Former Hawaii CEO Sentenced to 87 Months Imprisonment on Covid-Relief Fraud and Bank Fraud
News Release from U.S. Attorney's Office, District of Hawaii, Thursday, February 13, 2025
HONOLULU – Acting United States Attorney Kenneth M. Sorenson announced that Martin Kao, 51, of Honolulu, was sentenced today in federal court by Senior United States District Judge Leslie E. Kobayashi to 87 months imprisonment followed by 5 years of supervised released for COVID-relief wire fraud, money laundering, and bank fraud. Judge Kobayashi also ordered that Kao pay restitution of $12,841,490 to the Small Business Administration, forfeit $12,841,490 in Paycheck Protection Program (PPP) funds he obtained through fraud, forfeit the proceeds of his bank fraud after foreclosure of the house he bought by fraudulently obtaining a $3,000,000 loan, and perform 12,800 hours of community service while on supervised release.
According to Kao’s admissions during his guilty plea hearings and other court records, as Chief Executive Officer and 99% owner of a Hawaii-based defense contractor, Kao submitted fraudulent PPP loan applications to at least three banks, including two headquartered in Hawaii, during spring 2020. In his first PPP loan application Kao falsely tripled the number of employees at his company and thereby obtained the maximum loan of $10,000,000 from a Hawaii bank. During the bank’s review of Kao’s application, Kao pressured the bank to expedite approval of the fraudulent application by repeatedly claiming that he had discussed his application with United States Senators and their staffs who would intervene on Kao’s behalf if the bank did not quickly approve his loan.
In his second PPP loan application Kao falsely claimed eligibility for another $2,841,490 and obtained that loan from an Internet-based mainland bank by concealing his company’s receipt of the first PPP loan. Kao then altered the executed promissory note associated with the loan by deleting all references to the PPP to conceal his fraud from others who knew about the first PPP loan. In his third PPP application to a different Hawaii-based bank, Kao again falsely claimed eligibility for another $2,852,839 by concealing his company’s receipt of the first and second PPP loans. When the bank questioned Kao about why payroll records for his employees did not match the tax identification number for the entity identified on the application, Kao falsely described his company’s corporate structure and submitted a revised application, which the bank denied.
Also during spring 2020, Kao submitted a fraudulent mortgage application to a national bank seeking $3,000,000 to purchase a $4,500,000 residence in Kahala. In support of that application, Kao submitted numerous investment account statements and records that he had digitally altered and fabricated to falsely inflate the value of his stock portfolio. In his final submission prior to loan approval, Kao altered the statement to reflect a value of more than 10,000,000 for holdings that in fact were valued at less than $65,000.
“Martin Kao, motivated by greed, chose to repeatedly lie about his assets and prior loans in order to obtain millions of dollars in funds that were intended to help businesses staggered by the Covid-19 pandemic,” said Acting United States Attorney Kenneth M. Sorenson. “Thanks to our outstanding investigative partners, Internal Revenue Service Criminal Investigations and the Small Business Administration’s Office of Inspector General, we were able to uncover Kao’s web of lies and convict him of bank fraud. Today’s sentence sends the clear, unequivocal message that those who seek to defraud the Paycheck Protection Program through fraud and deceit will be investigated and prosecuted to the full extent of the law.”
“While so many small businesses closed their doors in 2020, Mr. Kao’s scheme tangled up enough emergency relief funds to cover the average annual income of 175 American households,” said Adam Jobes, Special Agent in Charge of IRS Criminal Investigation’s Seattle Field Office. “We will continue to work to expose abuses of the Paycheck Protection Program.”
“The SBA Office of Inspector General remains focused on identifying and addressing fraud in pandemic relief programs,” said Weston King, Special Agent in Charge of the SBA Office of Inspector General, Western Region. “This case underscores SBA-OIG’s dedication to protecting taxpayer dollars and holding accountable those who seek to exploit federal relief programs.”
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a federal law enacted on March 29, 2020, which was designed to provide emergency financial assistance to the millions of Americans who were suffering the economic effects caused by the COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and certain other expenses, through the PPP. In April 2020, Congress authorized over $300 billion in additional PPP funding.
The PPP allowed qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1 percent. PPP loan proceeds had to be used by businesses on payroll costs, interest on mortgages, rent, and utilities. The PPP allowed the interest and principal on the PPP loan to be entirely forgiven for many businesses if the business spent the loan proceeds on these expense items within a designated period of time after receiving the proceeds and used at least a certain percentage of the PPP loan proceeds on payroll expenses.
The Justice Department’s COVID-19 Fraud Enforcement Task Force marshals the Department’s resources in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the Department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.
Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline at 866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.
The investigation was conducted jointly by IRS Criminal Investigation and the Small Business Administration Office of Inspector General. The case was prosecuted by Assistant U.S. Attorneys Craig Nolan and Sydney Spector for the District of Hawaii and Trial Attorneys Jennifer Bilinkas and Tom Tynan of the Criminal Division’s Fraud Section.
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