From ‘Flying Carpets’ To The Kealohas: Hawaii’s Rich History Of Scandal

Stories of misdeeds and corruption have helped shape Hawaii's history, going back to a royal opium scandal that contributed to efforts to overthrow the monarchy.

In the history of scandals in Hawaii, there’s never been anything quite like current events.

I consider myself something of an expert on public misbehavior. In a 30-year career as an investigative reporter in the Islands, I wrote about, exposed and appreciated scandalous news stories of all types.

From the pay-to-play shenanigans of the Kukui Plaza bribery case in the mid-1970s to good-old-boy antics at the Legislature and the Bishop Estate in more recent years, there’s always been plenty of greed and corruption in the 50th state.

I’ve recently searched old news accounts and found amazing stories of misdeeds here going back to the 19th century.

 April Estrellon

But the criminal cases about to go to trial in federal court here against former Honolulu Police Chief Louis Kealoha, his prosecutor wife, Katherine, and a coterie of accused co-conspirators have taken us to new heights (or is it depths?) on the scandal meter. I have seen nothing even approaching the breadth of the federal probes, which have swept over top officials in the Honolulu Police Department, the Honolulu Prosecuting Attorney’s Office and even the city administration.

Not to mention the simultaneous federal investigation of the $9 billion Honolulu rail project. The Honolulu Authority for Rapid Transportation is mind-bending on its own — the price tag has swollen from $5 billion to $9 billion and they’re not close to being done — but federal grand jury subpoenas take it into a new dimension. And don’t forget Monday’s sentencing of Honolulu engineer Frank James Lyon, who confessed to paying bribes to land multimillion-dollar consulting jobs here and in Micronesia.

This is not to say, at this point, that any of the Kealoha-related charges are true or will lead to criminal convictions. I have seen too many big criminal cases fall to pieces or end in acquittals to put my trust wholeheartedly in government prosecutions.

But elements of the Kealoha case make for riveting reading and television viewing. He headed one of the largest metropolitan police forces in the country. She was boss of the career criminal unit in the Honolulu prosecutor’s office. Now they’re out of work, awaiting trial on federal felony charges that all began with a stolen mailbox.

I can’t shake the images of the seemingly carefree couple in coordinated aloha attire walking to and from federal court along Halekauwila Street.

Then there’s the salacious allegations of bad behavior by Katherine Kealoha and her male companions.

As well as the spillover federal probes of Honolulu Prosecuting Attorney Keith Kaneshiro and Corporation Counsel Donna Leong. They’re both out of office, at least temporarily, because they’ve been targeted by the same San Diego team of prosecutors that has the Kealohas in its crosshairs. But details of their purported wrongdoing have been withheld to date by the prosecutors running the show now.

Retired HPD Chief Louis Kealoha and wife Katherine Kealoha exit US District Court.
Retired Honolulu Police Chief Louis Kealoha and his wife Katherine Kealoha, a former city deputy prosecutor, exit U.S. District Court after being indicted in October 2017. Cory Lum/Civil Beat

And who are these San Diego guys anyway?

How is it that a pack of out-of-state attorneys have upended the entire law enforcement structure in the state? They have supplanted the U.S. Attorney’s office here, hollowed out the city prosecutor’s office and thrown shade on the local police department. This has been going on for more than four years, but we’re still waiting for the proof.

While we’re waiting, let’s take a look at past follies that rocked or captivated the public here. I won’t go into detail about some of these events – others with far more expertise have explored them and will continue to do so.

A Royal Opium Scandal And A Torrid Affair

The 19th century overthrow of the Hawaiian monarchy and subsequent annexation of the islands by the United States are the single most momentous events in modern Hawaii history. They combined racial, religious, political and financial motivations in a scandalous brew that still shocks the conscience of most Native Hawaiians and a great many of the rest of us today.

Pau riders Honolulu Museum Art King David Kalakaua Lantern slide.
King David Kalakaua was accused in the press of raising money for the Hawaiian monarchy by selling a license to import opium. Cory Lum/Civil Beat

The overthrow and annexation were immediately preceded by an opioid crisis of sorts. King Kalakaua was accused in the local and national press of raising money for his cash-strapped monarchy by selling a single license to import opium here to two different buyers for $75,000 and $80,000 respectively. Advisers and cabinet members of the king were implicated in the scandal, which contributed to efforts by opponents of the king to limit his powers and eventually eliminate the monarchy altogether.

A scandal of minor importance but which made big news in 1897 in Hawaii and all over the mainland involved a local socialite named Carrie Dimond. The wife of a well-known businessman, Mrs. Dimond was an amateur actor and singer who began a torrid affair with a visiting professional actor during rehearsals of a Honolulu stage production.

According to an account in the Los Angeles Times: “After the third rehearsal, their lovemaking on the stage was not acting. It was real.”

Mrs. Dimond and her husband were swiftly divorced amid avid publicity. She sailed to the West Coast where she took up a career as a burlesque entertainer. Newspapers across the country, from Seattle to Kansas to Alabama, carried accounts of the scandal.

Race Inflames The Massie Case

Perhaps the most heavily publicized scandal in Hawaii was the Massie case. Thalia Massie was the troubled wife of a Navy lieutenant. She claimed in 1931 to have been beaten and raped by five local men, who were of Native Hawaiian, Japanese and Chinese descent.

Hawaii and national news organizations began nearly nonstop coverage of the case when five men were arrested, charged and put on trial for the crime.

A 1933 political carton about the nationally publicized Massie case by the the Broadway Brevities and Society Gossip. 

A mistrial was declared after jurors split 6-6 on the verdict.

Rear Admiral Yates Stirling Jr., commander of U.S. Navy forces in Hawaii, was outraged by the outcome of the trial and believed the honor of the Navy had been sullied by the non-conviction.

Stirling was joined by Thalia Massie’s mother, Grace Fortescue, in loudly protesting the trial’s outcome, asserting widespread racial prejudice against Caucasians. Fortescue talked Thalia’s husband, Thomas Massie, and two Navy enlisted men into kidnaping one of the defendants, Joseph Kahahawai. Their intent was to beat a confession out of Kahahawai, but one of his abductors shot and killed him.

Thalia Massie, wife of a Navy officer, claimed to have been beaten and raped by five local men, triggering one of the most heavily covered scandals in Hawaii history. 

Police intercepted the four kidnapers as they were driving toward Makapuu Point with the intent of throwing Kahahawai’s body into the Pacific. The four were tried amid raging publicity, convicted of manslaughter and sentenced to 10-year prison terms.

Under intense public and political pressure, characterized by extreme prejudice and invective, Territorial Governor Lawrence Judd commuted their sentences, allowing the four to serve an hour of detention in his office before sailing off to the mainland.

On The Take From Gamblers

Police corruption made big headlines in 1947, when a safety deposit box containing nearly $140,000 in cash was forced open by tax authorities. The box belonged to a Honolulu vice squad sergeant, William K. Clark, whose monthly HPD salary was $300.

HPD Capt. Clarence Caminos was the only officer convicted in a 1947 gambling scandal.

Clark admitted that the money came from bribes paid by Honolulu gamblers. Prosecutors and tax collectors said that graft payments to police from gambling and other forms of vice amounted to $1 million annually in the last years of World War II, when the islands were crowded with servicemen.

Clark implicated dozens of fellow officers, gamblers and other underworld characters in illicit activities.

A main figure in the subsequent court proceedings, gambler Paul S.F. Au, turned state’s evidence and admitted to paying hundreds of thousands of dollars in protection money to Honolulu cops.

Twenty-six officers, including Capt. Clarence C. Caminos of the vice squad, were eventually charged. Only Caminos was convicted. Three others were fired and 13 were suspended.

Charges against all the others were dismissed because of Hawaii’s two-year statute of limitations. The Honolulu Advertiser newspaper called the bribery scandal and its outcome “shocking beyond all expectation.”

The Case Of The Stolen Senate Carpets

Then there was the “Flying Carpets” scandal of 1959. It wasn’t world-shaking as these things go, but it had a catchy name and it involved the sorts of things that your average citizen could understand.

Honolulu Advertiser reporter Jack Teehan discovered that nearly 1,000 pounds of state Senate office furnishings and equipment had gone missing after the Legislature adjourned for the year. Among the missing items: five office rugs valued at $2,500.

In a May 30, 1959 story, the Honolulu Advertiser asked a simple question: “Where Are $2,500 In Rugs?”

Sen. John Duarte admitted to Teehan that he had airfreighted one carpet and other office supplies and furnishings to his home island of Maui, then flew the rug back to Honolulu when Teehan began making a fuss about it.

Two other carpets were discovered under mysterious circumstances at a Honolulu laundry, one was located in the Senate president’s office and one wasn’t recovered.

Teehan assiduously pored over Senate purchasing records (until officials blocked his access) and reported that missing goods included 150 sets of lawbooks, stationery, fountain pens and desk sets.

The state attorney general later thanked Teehan and his colleagues for uncovering the Senate supplies story, calling it “a splendid job in serving the community.”

Teehan later went to work as an executive assistant to Honolulu Mayor Frank F. Fasi and became embroiled in a controversy over a California engineering company’s $20,000 donation to a Fasi political fundraiser.

California and Honolulu officials launched civil and criminal investigations. Teehan called the donation, which ostensibly purchased 400 tickets to a Fasi birthday dinner, a bribe attempt. The company hoped to land a major consulting contract with the city and claimed it was entrapped into making what it thought was “a charitable donation.”

The various investigations went away in 1972 after the company, Engineering Science, Inc., paid a $5,000 fine for making an illegal donation to Fasi’s campaign. Company official Kerry Mulligan complained that Honolulu politics “make Chicago look like a nursery school.”

Mayor Fasi And Kukui Plaza

Mayor Frank Fasi and his chief fundraiser were indicted for bribery in pressuring the developer of Kukui Plaza, pictured above, for political donations. The charges were dropped. Noelle Fujii/Civil Beat

Four years later, in 1976, I was a neophyte reporter with the Advertiser and fell into a story that became what is now known as the Kukui Plaza scandal. I found that the developer of a massive, city-backed redevelopment project called Kukui Plaza was being squeezed by the Fasi administration for political donations and assistance.

The City Council launched an investigation, followed by an attorney general’s indictment of Fasi, his chief political fundraiser, and Kukui Plaza developer Hal Hansen on bribery charges.

The case against Fasi and his fundraiser, Harry C.C. Chung, was dropped mid-trial after Hansen backed out of an agreement to testify against them. Hansen was convicted and imprisoned for federal tax crimes related to Kukui Plaza.


Shady Business Practices

Industrial loan companies in Hawaii were lightly regulated and under-insured financial institutions that paid attractive interest rates on public deposits and invested heavily in real estate and risky ventures.

From 1976 to 1982, seven of the companies, poisoned by insider abuse and political corruption, were quietly closed down by the state after its own regulators repeatedly failed to stop unsafe and illegal practices in the companies.

The state was forced to pony up tens of millions of dollars to pay anguished depositors whose savings had vanished.

I wrote a story in 1976 quoting a state official’s warning that $412 million in depositors’ money was at risk because of industry-wide unsafe business practices. One company, Hawaii Thrift and Loan, nearly collapsed but was quietly saved after the state convinced First Hawaiian Bank to take it over and pump $8.5 million into it.

One by one, six more companies were closed. I wrote an autopsy of the industrial loan industry in 1985. The companies were “poisoned, slowly and painfully, by an arsenic of internal abuse and bad management,” court and business records demonstrated. Regulators knew about the problems but did little to stop them. Attempts to strengthen oversight at the Legislature were thwarted by lawmakers with close ties to the industry.

Tracking The Bishop Estate

Whenever things got slow for me, I could always turn to the Bishop Estate for stories. The massive charity, which operates the Kamehameha Schools for children of Hawaiian ancestry, was a part of island life for virtually all residents of the state.

Endowed under the 1884 will of Hawaiian princess Bernice Pauahi Bishop with more than 400,000 acres of land, the estate grew to be the richest private institution in the state and one of the wealthiest charities in the country.

When I wrote my first Bishop Estate story in 1984, it was bursting with cash that flowed from sales of residential land in the islands. Under the terms of Pauahi’s will, the five trustees of the estate were each collecting hundreds of thousands of dollars in annual commissions. The princess also decreed that the trustees be appointed by the Hawaii Supreme Court, which meant that by the mid-1980s, the men collecting the commissions included: a former chief justice of the Supreme Court, the speaker of the House of Representatives, the president of the state Senate, and two businessmen with strong political connections to the dominant Democratic Party.

The estate was required by state law to file annual financial reports with state Probate Court. The reports were open to the public until the trustees decided to file them under seal. I protested the secrecy to no avail, but eventually discovered that the estate had to produce federal tax returns to the public.

Honolulu Star Bulletin reporter Charles Memminger and I cited the federal law and managed to pry open the tax returns, which showed that trustee commissions had jumped from $238,000 apiece in 1983 to $920,000 in 1987. The trustees waived another $120,000 they could have collected that year.

There were many other stories written by me and other reporters about estate finances and political activities over the ensuing years that culminated with coverage of the departures of all five trustees and changes to the trustee selection process and to trustee compensation.

Pay-To-Play Politics

Another perennial source of news stories has been campaign finance records that detail who’s giving how much money to political candidates. I wrote a story in 2000 (back when you still had to manually search the records) that detailed more than $25,000 in donations to island politicians by employees of a local restaurant. The donors ranged from the restaurant owners down to waitresses, cooks and kitchen staff.

Robert Watada, then the head of the Hawaii Campaign Spending Commission, took that story and parlayed it into a years-long investigation of the pay-to-play connections between politicians and donors seeking government contracts.

A similar story detailed more than $55,000 in political contributions made by officers and employees (including secretaries, a bodyguard and travel agent) of companies connected to a high-rolling businessman here named Sukamto Sia. Also known as Sukarman Sukamto, he was an Indonesian businessman who loved to gamble millions in Vegas, owned the Bank of Honolulu, and was eventually convicted here of federal bankruptcy and wire fraud charges.

I was working at KITV News by that time and managed to get exclusive coverage of Sia’s gunpoint arrest by FBI agents at a bankruptcy hearing.

Prosecutions Gone Awry

Time and again, I have covered federal and state trials that ended in disaster for the government. Witness the Massie trials and vice squad cases mentioned earlier. Then there was the collapsed case against Frank Fasi and Harry Chung.

I haven’t mentioned here the organized crime cases I have covered. But I remember very well the murder prosecutions of mobsters Roy Ryder, Ronnie Ching and Henry Huihui that fell to pieces in court. Federal prosecutors were routed in their very high-profile trial of two top-level members of Japanese organized crime — yakuza – on gun and drug smuggling charges.

So there is one last point I feel obliged to stress as we await the start of the Kealoha trial: innocent until proven guilty.