The former CEO of a Hawaii defense contractor pleaded guilty Wednesday in federal court to bank fraud and money laundering after he obtained more than $12.8 million in pandemic relief loans under false pretenses.

As the head of Navatek LLC in 2020, Martin Kao applied for Paycheck Protection Program loans using false information about his payroll to receive more money than he was entitled to. He also kept applying for new loans under the names of subsidiaries after the company had already received the maximum of $10 million, according to prosecutors.

The program was intended to help small businesses that were suffering at the onset of the coronavirus pandemic, but Kao fraudulently obtained millions, then transferred $2 million to himself “for his personal benefit,” federal prosecutor Craig Nolan said Wednesday.   

Martin Kao pleaded guilty to multiple federal crimes. He is pictured right with University of Rhode Island President David Dooley in 2013. University of Rhode Island/2013

Kao, 49, is now potentially facing decades in prison and millions of dollars in fines. His sentencing was scheduled for January. 

In a telephonic hearing in U.S. District Court, Kao admitted to the facts of the case. He said he inflated the number of employees he had on his loan applications, counting “prospective” employees who didn’t exist. 

“I believe that maybe the means justify the ends,” Kao said on the call before his attorney Victor Bakke jumped in to consult with him on mute. 

In an interview after the court hearing, Bakke said his client actually used the PPP money as intended – for payroll in a legitimate company. 

“But the problem was they were applying for the loan for prospective employees rather than limiting it to employees they had,” he said. “He did not take out money and go spend it on personal items.”

In Bakke’s view, what his client did wasn’t as bad as the actions of other perpetrators of PPP fraud across the country who pocketed funds after banks approved applications from made-up entities

Navatek was a successful company and held numerous government contracts, including building ships for the U.S. Navy. 

According to Bakke, the $2 million Kao deposited in his personal bank account was already “his money” – it was just taken from a business account that also contained the fraudulently obtained PPP money. Legally, that tainted the entire account and moving funds amounts to money laundering, he said.

U.S. Sen. Susan Collins, center, poses for a photo with Martin Kao, second from left, during an August 2019 celebration of an $8 million contract award for his company Navatek LLC. U.S. Sen. Susan Collins/2019

“It commingled with all the other funds,” he said. “The fact that Navatek wrote him a paycheck, that’s money laundering because that account has dirty money in it.” 

Meanwhile, Kao faces additional charges for illegal campaign contributions in Washington, D.C. He is accused of making illicit donations through a shell company to support Maine Sen. Susan Collins. He was charged earlier this year alongside two former colleagues, Clifford Chen and Lawrence Lum Kee. 

Bakke said during Wednesday’s hearing that Kao has a plea agreement in that case, and Kao told the judge that deal is “contingent” on his guilty plea in the Hawaii bank fraud and money laundering case.

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