In part 2, Gerard Puana stands accused of stealing the mailbox of his niece, the deputy city prosecutor, Katherine Kealoha. Surprisingly, this strange crime will lay bare that Katherine’s luxurious lifestyle is fueled by a reverse mortgage on her grandmother’s home, and that her husband, Louis, is using his power as police chief to cover up the crime.
[00:00:00] Bob: This week on The Perfect Scam.
[00:00:03] Fraud and deception by a husband and wife desperate to maintain status as Honolulu's Power Couple. Strong accusations from the Federal Government against Louis and Katherine Kealoha who were arrested by the FBI this morning.
[00:00:18] When I saw it for myself, when I saw these people walking in, some of them in uniform, um, in their police uniform, that was when I realized this is real. You know, a, a Federal Prosecutor, Special Federal Prosecutor assigned from San Diego does not fly in and bring these high ranking officials down to the federal courthouse to testify if there really isn't something there.
[00:00:45] Bob: Welcome back to The Perfect Scam. I'm your host, Bob Sullivan. Today is the conclusion of our two-part story which brings us back to Hawaii where we are looking deep inside the curious case of a mailbox theft that has already torn a family apart and now threatens to tear apart the entire city of Honolulu. If you haven't listened to the first episode, you should go do that now. When we left our story, a mistrial had just been declared during the criminal trial of Gerard Puana accused of stealing the mailbox at the home of Honolulu’s Chief of Police, Louis Kealoha. The trial has extra intrigue because Kealoha's wife, Katherine, is also Puana's niece. Reporter Lynn Kawano is still not quite sure why she was sent to cover a trial about a stolen mailbox, but Puana's lawyer, Alexander Silvert is about to do something public defenders almost never do; go to prosecutors and try to convince them that Chief Kealoha, not his defendant is the real criminal. And opening that mailbox will require opening up Pandora's box of corruption on the peaceful haven that is Hawaii. It's December 2014, and Silvert has just slammed his fist on the table and demanded a mistrial after Chief Kealoha said something about an alleged prior criminal offense by Puana during his witness testimony. The statement was inadmissible, and the experienced chief surely knew that.
[00:02:20] Alexander Silvert: It caught everybody off guard. So it was a very interesting moment in the courtroom and, and I could tell that the prosecutor was stunned.
[00:02:27] Bob: Silvert asks the judge to declare a mistrial which happens quickly. Then he makes the unusual and dramatic step as a defense attorney. He goes on the offensive. First, he decides to go to the press. Here's Reporter Lynn Kawano.
[00:02:43] Lynn Kawano: The next day, Alexander Silvert called a press conference, called some of the press over to the courthouse to say that he believed that Louis Kealoha uh did that on purpose, and that he fully believed that he was going to exonerate his client for this stolen mailbox, and he had the evidence to prove it, and he was going to go to the FBI. And while I believed that something was wrong, and I was starting to pull on that thread, I wasn't there yet, right? It hadn't unraveled for me yet.
[00:03:16] Bob: But Silvert goes farther than claiming innocence for his client. Much farther. He wants to go to prosecutors with the evidence he already has and turn the tables on the Police Chief and his prosecutor wife.
[00:03:28] Alexander Silvert: So after the mistrial, there was going to be about a three-month delay before the retrial. We decided, given that we had exposed our hand to some degree, whether it was time to go to the prosecutor and say, let us show us what we have. Normally we don't do that, we aren't required to do that, but given the status of the case where I even felt that the prosecutor in this case was stunned by what happened and felt in his gut, he had to have felt in his gut that something was wrong just based upon what Louis Kealoha had done in trial. So that gave us the impetus to say, oh, okay, let's take the risk, let's take the chance, let's meet with the government, and show all of our cards in the hope that they would see what they had missed and see what was being done to them.
[00:04:17] Bob: It's quite a risk. What if prosecutors say no and won't drop charges against Gerard? Then Silvert has shown them all his evidence. What if the prosecutors are in on the scheme too? It's already an intimidating situation, so Silvert takes steps to make it less intimidating.
[00:04:34] Alexander Silvert: Well in this case, what we did was we wanted homefield advantage. We didn't want to go to the FBI office. The FBI office is this huge compound that's often compilated which is 20 miles from downtown Honolulu where the courthouse is and where we are. It's got barbed wire all around, flags, cameras, it's their fortress, and we wanted this to be on our turf. So we had them come to our office, which is pretty decrepit, you know, we have secondhand furniture, and we don't have any cameras, and our desks are hand-me-downs from the court; we didn't want them to feel like they had the power, and they had the authority, so we had them come to our office.
[00:05:11] Bob: Things didn't begin very well.
[00:05:13] Alexander Silvert: They were feeling put out, they were feeling like again, I didn't have anything, and this was all made up, and it's just sour grapes.
[00:05:21] Bob: He's got two demands: first, drop the case, but second, don't drop the subject. Someone needs to continue investigating the Kealohas, Silvert demands. After all, why would they lie about a mailbox theft, and why would several members of the Honolulu Police go along with this charade.
[00:05:40] Alexander Silvert: I had never done anything like this before, I never had a case like this before. I had worked with these prosecutors for 20 years, so I knew them really well. Our relationships between each other are normally not that cordial. We constantly do battle with each other. It was a risk. It was a gamble, but we decided it was worth it and we met with them for more than two hours and laid out the evidence. Once we were done, they asked me what I wanted. And I said, I wanted the case dismissed with prejudice, that meant that it could never be charged again, and I wanted the US Attorney to forward the case for investigation to the FBI.
[00:06:20] Bob: He leaves with an agreement of sorts and a threat, because he isn't quite sure what's going to happen next.
[00:06:27] Alexander Silvert: I essentially told them, I would give them three or four months to do the investigation and then I wanted to know whether this was really moving forward or not. I didn't want them to bury it, and that set things off because the FBI doesn't like to be told what to do, but I basically said, if I don't hear from you, I'm going to the press and I'm going to tell the press what we have, and then you can explain to the press why you haven't done anything. So we kind of started on bad terms and we kind of ended on bad terms.
[00:06:56] Bob: Three months go by. All the while, Gerard is looking over his shoulder. Remember, he's accused the Chief of Police, and perhaps others in the police force and in the prosecutor's office, of being involved in a conspiracy. And he's waiting to hear his own fate. Meanwhile, that mailbox lie, it keeps gnawing at Silvert. Remember from last week's episode, the Kealohas and the police had lied about the value of the mailbox that was allegedly stolen from in front of their home. They said $100 mailbox was worth almost $400, putting the crime at neatly over the $300 threshold for a felony. But why? Silvert now has a new theory. Remember, the Puanas, Gerard and his mom, Florence, have accused Katherine Kealoha, the Chief's wife, of coercing them into taking out a reverse mortgage, and somehow pocketing the money. That's a civil case, and it's still pending.
[00:07:55] Alexander Silvert: So what really was going on here was an attempt to have him arrested, have him incarcerated, and have him convicted of a felony so they could use that to destroy his credibility in the upcoming civil trial.
[00:08:09] Bob: Months later, it doesn't seem like there's been any movement on the prosecutor's side.
[00:08:13] Alexander Silvert: Well, after three months went by, we gave them another month and we still didn't hear anything, so finally I called, and I called several times without answer, and then finally one of the agents answered, and he didn't want to tell me what the status of the investigation was, which is normal FBI procedure, they don't publicly tell anyone what the status of an investigation is, but this was different. And I told him, "You'd better get someone on the phone who's going to tell me where this investigation is, or I am going to the press tomorrow." And within a minute or two, I got a call from Mr. Wheat who turns out to have been a Special Prosecutor, he is a US Attorney from the United States Attorney's Office in San Diego, and he had been handpicked and specially assigned to investigate this case.
[00:09:01] Bob: Gerard's criminal charges will be dropped, but Silvert stays on as his lawyer. Gerard will have more legal needs now.
[00:09:08] Alexander Silvert: Yes, and no. Now that we were presenting the evidence to the FBI, we could represent Gerard as a victim of a crime. So my office continued to represent Gerard in that capacity.
[00:09:23] Bob: Soon after, a Grand Jury is empaneled to look into the case, and Lynn Kawano can tell the investigation is heating up.
[00:09:29] Lynn Kawano: When I saw it for myself, when I saw these people walking in, some of them in uniform, um, in their police uniform, that was when I realized this is real. You know, a, a Federal Prosecutor, Special Federal Prosecutor assigned from San Diego, does not fly in and bring these high-ranking officials down to the federal courthouse to testify if there really isn't something there.
[00:09:53] Bob: Meanwhile, she's doing her own investigation. After the mistrial, Gerard had sought her out on the courtroom steps, begged her to listen to his innocence. Soon enough, she has the chance to meet Gerard and his mom, Florence.
[00:10:06] Lynn Kawano: She was amazing. Even when I met her in her mid-90s and she, she said, "Oh, I work out every day." And I said, "Oh, show me what you do. Show me in the camera what you do." And she gets on this little exercise bike, and she goes, and she's still talking. She was texting. She was, you know, using the phone... my dad who, who is in his 70s, wouldn't sway from the flip phone, and here this woman is on an iPad and texting and doing workouts and, you know, she, she was impressive. Um, to everyone who met her, she definitely didn't seem like she was in her 90s. She was sharp. I know the Kealoha's attorney tried to dismiss her as being, you know, senile and not knowing what's going on, and she was the complete opposite of that.
[00:10:55] Bob: For two years, it's unclear what the Grand Jury will do.
[00:10:59] Alexander Silvert: As I was told by Mr. Wheat, and I believe him, number one, as he would say, when you go after your own, you have to dot your "i"s and cross your "t"s, and you'd better be damned sure you've got it right. And this wasn't a case, also like a drug case, where you have 6 people arrested and one of them becomes a snitch and a rat and tells everybody what happened. Here, nobody was going to tell the government what really happened, so they had to piece it together through not only the evidence that we had, but through forensic evidence and their own investigation, and through multiple subpoenas, and they were being fought every inch of the way by HPD who didn't want to turn over any of the evidence. So it took them quite a long time to gather all the evidence in order to get an indictment.
[00:11:45] Bob: But during this time, Silvert begins to understand more and more about what really happened when Katherine Kealoha convinced her grandmother to take out that reverse mortgage.
[00:11:55] Alexander Silvert: In Hawaii, we are we are land rich and cash poor. Many old families own beautiful properties and land, which are extremely valuable, but the cost of living and the salary scale doesn't keep up. So they don't have money to purchase other properties or so forth, and they don't really have any credit, 'cause they don't have any sustainable jobs. So Florence Puana went to Katherine Kealoha, who is the only lawyer in the extended family, and Katherine Kealoha suggested a reverse mortgage which would mean that they would put the house up and get a reverse mortgage, get a chunk like it was over $500,000. Of that money they would buy Gerard a condo, which they did for about $360,000, with some of the money Katherine would pay off some of her own debt which she had, and then she, once her debt was cleared and she, her credit was good again, Katherine Kealoha who could get a loan would go to the bank, get her own personal loan, pay off the reverse mortgage so Florence would have her house back, and Gerard would make payments to Katherine to pay back for the loan that Katherine allegedly got. That was the plan.
[00:13:13] Bob: Where did the plan go wrong? Wherever the money went, Silvert now believes that Katherine Kealoha coerced her grandmother into a reverse mortgage and left her with ... nothing.
[00:13:26] Alexander Silvert: As it turned out, by 2012, Florence found out that her house had never been paid off, that Katherine had never gotten a loan, that all the remaining money in the account, over $150,000 was gone, uh, so essentially what happened was Gerard is making monthly payments to Katherine for a loan she never took, Katherine is pocketing the money, Katherine takes all the money out of the bank account, and Florence is now in debt over $600,000 on her house.
[00:14:04] Bob: Then finally, two years after that meeting with prosecutors, and four years after the alleged mailbox theft...
[00:14:10] (news clip) Fraud and deception by a husband and wife desperate to maintain status as Honolulu's Power Couple. Strong accusations from the Federal Government against Louis and Katherine Kealoha who were arrested by the FBI this morning.
[00:14:26] Bob: The indictment is handed down. The details are shocking. It accuses Katherine Kealoha of using the money from her grandmother's reverse mortgage to fund a lavish lifestyle including, you might remember from the last episode, that when the Chief was named to the job, there was a huge party, a $23,000 party paid for essentially by grandma's house. The Honolulu power couple is now on trial. The Kealohas immediately plead innocent. In an interview with local television, Louis Kealoha says he and Katherine are the victims.
[00:15:06] (news clip) I think people want to believe so much that the police chief is corrupt, and the prosecutor is corrupt that they're willing to do anything, including lie, to make it true.
[00:15:17] Bob: The case is no slam dunk. After all, in a small place where everyone knows everyone, everyone seems related to everyone, it might not go well. Two more years go by and the sides dig in. When the trial finally arrives, the jury hears from 70 witnesses, including Gerard Puana, twice. But the most important witness is Florence Puana, the family matriarch. Now 99 and recovering from a heart procedure, she's too sick to attend the trial in person. But the judge allows her to testify by video deposition, an unusual step in a criminal case. This is what the jury hears:
Q: Let's talk now about the reverse mortgage finalizing, okay?
Florence Puana: Yes.
Q: So in October of 2009, did the reverse mortgage finalize?
Florence Puana: It was at the Central Pacific Bank, I think. We went to Central Pacific Loan Bank, and we had it finalized.
Q: And how much money approximately did you get from the reverse mortgage?
Florence Puana: I did not get any money.
Q: So you didn't ever see any of that money.
Florence Puana: No, I did not.
Q: Mrs. Puana, directing your attention to the bottom of the page...
Florence Puana: Yes.
Q: ...where it talks about the balance of the loan, okay, was the balance of the loan going up or down?
Florence Puana: Up. It was going way up.
[00:16:49] Bob: The deposition takes almost all day. There's more than four hours of video statements. It would be grueling for anyone, let alone a 99-year-old recovering from surgery. Lawyers for the Kealohas tried to trip her up.
Q: Is it your testimony that you did not know you could pick up your mail by showing your ID?
Florence Puana: Yes, but you, don't you have to have a key to get into the mailbox? I didn't have a key.
Q: But ma'am, you, did you know that you could have picked up your mail by just showing your ID even if you didn't have a key.
Interjection: Objection, asked and answered, badgering the witness.
Florence Puana: I did not know anything.
Q: Okay, okay.
Florence Puana: I did not know.
[00:17:27] Bob: In the end, her testimony is devastating. Some parts of it are painful to hear.
Q: After you got those bank statements, did you learn what happened to your money?
Florence Puana: I did.
Q: And what happened to your money?
Florence Puana: She spent it all.
Q: Who is she?
Florence Puana: Katherine.
Q: Katherine Kealoha?
Florence Puana: She spent it all.
Q: I'm referring now to the statement period, December 31st to January 31st, 2009 to 2010. This is the bank's number of ending 24 in Government’s Exhibit 1-13. Mrs. Puana, there's a purchase reflected on this page of $23,976.69 at the Sheraton Waikiki. Did you spend over $23,000 at the Sheraton Waikiki?
Florence Puana: No, I didn't.
Q: Do you know who did?
Florence Puana: Katherine did. That was for her husband's breakfast.
Q: If Katherine Kealoha had come to you and said, "Grandma, I want to spend $23,976.69 at the Sheraton Waikiki, would you have let her?
Florence Puana: I wouldn't have, because I, I didn't have that kind of money.
Q: Now, did you have a close relationship with Katherine as she was growing up?
Florence Puana: Yes, I did.
Q: How would you describe your relationship?
Florence Puana: She was a lovely, loving, gentle person. And I trusted her.
[00:19:20] Bob: Ultimately, Florence's testimony is critical as the jury weighs the evidence, and then...
[00:19:26] (news clip): Getting this from federal court... Katherine Kealoha has been found guilty of conspiracy. Louis Kealoha has also been found guilty of conspiracy.
[00:19:36] Bob: At the news, Gerard Puana breaks down.
[00:19:41] Gerard Puana: I just dropped to my knees and I just sobbed and sobbed and sobbed.
[00:19:47] Bob: The prosecutor is able to deliver the news to Florence directly.
[00:19:50] Alexander Silvert: The good news is, she lived long enough for her to see the verdict and hear the verdict. The uh US Attorney's Office, the prosecutor, Mr. Wheat, was very nice to go directly to her home and, 'cause she was very ill, and tell her what the verdict was. I talked to her after the verdict. I didn't not get to see her, but I did actually attend her 100th birthday, so I did get to see her then.
[00:20:14] Bob: Lynn Kawano reported on that special 100th birthday.
[00:20:18] (news clip) It was the party Florence Puana wanted. Hula dancers, multiple cakes, close friends, and family at the Mid-Pacific Country Club last August for her 100th birthday. Puana had a lot to celebrate.
[00:20:31] Bob: Somehow, Silvert says, the matriarch of the Puana family found forgiveness in her heart. Florence did feel vindicated, Gerard said, but the trial, the whole incident took a lot out of her. She died in February 2020, just a few months after the guilty verdict.
[00:20:52] Gerard Puana: When she left this earth, I know she forgave them anyway, you know, that's the hard part I'm having.
[00:20:58] Bob: Yeah, you told me that your mom had forgiven them, which I, is, I, that's just amazing to me.
[00:21:03] Gerard Puana: Well, that's what my mother was. She just, she lives with pure love.
[00:21:12] Bob: There is still one more valley of suffering for Gerard to cross. The Kealoha sentencing is delayed by the coronavirus. But in late 2020, Katherine is sentenced to 13 years and Louis, 7 years. It'll be a while before Hawaii is back to normal, too. Two other Honolulu police officers were found guilty in the coverup, so no, things are not normal, reporter Lynn Kawano says.
[00:21:40] Lynn Kawano: No, um, far from it. And the reason is this, this was our Pandora's Box, so it started with just Katherine and Louis Kealoha, and then it opened up to other government officials.
[00:21:52] Bob: So this story is far from over, you would say.
[00:21:55] Lynn Kawano: Absolutely. I think we are maybe just a few chapters in.
[00:21:59] Bob: Kawano calls it the story of her life. A story that taught her a valuable lesson.
[00:22:05] Lynn Kawano: This has been the pinnacle of my career. I'm 25 years in now, and that, that story really is the one that, when I'm 85 in a nursing home, I am going to remember the Kealohas. And Alexander Silvert, I, I, Gerard was adamant that he was not going to take a plea deal, and he was going to fight, because he knew it would never end if he didn't fight. And having the kind of guts that he and his mom had, and then Alexander Silvert's believing him. I mean it's, it's the Police Chief. You're going up against the word of the Police Chief on the stand. Who's the jury going to believe? But Alexander Silvert, he did not roll over either, and he fought hard and, and worked really hard to get the evidence he had. It convinced me.
[00:22:51] Bob: By the time Katherine and Louis Kealoha were sentenced, they both pled guilty to another set of crimes to avoid a second trial. The Department of Justice says they defrauded banks with elaborate schemes in order to obtain loans to fund their extravagant lifestyle. In addition to conspiracy and obstruction of justice, Louis Kealoha's plea agreement said he was guilty of spending $591,000 which was derived from the stolen proceeds from a reverse mortgage obtained by Florence Puana, stolen trust funds belonging to a pair of children, and loan proceeds obtained through banks and credit unions. Because a reverse mortgage was central to this case, we thought we'd bring on an expert to explain how they are supposed to work. Kathy Stokes is the Director of Fraud Prevention Programs with AARP, and she runs the AARP Fraud Watch Network. It's important to note that the Kealoha's crimes, not reverse mortgages, were on trial in this case.
[00:23:52] Bob: Thank you, Kathy, for um, hopping on the call with us.
[00:23:55] Kathy Stokes: Sure.
[00:23:56] Bob: Tell us about reverse mortgages.
[00:23:58] Kathy Stokes: Well, reverse mortgages are often talked about as a last resort. They're for people who really need to convert their home wealth into cash because they don't have cash coming in from anywhere else. The way it's represented in advertisement, it's like free money. Why wouldn't you do it? It's safe, it's easy, and it, it gets people into a lot of trouble. Quite often the people who take out reverse mortgages, you know, they're required to like maintain insurance and maintain taxes, um, maintain the home, and when they're not able to do that, and they want to try to get out of the reverse mortgage, they just can't. So it's, it's really problematic.
[00:24:40] Bob: A reverse mortgage is really just a loan against your home. But it's a special loan designed just for older Americans, people over 62. The loan generally isn't paid back until the homeowner leaves when they die or when they move and sell the home. Usually, borrowers can tap up to 60% of their home's equity in a reverse mortgage. Despite a lot of advertising, they aren't very popular. About 50,000 Americans take out a reverse mortgage every year down from roughly double that amount during the height of the housing bubble a decade ago. High fees, especially for the first dollar of borrowing, and confusing terms have long given reverse mortgages a bad name. For decades there have been ongoing efforts to improve the industry and make sure consumers are making informed choices. AARP worked with the US Department of Housing and Urban Development to create counseling programs around reverse mortgages; those are now mandatory. Still, there are plenty of concerns.
[00:25:38] Kathy Stokes: I mean having a requirement of counseling is really important. I just don't know how successful those are and how then people fully understand all of the costs that go into these reverse mortgages. It's not just closing costs, it's also typically very high rates of interest, and I don't think that even with disclosure, a lot of people really understand what the instrument is.
[00:26:04] Bob: What should consumers do if they are considering a reverse mortgage?
[00:26:08] Kathy Stokes: You know, there's a lot of good research out there. The Federal Consumer Financial Protection Bureau, CFPB, has a lot of really good information about reverse mortgages. Just, you know, if your parent is thinking of doing this, help do the homework with them. Go online and find out everything you can. Get whatever details you can from the approved lenders to find out what interest they're charging, exactly how the money is dispersed, and exactly what happens at the time the reverse mortgage closes because of death or moving. You know, just know the details, but eyes wide open.
[00:26:46] Bob: With the story of Florence and Gerard Puana, while the reverse mortgage may have been Katherine Kealoha's tool for stealing from her grandmother, it wasn't really essential to the crime. Katherine used other financial trickery to steal money too. Her real weapon wasn't the reverse mortgage. It was trust. Exploitation of trust by family and close friends is the real crime in a shocking number of stories, Kathy Stokes says.
[00:27:14] Kathy Stokes: My tendency is to focus in the work we do at the Fraud Watch Network is on the stranger danger scams, you know, the person uh impersonating the Social Security Administration who calls and says there's a major problem with your account, and your benefits are suspended, you have to act immediately, and it's an attempt to get quick money fast and move on. We also talk a bit about elder financial exploitation which is itself an even bigger issue. The most common person who commits elder financial exploitation is not a stranger, it is somebody that person knows, and it's typically a member of the family, or a trusted caregiver, or a trusted lawyer, and it preys on the relationship exactly as you heard it with Katherine and the grandmother, they implicitly trusted her because she was a member of their family and she was in good standing in the community. All of that happens, and people get entirely wiped out over these things.
[00:28:12] Bob: Sadly, the faith of the people of Oahu and maybe all of Hawaii has been wiped out by the crimes of Katherine and Louis Kealoha. Honolulu has a long way to go to recover from a scandal that really shook the city.
[00:28:27] Lynn Kawano: That's a good way to describe it. It shook um, Honolulu politics, Honolulu law enforcement to its core. This has a huge domino effect on Hawaii politics, Hawaii law enforcement, and I don't know how long it's going to take for this county to recover, um, but it's going to take a long time, and I think in order for us to turn that corner and start recovering from all of it, the other cases have to make their way through the courts, and that's going to be years.
[00:29:06] Bob: If you have been targeted by a scam or fraud, you are not alone. Call the AARP Fraud Watch Network Helpline at 877-908-3360. Their trained fraud specialists can provide you with free support and guidance on what to do next. Thank you to our team of scambusters; Executive Producer, Julie Getz; Producer, Brook Ellis; Associate Producer and Researcher, Megan DeMagnus; our Audio Engineer, Julio Gonzalez; and of course, Fraud Expert, Frank Abagnale. Be sure to find us on Apple Podcasts, Spotify, or wherever you listen to podcasts. For AARP's The Perfect Scam, I'm Bob Sullivan.
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