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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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