WASHINGTON — Ongoing civil litigation involving a former Hawaii defense contractor continues to shed light on the ways private companies and special interests seek to game the political system for their own personal benefit.
Martin Kao, the former president and CEO of Martin Defense Group, previously known as Navatek LLC, has pleaded guilty to a series of federal crimes involving illegal campaign contributions and CARES Act fraud.
In January, he was indicted on a new set of criminal charges for mortgage fraud in which he’s alleged to have falsified financial records to obtain a $3 million loan so that he could purchase a luxury home in Kahala.
But in civil court he faces a new series of challenges as his former business partner seeks to hold him financially accountable for his crimes while rebuilding trust in the company.
The U.S. Justice Department has accused Kao of using straw donors and a shell company to funnel hundreds of thousands of dollars in illegal political contributions to Republican U.S. Sen. Susan Collins and a super PAC that was backing her 2020 campaign.
The donations came around the same time Collins was bragging about securing federal funds for an $8 million contract that Navatek had received in 2019.
Statement from the Collins’ campaign committee
In a statement to The Maine Monitor, Collins’ campaign committee said their website and donor forms stated that donors can not make a contribution in another person’s name.
“There have been no allegations of wrongdoing by the Collins for Senator campaign, and the campaign has cooperated fully with the FBI throughout this investigation. The campaign divested itself of the contributions associated with Mr. Kao and his associates,” the Collins statement said. “The Collins for Senator 2020 reelection campaign raised more than $30.5 million.”
Kao was also indicted for allegedly bilking the U.S. Small Business Administration’s Paycheck Protection Program out of more than $12 million.
The criminal charges are the basis for a series of lawsuits filed by Kao’s former business partner, Steven Loui, who was the original founder of Navatek and owner of Pacific Marine & Supply Co., which also counts Pacific Shipyards International among its subsidiaries.
Loui gave a 99% stake in Navatek to Kao in 2019 before wresting back control of the company in the wake of the criminal scandals. He has since renamed the company PacMar Technologies.
Among Loui’s legal actions is a lawsuit he filed in the U.S. District Court of Hawaii where he is using federal racketeering law that was designed to go after the mafia to try to recuperate millions of dollars that he says was misspent and misused by Kao when he was in charge of the company.
Recent filings from that case, including a 99-page complaint that was lodged in April, accuse Kao and his “gang of co-conspirators” of taking part in a vast criminal enterprise that was meant to enrich themselves while at the same time “loot the resources of a venerable engineering firm.”
Among those named as defendants are Kao, his wife Tiffany Lam and former Navatek executives Clifford Chen, Lawrence Lum Kee and Duke Hartman.
Both Chen and Lum Kee were indicted with Kao for making illegal campaign contributions to Collins’ campaign and have pleaded guilty. They are scheduled to be sentenced in August.
Loui says he’s trying to save his company. He said he’s spent millions of dollars on legal fees to try to right the wrongs of Kao and his “cabal.”
In an interview with Civil Beat, Loui said he was duped by Kao for nearly a decade as he groomed the younger man to take over the business.
While millions of dollars are at stake in the litigation, Loui said he’s hoping to rebuild his company’s reputation not only in the eyes of the public, but also with the federal government, which has been wary of doing business with PacMar given Kao’s transgressions.
“I screwed up,” Loui said. “This is my redemption.”
The lawyers representing, Kao, Lum, Chen, Lum Kee and Hartman, meanwhile, have refused to comment on the specifics of Loui’s litigation.
The federal lawsuit expands on the many allegations contained in the criminal charges that have been levied against Kao, Chen and Lum Kee. And like federal prosecutors, Loui and his lawyers have relied upon a massive trove of internal emails and company documents to make their case.
In particular, the lawsuit highlights new details about the ways in which Kao and his associates tried to cover-up their crimes even as they continued their quest to curry favor with federal lawmakers, many of whom sit on the Senate Appropriations Committee.
Saurav Ghosh, director of campaign finance reform at the Campaign Legal Center, said Kao’s case offers a glimpse into the cynical side of Washington, one in which special interests try to “rig the system in their favor.”
What’s noteworthy, he said, is that Kao actually got caught. That’s often the exception, especially when it comes to campaign finance violations.
“The dirty secret underlying this whole case is that they went about this in a way that was very, very brazen, and as a result they got caught,” Ghosh said. “If we look at this as an unusual instance, one where someone played the game and got caught, then it really is open to one’s imagination how often this is happening where the people involved are not getting caught.”
The Start of the Cover-Up
Loui’s latest federal complaint combined with earlier revelations contained in DOJ charging documents show how Kao tried to bolster Navatek’s bottom line through political favoritism, some of which crossed legal lines.
Much of the lawsuit focuses on the illegal campaign contributions Kao and others made to Collins and the super PAC that was supporting her, known as the 1820 PAC.
In 2019, Kao, Chen and Lum Kee maxed out their contributions to Collins’ campaign as did several of their family members who they asked to make contributions on their behalf.
Those contributions were illegal on two fronts because government contractors are prohibited from donating to political campaigns and federal law prohibits making conduit or straw donations through others.
According to federal prosecutors, the point of the contributions was to garner influence with Collins, who was a high-ranking member of the Appropriations Committee.
Collins joined Kao and other Navatek employees in August 2019 to celebrate an $8 million contract the company received from the Navy to conduct research in her home state of Maine. She visited Navatek’s offices, posed for photos with Kao and issued a press release stating that she “strongly advocated for the funding that made this research possible.”
About a month after the celebration, on Sept. 16, 2019, Kao sent an email to her campaign finance director from his company account.
“We are here to help anyway we can … financially or whatever,” he said.
The campaign worker, who has yet to be identified in any court records, responded with a message saying that Kao had already donated $5,600, which was the maximum allowable under the law, but “if you have friends or family members that would be willing to donate please don’t hesitate to send them my way.”
Kao promised more “max out” donations would be headed to the campaign shortly. The following day Chen and Lum Kee each gave $5,600 to Collins’ campaign using their corporate credit cards. Their donations were followed up about nine days later by max contributions by two of their family members.
Shortly thereafter, in November 2019, Kao, Chen and Lum Kee started talking about forming a new LLC to send even more money Collins’ way.
They called it the Society for Young Women Scientists and Engineers, or SYWSE for short.
That month, Kao emailed a representative of 1820 PAC detailing their plan. He said the new LLC would be used to “make the donations” and that it would be “super vague and very difficult to get any background info on.”
On Dec. 31, 2019, Kao’s wife, Lam, who was the registered agent for SYWSE under the alias Jennifer Lam, cut a check to 1820 PAC for $150,000.
The donation caught the attention of the Campaign Legal Center in Washington, D.C., which filed a complaint with the Federal Election Commission on Feb. 3, 2020, saying that SYWSE appeared to have been formed for the express purpose of hiding the true identity of the donors, which is illegal.
According to the lawsuit, the CLC complaint spooked Kao and others at Navatek, and they “immediately hatched a plan to cover up the unlawful conduct and obstruct the federal investigation.”
The new course, which they later discussed with their lawyers and other hired political consultants, was to turn the SYWSE into a legitimate charity organization that gave scholarships to women pursuing careers in engineering and science.
Kao tapped attorney Bill Canfield, a well-known GOP election lawyer, to help defend against the impending FEC investigation.
The lawsuit did not name any of the political consultants that were hired by Navatek, but, according an OpenSecrets analysis of lobbying disclosure forms, the company spent more than $641,000 in 2020 to hire at least a dozen lobbyists from firms such as the Livingston Group, Red Maple Consulting and Strategies 360.
The filings show that among the lobbyists working for the Navatek at that time was Andy Winer, the former chief of staff to U.S. Sen. Brian Schatz who is among the most influential political consultants working Hawaii today. Winer declined to comment for this story.
On Feb. 18, 2020, the federal lawsuit states, an attorney representing the 1820 PAC emailed Kao to tell him that speed was of the essence when it came doling out SYWSE scholarships to “protect the entity and YOU now while we have the time to do that.”
Two days later Kao admitted in emails that the 1820 PAC donation was a “screwup” and he assigned Hartman to help take care of it by sending money to various universities to pay for scholarships.
According to the lawsuit, Hartman had contacted at least a dozen universities by the end of February 2020 and over the next few months would donate at least $60,000 of Navatek’s money to schools in the name of the SYWSE, including to the University of Alaska, University of Hawaii, University of Michigan, South Carolina State and Wichita State.
Kao had hired a lawyer to help deflect federal investigators. While drafting a letter to authorities to defend SYWSE as a legitimate entity, he sent a side note to Chen, Lum Kee and Hartman about the new scholarship program.
“Whatever … just a pack of bitches getting free $,” he said.
A few days later, on March 30, 2020, Kao followed up with another missive, this time in the parodied voice of former President Donald Trump.
“I know I’m doing amazing and wonderful things for young women,” he wrote.
”Huge … hugely wonderful and amazing I tell you. Wonderful to the likes of which you’ve never seen. That young women and people have never seen. I don’t need the fake news and nasty media to tell me what things I already know I’m doing. They are all nasty liars. Amazing stuff I’m doing. Huge I tell you … huger than huge.”
Kao punctuated his note with a yellow winky face emoji.
‘Lol SYWSE Pays to Play Again!’
The illegal donation to 1820 PAC wasn’t the only scheme in need of a cover story, according to the lawsuit.
Just days after Congress passed the $2.2 trillion CARES Act to provide economic stimulus during the coronavirus pandemic to individuals and businesses across the country, Kao sent an email to Chen and Lum Kee saying he had some “tricks up (his) Wuhan Sleeves.”
Kao targeted the Paycheck Protection Program, which was designed to help small businesses stay afloat with forgivable loans of up to $10 million.
But Lum Kee told Chen he didn’t think there was any way Navatek could qualify for that amount “without looking like we are cooking anything.”
Lum Kee estimated the most they could get was $3.5 million.
On April 3, 2020, Kao submitted a PPP loan application to Central Pacific Bank that included a number of lies about the size of his company.
According to the DOJ, he told the bank that Navatek and its subsidiaries employed nearly 500 people and that its average payroll was around $4 million. Those figures were greatly exaggerated. The company only employed 140 people at the time and had a monthly payroll of around $830,000.
Just before sending in the fraudulent application, Kao emailed Chen and Lum Kee.
“Chance’m!” he exclaimed.
The gambit paid off and Navatek received $10 million from Central Pacific Bank on April 17, 2020.
Two days later, the lawsuit says, Chen emailed Kao and Lum Kee saying that they could try submitting more applications to other banks, but that “we would need another bank with idiots running it and weak verification capabilities.”
Kao submitted two more applications, one to Boston-based Radius Bank and another to First Hawaiian Bank.
Radius Bank approved a loan worth more than $2 million while First Hawaiian Bank denied the request because Navatek had already received PPP money.
Running fake numbers was just part of the scheme. A DOJ criminal complaint shows that Kao repeatedly applied pressure tactics to try to get his loans approved.
According to the complaint, Kao sent a series of emails to Central Pacific Bank employees saying that he was in close contact with several U.S. senators and at least one member of Congress who were interested in receiving updates on his loan application.
Two of the lawmakers, he said, “were very adamant about stepping in if our application was getting stalled.”
The DOJ never identified any of the lawmakers Kao claimed to be working with. In at least one exchange with a bank employee he said he was merely relaying information from one of the “highest authorities possible in Hawaii.”
“The bank has ZERO risk!” Kao said. “I’m not barking at you.”
On May 1, 2020, Chen sent Kao and Lum Kee an article from Bloomberg about the DOJ seeing early signs of PPP fraud, particularly when it came to companies inflating their payroll numbers.
Kao’s response, according to the lawsuit, was two letters long — “Fk.”
To make the fraudulent applications look legit, the Loui lawsuit states, Kao sent Hartman across the country to open satellite offices for Navatek, including a 36-person office space in South Carolina that’s never had more than seven employees, and an office in Maine that “was not needed, could not be afforded by the Company, and was for the sole purpose of justifying the enterprise’s lies on the PPP applications.”
The alleged total cost of this endeavor ended up being more than $1.8 million, which included the price of breaking some of the leases after Kao was arrested and charged with PPP fraud.
In its statement, the Collins campaign said: “In regards to the PPP loans, there was no contact between the Company and anyone affiliated with the Collins for Senator Campaign or the Senate office.”
The alleged SYWSE and PPP cover-ups seemed to fit part of a larger purpose.
According to the lawsuit, all of the offices and universities were in districts represented by lawmakers who could influence federal appropriations and contracts.
“This shows a continuation of the enterprise’s goal to use the Company and its money to defraud the federal government for the purpose of obtaining benefits and contracts by any means possible,” the lawsuit said.
The complaint states that Hartman had even developed a power-point presentation titled, “Strategic Partnerships Overview,” in which he spelled out a plan to build “goodwill” with powerful legislators — and appropriators in particular — by setting up shop near universities in their home states and districts where they could then direct scholarship money.
The presentation included a slide with a triangle-shaped graphic with the company’s logo at one point, U.S. Sen. Jack Reed of Rhode Island at another and the University of Rhode Island at the third with arrows pointing back and forth.
Reed is the chairman of the Armed Services Committee and member of the Appropriations Committee.
In yet another example from the lawsuit, Kao, Chen and Hartman were having an email discussion about a press release that U.S. Sen. Jerry Moran of Kansas wanted to send out to announce scholarships for Wichita State students that were being funded by the company and whether they should push for a plug for the Society of Young Women Scientists and Engineers.
“Lol SYWSE Pays to Play Again!” Hartman exclaimed.
Pleading The Fifth
The federal lawsuit is yet another salvo in Loui’s ongoing assault on Kao and those he blames for tarnishing the name and reputation of his company.
Last year, a Hawaii state court judge in a separate case confirmed an arbitrator’s decision to strip Kao of his ownership interest in Navatek and give it back to Loui.
That arbitrator also awarded Loui more than $6 million in damages.
Loui himself is a prolific political donor, who has given tens of thousands of dollars to federal candidates over the years while at the same time his company received millions of dollars in federal contracts, some of which were directed via earmark by the late U.S. Sen. Dan Inouye.
Loui dismissed the notion that he uses campaign donations to buy influence.
He said he’s been in business in the islands for nearly 50 years, which has allowed him to develop relationships with many of the politicians he gives money to to support their campaigns.
“All of them I know personally and all of them know me personally,” he said. “I don’t write checks to strangers.”
A Civil Beat review of FEC data shows that Loui has donated at least $160,000 to various federal candidates and campaigns dating back to 1986.
Almost all of those contributions went to Hawaii-based candidates, whether it was Inouye or other members of the state’s congressional delegation, from Neil Abercrombie and Colleen Hanabusa to Schatz and Jill Tokuda.
Kao, meanwhile, donated even more in a shorter period of time.
The data shows that since 2009, which was just after he started working for Navatek, Kao donated more than $221,000 to political candidates and committees.
Unlike Loui, Kao spread the money around, particularly in 2019 and 2020 when he gave tens of thousands of dollars to the political campaigns of members of the Senate Appropriations Committee, including both Democrats and Republicans. Among those receiving donations were U.S. Sens. Lindsey Graham, Chris Coons, Jim Inhofe, Tammy Baldwin and Jeanne Shaheen.
In July 2020, the University of South Carolina announced that it would be partnering with the company on a $9.2 million Office of Naval Research project that would bring new jobs to the area. Among those quoted in the press release were South Carolina lawmakers, Graham, U.S. Rep. Jim Clyburn and U.S. Rep. Joe Wilson.
“This is a win-win for all parties, especially the state of South Carolina,” Wilson said.
A Civil Beat review of FEC records found that Graham, Clyburn and Wilson together had received more than $57,000 in campaign contributions from Kao and others affiliated with him in the months before the contract was announced. Most of those donations were split between Graham and Clyburn.
Kao, Lam, Chen and Lum Kee each maxed out their donations to Graham’s campaign as did two other members of Kao’s family who were listed as straw donors in the DOJ’s indictment for the illegal contributions made to Collins’ campaign.
Those family members also gave $5,000 each to Clyburn’s campaign along with Kao and Lam.
The South Carolina donations are not specifically cited in the federal lawsuit or in the DOJ’s charging documents involving illegal campaign contributions.
Loui’s federal lawsuit includes a series of new allegations against Kao and the other defendants that go beyond anything contained in the DOJ’s charging documents.
In addition to the campaign spending violations and PPP fraud, it accuses Kao and others of funneling company money into two nonprofits — the Navatek Foundation and the Marty & Mickey Kao Foundation — that were controlled by Kao and his wife “for the purpose of paying for their own personal expenses and for their own personal benefit.”
Among the questionable expenses, the lawsuit says, were tuition payments to Honolulu Waldorf School and Iolani school for Chen’s children that equaled at least $125,058.
According to the lawsuit, Kao’s deception began even before he was on the payroll.
When Kao applied to the company in 2008 he said he had law degrees from both UCLA and New York University, but, according to the PacMar’s lawyers, they learned through subpoenas to the schools that he never attended either of the institutions.
Kao did have a master’s degree in tax accounting from the University of Southern California, however, and worked as a certified public accountant for nearly a decade before taking over Navatek.
In general, each of the defendants have pushed back against the allegations in the federal lawsuit.
Attorneys representing Kao, Chen and Lum Kee have denied many of the accusations while at the same time asserting their 5th Amendment rights to avoid self-incrimination considering that they’re all awaiting sentencing for the federal crimes they’ve pleaded guilty to.
The defendants have also tried to point the finger at Kao, who the lawsuit described as the “architect and driving force behind the illegal conduct and pattern of racketeering committed by the RICO enterprise.”
For instance, Chen filed a cross-claim against his former boss, saying that if he’s found to have committed any wrongdoing that Kao should be the one held liable.
Lum Kee, too, has tried to deflect blame.
He’s also filed a whistleblower complaint against PacMar Technologies, Kao and Daniel Brunk, who was named as CEO after Kao stepped down.
In the lawsuit, Lum Kee alleges that he was fired by PacMar in retaliation for raising questions about Loui’s own spending practices, which included paying rent for dock space at his daughter’s Hawaii Kai home and using company funds to ship Loui’s private vessels from Maine to Hawaii.
The lawsuit also blames Kao for encouraging Lum Kee to make illegal campaign contributions, saying he was instructed to do so using the company credit card.
Loui has denied any wrongdoing alleged in the whistleblower complaint, saying “the facts will speak for themselves.”
Hartman hired former Hawaii Attorney General Margery Bronster to defend him in the federal lawsuit. He has since launched his own company, Integer Technologies, that continues to earn government contracts.
Bronster filed a motion to dismiss the lawsuit against her client, noting that unlike Chen, Lum Kee or Lam, he was never named as a defendant in any of the criminal cases. There’s also no record of Hartman donating money to any federal campaigns.
The motion states that Hartman was “simply carrying out the orders from his superiors” and “assisting in ‘damage control’ to the company’s reputation.” He was never a part of the criminal enterprise.
Attorneys representing Lum Kee and Hartman declined to comment on the case. Derek Kobayashi, who represents Chen, did not respond to a request for an interview.
Keith Kiuchi, who represents Kao and Lam, said he did not want to comment on the specifics of the lawsuit, but he did say that RICO cases are notoriously difficult to prove, especially in civil court.
“At this point we’re going to let the skirmishes occur and see where things are after that,” Kiuchi said. “Then we’ll defend the case accordingly.”