WASHINGTON — A politically connected defense contractor in Hawaii was arrested and charged Wednesday by the U.S. Justice Department for allegedly bilking the federal government out of $12.8 million in coronavirus relief aid meant to help small businesses.

Martin Kao, 47, is the CEO of Martin Defense Group, formerly known as Navatek LLC, a Honolulu-based company that over the years has received millions of dollars in federal contracts, primarily to design state-of-the-art ship hulls for the U.S. Navy.

He’s charged with bank fraud and money laundering for falsifying loan applications for the Paycheck Protection Program that was created by Congress as part of the $2 trillion CARES Act meant to stave off financial ruin for individuals and businesses during the COVID-19 pandemic.

According to the criminal complaint, Kau lied to lenders about how many employees he had so that he could receive more money than he was eligible for and used his subsidiary companies to mask the fact that he had already obtained PPP loans from other institutions, which effectively allowed him to double-dip into the program.

Martin Kao is seen here in a 2013 interview with Hawaii News Now.

Courtesy: Hawaii News Now

Kenji Price, the U.S. Attorney for the District of Hawaii, held a press conference to announce the charges faced by Kao. He said he wanted to use the opportunity to send a message.

“If you game the system to get money that businesses so desperately need in Hawaii, we will find you, we will expose you and we will hold you accountable to the fullest extent of the law,” Price said.

Kao was taken into custody Wednesday. The U.S. Attorney’s Office filed a motion to hold him without bail saying he is a serious flight risk. An initial hearing was scheduled for 9:30 a.m. Thursday.

Multiple sources said federal investigators raided Kao’s offices in Honolulu.

Kao issued a statement through his public relations firm, CommPac, and spokesman Andrew Pereira:

“Navatek is a highly reputable company with a long record of service to its clients and the people of Hawai‘i. The government’s actions today were a complete surprise. As a company, we will address the allegations and have retained legal counsel to review these claims.”

CARES Act Fraud A Serious Problem

The U.S. Attorney’s Office has launched a number of investigations into potential CARES Act fraud in the islands, Price said, and several agencies, including the FBI, IRS, Secret Service and Hawaii Attorney General’s Office are working in concert to root out wrongdoing.

Across the country, federal prosecutors have filed charges against dozens of people accused of trying to bilk the federal government out of hundreds of millions of dollars in coronavirus relief aid. In some cases, individuals have been accused of spending the money on their own lavish lifestyles by purchasing exotic cars, such as a $318,000 Lamborghini, or spending thousands of dollars at bars and strip clubs.

Price said the evidence collected by IRS investigators show that Kao transferred more than $2 million in PPP money from Navatek to a personal bank account, but did not provide any more details about how that money was spent, noting only that it was the subject of further inquiry.

“These investigations unfortunately reveal what experience teaches,” Price said. “When the federal government distributes money there is generally a fraudster out there who tries to get his or her hands on it illegally.”

Hawaii U.S. Attorney Kenji Price detailed the charges against Martin Kao at a press conference Wednesday.

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Kao is a prolific political donor. He, his family and his employees have contributed hundreds of thousands of dollars to federal politicians in recent years, including several members of the Senate Appropriations Committee. Hawaii Sen. Brian Schatz, who is on the committee, has received significant campaign contributions from Kao and his affiliates.

Kao’s company also appears tied to a mysterious $150,000 donation made to a super PAC supporting U.S. Sen. Susan Collins of Maine, who is up for reelection.

The Campaign Legal Center in Washington, D.C., filed a complaint with the Federal Election Commission against the company that made the donation, the Society of Young Women Scientist and Engineers LLC, which the Legal Center said appeared to have been created for the sole purpose of hiding the identities of the donors, which could be a violation of the law.

The Federal Case

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