Three former high-level Honolulu officials are facing federal conspiracy charges after they allegedly misused city money to give a $250,000 payout to now-disgraced police chief Louis Kealoha, according to an indictment unsealed on Wednesday.

The defendants, former corporation counsel Donna Leong, former Honolulu Police Commission chair Max Sword and former managing director Roy Amemiya, all turned themselves in to the FBI Wednesday morning, Hawaii News Now first reported.

In an arraignment hearing on Wednesday, all three defendants pleaded not guilty. Prosecutor Michael Wheat did not move to detain them, and Magistrate Judge Rom Trader allowed their release on unsecured $50,000 bonds. A trial was scheduled to begin on March 14.

As the former police chief was under federal investigation in 2016, the city officials named in the indictment are alleged to have fraudulently secured the money for his retirement payment by using funds that were not approved for that use by the Honolulu City Council.

The indictment describes the officials allegedly conspiring to circumvent city council review of the payment and trying – but ultimately failing – to keep HPD officials quiet about it. 

In early January 2017, Leong and Sword told the media that Kealoha had voluntarily agreed to retire and that the commission and Kealoha had reached a retirement agreement. 

However, on or about Jan. 10, when Sword informed HPD personnel that the commission would pay the chief $250,000, HPD informed Sword that it could not cover that expense from its own budget, according to the indictment. 

The following day, Leong allegedly spoke privately with HPD’s acting chief, then Cary Okimoto, who suggested going to the council. 

“Leong declined and instead suggested that HPD could avoid the need for City Council review by falsely claiming that HPD had used the money to hire new employees and then later request additional funding from the City Council to make up the shortfall,” the indictment states. 

Okimoto objected, but Leong stuck by her argument, according to the indictment.

On Jan. 12, the chair of the Honolulu City Council sent Sword a letter asking for a briefing on the commission’s vote and questioning whether the commission planned to submit a proposed agreement to the council for review and approval, the indictment states.

In a letter drafted by Leong, Sword responded on Jan. 13, declining the briefing and stating that approval was not required, according to the indictment.

Sword also allegedly met with HPD officials that day to again attempt to convince them that funds for Kealoha’s payout should come from HPD. HPD officials said they didn’t have the money without cutting services, the indictment states.

“When pressed by HPD officials as to why the Kealoha payout needed to be funded from HPD accounts, Sword responded, ‘Oh the reason it’s very simple. So you don’t have to go to the seven bananas I mean nine bananas up at the Council,’” the indictment states. 

Also on Jan. 13, Leong allegedly arranged a call with Sword, Okimoto and the director of budget and fiscal services.

According to the indictment, she informed the others that the payment would come out of HPD’s salary fund and when HPD ran out of funds at a later time, the BFS director would transfer money from “the PVP account” to HPD’s salary account.

The PVP account is the Provision for Vacant Positions account. 

The plan, as described in the indictment, was that at the end of the quarter, the director of BFS would submit a report to the City Council about the transfer and falsely state that it was needed for the hiring of a new officer to fill a vacant position. 

“This would only require notification to the City Council instead of City Council approval,” the indictment said. 

The city delivered Kealoha’s check to corporation counsel personnel on Jan. 27, 2017, and it was later delivered to Kealoha’s attorney. 

On Jan. 19, Okimoto sent a letter to HPD personnel objecting to the use of police department funds for the payout, a story that was covered by the media. Sword asked Okimoto to call reporters to “clarify his statement,” but Okimoto said no, according to the indictment. 

“Amemiya then told the acting HPD chief that he was ‘burning bridges’ by publicly objecting to Kealoha’s payout coming from HPD’s budget,” the indictment said. 

On Feb. 1, Sword met with HPD officials and “warned them not to make comments to the media about the Kealoha payment,” the indictment said. 

“Despite Sword’s warning, HPD officials made their concerns public to the media about the Kealoha payout coming out of HPD’s budget,” the indictment said. 

On March 13, HPD sent a letter to Leong seeking reimbursement from the corporation counsel’s office for the $250,000 – a request that was ultimately denied, according to the indictment. 

In May of that year, the indictment said HPD submitted a proposed resolution to the City Council to authorize a $720,000 transfer of funds to cover salary expenses. 

“Although the shortfall was due in part to the unforeseen $250,000 cost of the payout, the resolution did not specifically mention the Kealoha payout,” the indictment states. 

On May 23, Amemiya allegedly called Okimoto to confirm that he would not raise the topic of the Kealoha payment at the council’s budgeting hearing. 

“Amemiya said he ‘wanted to make sure’ that the Kealoha payout ‘did not become a story,’” the indictment states.

However, at the budget hearing on May 24, an HPD deputy chief was asked about the payment and disclosed that the funds HPD had requested from the council included the salary shortfall caused by Kealoha’s payout.

Amemiya later “expressed his displeasure,” about that, the indictment states.

Leong is further accused of lying to federal agents when she was questioned about the transaction in November 2017.

Loretta Sheehan, a former Honolulu police commissioner who was the only one to vote against Kealoha’s settlement, said she never understood the sense of urgency people had to pay Kealoha, nor why the city needed to pay him at all.

The commission could have conducted a for-cause termination hearing to honor his due process rights and then let him go, according to Sheehan, who is an attorney. He may have sued for wrongful termination anyway, she said, but “fine, let him sue.”

“I think we could win that lawsuit,” she said. 

Sheehan remembers that the settlement was presented by Leong as a “take it or leave it” deal. She said she never heard anything about trying to circumvent the city council review process, but going to the council would’ve been a good idea.

“When you want to spend public money, public conversation is always a good idea,” she said.

Another former commissioner, Steve Levinson, said he voted for the settlement to avoid a long and expensive litigation process with Kealoha. He too said he never had any reason to believe there was an effort to evade the city council, but he acknowledged that if council members had considered the payment, it likely would’ve been rejected.

Levinson said he never knew exactly where the money for the payment came from.

“I always thought I was in the dark about where the money was coming from other than a general impression that it would come out of department funds somehow, which didn’t seem suspect to me,” he said.

In a statement, Robert Cavaco, the president of the police officers’ union, applauded the charges.

“These federal indictments demonstrate no one is above the law and that Honolulu taxpayers deserve justice for being defrauded by these so-called leaders,” he said.

“Our police department is incredibly understaffed and there are not enough patrol officers now to try and keep our neighborhoods safe. For these accused felons to have taken money budgeted to hire more police officers and use it to pay off a failed former police chief is sickening.”

At the Honolulu Police Commission meeting on Wednesday, Chair Shannon Alivado addressed the charges.

Ali Silvert, a former federal public defender who cracked the Kealoha conspiracy case, said there has long been suspicion around how Kealoha’s $250,000 payment was made.

“They could’ve just gone to the city council and presented this, and I just don’t understand why they didn’t do that. There has to be more to the story,” he said. “I’m extremely gratified that finally, things are moving forward, and this is nowhere near the end.” 

Reporter Jacob Geanous contributed to this story.