A federal judge said Thursday that Louis and Katherine Kealoha, who are charged with a series of felonies related to bank fraud and conspiracy, are buried so far in debt that they can no longer afford to pay for their own defense attorneys.

Instead, U.S District Court Judge J. Michael Seabright will assign new legal counsel to the Kealohas early next week, selecting from a list of pre-qualified lawyers who are approved to practice law in federal court in Hawaii.

The Kealohas were previously represented by local attorneys, Myles Breiner and Kevin Sumida. A third lawyer, Gary Modafferi, of Las Vegas, recently was hired to represent Louis Kealoha.

Ex HPD Chief Louis Kealoha wife Katherine Kealoha walk into District Court.
A judge ruled that ex-HPD Chief Louis Kealoha, right, and his wife, prosecutor Katherine Kealoha, are buried too far in debt to pay for their own defense. One of their former attorneys, Kevin Sumida, is at left. Cory Lum/Civil Beat

All three attorneys filed a motion to be removed from the case, however, once it became clear it had become too big for them to handle, especially given the limitations of the Kealohas’ financial resources.

The U.S. government has indicated to the trio of lawyers that it has more than 230,000 pages of discovery evidence and nearly 500 witnesses who were interviewed as a part of its investigation.

A trial, should one occur, is expected to last several months.

The Kealohas were required to submit financial statements to the court.

Those statements were filed under seal. On Thursday, U.S District Court Judge J. Michael Seabright discussed some of the details of the statements with the defendants and their attorneys in private before announcing in open court his decision to assign government-funded lawyers to the case.

Seabright focused particular attention on the Kealohas’ home in Hawaii Kai, which has an assessed value of about $1.3 million. He said the mortgage chews up much of Louis Kealoha’s pension, which has been estimated to bring in about $150,000 a year plus benefits.

Katherine Kealoha, meanwhile, has been placed on unpaid leave from her job as a deputy city prosecutor as a result of the criminal charges.

If the Kealohas sell their house, Seabright said there’s the possibility the couple could begin to make a partial payment toward their own legal fees. He added that there’s also a possibility the court could ask the Kealohas to pay back some of the costs after the case is over.

“This is a case that will require substantial expenditures to the defendants,” Seabright said. “And looking at the financial statements of the defendants it just isn’t there.”

The Kealohas have a $980,000 mortgage on the property plus a $90,000 home equity loan. Sumida’s law firm has also placed a $700,000 lien on their home.

The U.S. government has targeted the property for asset forfeiture based on allegations the Kealohas duped a local credit union into giving them the $980,000 loan to purchase the home in the first place.

Seabright said he expects to make a decision next week on who will represent the Kealohas moving forward.

He told Sumida, Breiner and Modafferi, who were pushing for out-of-state lawyers, that he plans to find someone already based in Hawaii, despite their desire to find someone from elsewhere.

Earlier this week, the trio filed a motion saying that the case was “of such magnitude and complexity that there are no other attorneys locally available who are both qualified and not suffering from potential conflicts of interest.”

“Let me make it clear: I have no intention of doing that,” Seabright said. “I don’t accept your representation that there are no local attorneys available who are qualified.”

He did ask the U.S. attorneys prosecuting the case, however, to provide him with a list of lawyers on the federal panel who might have existing conflicts with the case, possibly because they are witnesses or have represented witnesses.

Breiner, who has been accused of having serious conflicts of interest in the case himself, asked if he could get a copy of the list, which caused Seabright pause.

“Since you’re no longer representing them you just want to know what attorneys have dealt with this?” Seabright asked.

“Yes,” Breiner responded.

“No,” Seabright said.

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