at cmt. 3(A); (ii). Using Banks’ intended loss 
of greater than $250,000 and less than $550,000, the court increased the offense 
level by 12.  See U.S.S.G. § 2B1.1(b)(1)(G). The court ultimately sentenced Banks 
to 104 months in prison. 
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On appeal, the Third Circuit rejected the commentary to § 2B1.1 that 
defined “loss” to include intended loss.  Banks was guided by a prior Third Circuit 
decision that held that the Supreme Court’s decision in Kisor v. Wilkie, 139 S. Ct. 
2400 (2019) narrowing Auer deference applied to the Sentencing Commission’s 
commentary.  In the Third Circuit’s view, “[i]f the Sentencing Commission’s 
commentary sweeps more broadly than the plain language of the guideline it 
interprets, we must not reflexively defer.” The court of appeals found no ambiguity 
in §2B1.1’s use of the word “loss,” and held that the commentary’s addition of 
“intended loss” swept beyond the word’s plain language. The court remanded the 
case for resentencing.   
It should be noted however, that the Eleventh Circuit, rejected the Third 
Circuit’s analysis and conclusion, holding instead that the commentary at §2B1.1 is 
“binding on the courts because it does not contradict the plain meaning of the text 
of the Guidelines.” United States v. Moss, 34 F.4th 1176, 1190 (11th Cir. 2022) 
(quotations omitted).   
In the present case, the money that was loaned to Defendant Kao was repaid 
in full so, in fact, there was no loss to Central Pacific Bank and/or Radius Bank.   
However, paragraph #60 states that Defendant should receive a massive 20 
level increase based upon the intended loss of $15,694,329 which is the sum total 
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of the 2 funded loans, plus the loan application that was made to First Hawaiian 
Bank which was later withdrawn by the Defendant. 
As stated in Banks, the plain language of USSG 2B1.1(b)(1) only provides 
for an enhancement based upon loss, not “intended” loss.  Accordingly, because 
there was no loss in this there cannot be a 20-level enhancement pursuant to USSG 
2B1.1(b)(1).   
Basing the loss enhancement on actual loss versus intended loss makes sense 
since the enhancement based on actual loss is meant to provide greater punishment 
in cases where there was greater harm inflicted via greater losses.   
Assuming arguendo, that the “intended” loss test is utilized to determine the 
loss amount there still is no loss because the “intended” loss must be determined 
by the Defendant's subjective intent.  (USSG App. C, amend. 792 (effective Nov. 
1, 2015).  Prior to the amendment, courts had differed as to whether the intended 
loss amount was based on the defendant’s subjective intent or on an objective 
standard. Id.; see also United States v. Carrasquillo-Vilches, 33 F.4th 36, 41–44 
(1st Cir. 2022) (discussing standard before and after the amendment and affirming 
loss amount because, even though the PSR referenced both standards, “the record 
amply support[ed] the finding that the defendant subjectively intended to inflict at 
least” the lowest loss amount required for the enhancement imposed). 
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The guidelines define intended loss as “pecuniary harm that the defendant 
purposely sought to inflict.”  USSG §2B1.1, comment. (n.3(A)(ii). 
Determining intended loss is often a fact-specific inquiry. (See, e.g., United 
States v. Ainabe, 938 F.3d 685, 692 (5th Cir. 2019) (“[T]he appropriate method of 
calculating the amount of intended loss is determined by the facts of the case.”). 
A court’s determination of whether to calculate intended loss at the full face 
value of the property at issue or some lesser amount often turns on whether the 
defendant intended to jeopardize, or in fact recklessly jeopardized, the full amount 
of the property. (See, e.g., United States v. Harris, 597 F.3d 242, 256–59 (5th Cir. 
2010) (district court properly sentenced defendant based on the aggregate credit 
limit of the credit cards that she recklessly jeopardized by selling to third parties). 
In the present case, the Defendant never intended to jeopardize the money 
that was received and/or that he intended to receive.  Furthermore, Defendant Kao 
never “purposely sought” to inflict any pecuniary harm as required by USSG 
§2B1.1, comment. (n.3(A)(ii). 
It is undisputed that Defendant applied for three “loans” that were merely 
backed by the SBA.  Accordingly, those banks were free to grant or deny the 
Defendant’s loan application just as they would do for any non-PPP loan.  The 
loans that were granted to Mr. Kao were performing loans and the loans were 
never in default.   
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What makes this case unusual is that the PPP loan was a temporary and 
open-ended interest free loan wherein the banks did not lock in the terms of 
repayment. 
Instead, the banks simply agreed that Defendant Kao must repay the loan 
back in full if, at a later date, it was determined that he was not eligible for the loan 
or that he did not "spend” the loan according to the terms set forth by the SBA. 
The banks also agreed that Defendant had the option to convert the initial 
interest free loan into a low interest conventional loan if, at a later date, it was 
determined that he was not eligible for the loan or that he did not "spend” the loan 
according to the terms set forth by the SBA. 
Because of this unprecedented loan structure, Defendant Kao applied for the 
temporary interest free PPP loans as a backup source of funding just in case the 
money was needed to keep his company solvent during the COVID epidemic.  
That does not mean, however, that Defendant intended to cause a loss to the 
lenders by keeping the money.   
The problem is that the Government prematurely interjected itself into a 
private contract between the banks and Mr. Kao and that makes it impossible for 
them now to say that Mr. Kao would not have returned the money, or converted it 
to a low interest loan, at the end of the interest free time-period.  
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Simply put, Defendant Kao fully intended to repay the loans.  First, 
Defendant’s company had more than enough capital to collateralize the loans and 
the PPP money was just a rainy-day fund to help stabilize the company in the face 
of an uncertain and extended world pandemic.  It has to be noted that the initial 
loan was an interest free loan was only temporary.  Once the epidemic was over, 
Defendant Kao would have been forced to return the money because it was no 
longer needed, or he would have converted it into a low interest loan and repaid the 
loan in full.  Either way, there was no intent to cause a loss to any of the lenders 
and there is no evidence to support a finding that the Defendant purposely sought 
to inflict pecuniary harm.    
Consequently, the PSR should be amended by deleting the 20-level 
enhancement because the enhancement must be based on actual loss and/or 
because Defendant Kao did not intend to cause any loss to the lenders. 
2. 
Page 17, Paragraph #63 Role in the Offense 
Defendant should not receive a 2 level enhancement under USSG Sec. 
3B1.1(c) because he was not a leader or organizer. 
Although Defendant was the leader of the company, that does not mean he 
was the leader or organizer of the loan fraud scheme.  Instead, the evidence shows 
that Defendants Mr. Chen and Mr. Lum Kee played independent and equal roles in 
the planning and execution of the loan scheme.   
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Specifically, Defendant, Chen and Lum Kee were the three top ranking 
individuals at the company.  Accordingly, they all played an equal role in the 
planning and execution of applying for the PPP loans and they all shared in the 
benefits with Chen and Lum Kee even receiving substantial pay raises as a result 
of their share of the extra payroll money.   
During the Civil lawsuit/Arbitration brought by the company against the 
Defendant, the plaintiff hired former Honolulu FBI agent Tom Simon as an expert 
to investigate and review this case and to testify at the arbitration as to the nature 
and extent of the conduct of the Defendant, Mr. Chen and Mr. Lum Kee.   
At the arbitration, former Honolulu FBI agent Simon testified that 
Defendant, Chen and Lum Kee were all equally responsible for the fraudulent 
scheme:   
Q. 
And with regard to Exhibit 129 where they are talking about 
max 3.5 million loan without looking like we are cooking 
anything, did you review a number of emails by and between 
Mr. Kahele Lum Kee, Mr. Cliff Chen and Mr. Kao?  
 
A.  
Yes. Mr. Kao was usually CC'd on emails like that. 
 
Q.  
Did it appear that Mr. Kao was in frequent contact by email 
with Mr. Lum Kee and Mr. Chen as to this PPP loan 
application?  
 
A. 
Yes, these three were sharing a brain throughout this entire 
process as far as getting these loans done. 
 
See, Ex. “A” – Relevant Portions of Transcript of Arbitration Testimony of 
Former FBI Agent Tom Simon (Transcript pg. 399). 
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Q.  
Because Mr. Kao is on all of these emails and is authoring 
many of them, is it plausible to you if he decides to blame Mr. 
Lum Kee and Mr. Chen, his  lieutenants, as having done this? 
 
A.  
No. These guys were clearly in bed together making all this 
happen. 
 
See, Ex. “A” – Relevant Portions of Transcript of Arbitration Testimony of 
Former FBI Agent Tom Simon (Transcript Page 404). 
 
The purpose of USSG Sec. 3B1.1(c) is to impose extra punishment upon the 
leader or head of a group of individuals since they are more culpable than the 
subordinates who are just following the orders of the leader. 
In the present case, the testimony of expert witness former FBI agent Tom 
Simon clearly shows that, in his expert opinion as professional investigator and law 
enforcement agent, that Defendant was not leader of the group and that this was in 
fact a situation where the three men were all equal co-conspirators in the entire 
scheme. 
Mr. Chen and Mr. Lum Kee were each fully aware of the scope and purpose 
of the scheme and they often acted independently of Mr. Kao by utilizing their 
different skills within the group to accomplish their joint goal of obtaining the PPP 
loans.  The Defendant could not have made the loan applications by himself and 
there is no evidence that Defendant was any more responsible than Mr. Chen and 
Mr. Lum Kee in the overall process. 
 
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Consequently, the Defendant should not receive a 2 level enhancement 
under USSG Sec. 3B1.1(c) because he was not a leader or organizer. 
 
DATED:  Honolulu, Hawaii, August 2, 2023. 
/s/ Victor J. Bakke  
 
  
 
 
 
 
 
VICTOR J. BAKKE 
 
Attorney for Defendant 
 
 
 
 
 
MARTIN KAO 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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