Court filing
Change of Plea Letter from Mr. Craig Nolan to Magistrate Judge… — PPP Attempt Conspiracy Legal Filings (Dkt. 102)
No. 1:21-cr-00061-LEK · Doc. 102 · Docket on CourtListener
Summary
A letter dated September 6, 2022 from Assistant U.S. Attorney Craig S. Nolan to Magistrate Judge Kenneth J. Mansfield in United States v. Martin Kao, Cr. No. 21-00061 LEK, in the U.S. District Court for the District of Hawaii, filed May 30, 2023 as Document 102. The letter states that Kao will enter guilty pleas on September 7, 2022 to all counts of the Indictment with no plea agreement, and lists penalties for Counts 1-3 (wire fraud) and Counts 4-8 (money laundering). It states forfeiture of not less than $12,841,490 and restitution of not less than $13,181,787.62. The factual basis sets out what the government says it would prove at trial, including false payroll and employee figures in PPP loan applications to Bank 1, Bank 2 and Bank 3 and more than $12.8 million in PPP funds obtained. A table lists five check deposits for the money laundering counts.
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Case 1:21-cr-00061-LEK Document 102 Filed 05/30/23 Page 1 of 12 PageID.872
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.
Case 1:21-cr-00061-LEK Document 102 Filed 05/30/23 Page 2 of 12 PageID.873
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 Description of Transaction Transaction
Transaction Disposition of Funds Amount
04/21/2020 Check no. 31029 payable to Deposited into $2,000,000
NAVATEK, LLC Navatek’s Merrill
Lynch account no.
XXX-X3506
04/22/2020 Check no. 30986 payable to Deposited into $2,000,000
MARTIN KAO Defendant’s Personal
Merrill Lynch
account no. XXX-
X2641
04/29/2020 Check no. 31124 payable to Deposited into $3,000,000
NAVATEK, LLC Navatek’s Merrill
Lynch account no.
XXX-X3506
05/07/2020 Check no. 31127 payable to Deposited into $3,000,000
NAVATEK, LLC Navatek’s Merrill
Lynch account no.
XXX-X3506
05/18/2020 Check no. 31249 payable to Deposited into $20,200
MARTIN KAO Defendant’s Personal
FHB account no. XX-
XX1787
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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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