On Friday, January 6, Hawaii News Now reported a new federal indictment charging Martin Kao, the former head of defense contractor Martin Defense Group, with bank fraud (“Federal authorities: Ex-defense contractor lied to purchase $4.5M mansion“).
Kao was previously convicted of fraudulently obtaining millions in pandemic relief funds and making illegal federal campaign contributions, and is awaiting sentencing.
Attorney Megan Kau, who is not involved in the case, told HNN: “It is rare to see the government bring a separate indictment after someone has pled guilty.”
But despite noting that this type of repeat indictment is a rarity, HNN failed to provide details what Kao did that allegedly constitutes bank fraud, or the name of the bank that was defrauded.
So I thought I would check it out.
First, the lender for the $3 million 15-year loan was Bank of America, real estate records show. The loan was recorded on June 29, 2020.
And the fraud itself was simple but very audacious. Kao simply created digitally-altered copies of account statements inflating the claimed value of Kao’s investment account with an unnamed broker between 100 and 1,600 times in order to qualify for the BOA loan and close on the purchase of the 5 bedroom/5 bath, 9,351 square foot home on a large 15,000 square foot fee simple lot at the corner of Kahala Avenue and Kealaolu Avenue, directly across from Waialae Beach Park.
According to the federal indictment, Kao doctored several monthly statements to greatly exaggerate the value of his investments, enabling him to qualify for the mortgage loan.
Kao claimed the account value on March 31, 2020 was $4,961,400.70. In fact, it was only $49,614.70, just 1% of the claimed value.
The following month, Kao claimed the account held $5,691,048.59 as of May 7, when it actually only held $56,691.59, again just 1% of the claimed value,
The value of the account on April 30, 2020 was claimed to be $5,618,900.02, but was actually only $56,189.02.
The last two fraudulent claims described in the indictment were even worse.
Kao again falsified a document from his investment account and claimed he made a payment on May 22 that reduced the balance of a margin loan on the account by $4.1 million, “when, in fact, he paid down his margin loan by only $4,100,” boosting the claimed payment by 1,000 times.
And in the same day, Kao falsely claimed the account value after the payment was $10,533,900.70, when it was actually only $64,339.70. The value Kao reported to the bank was more than 1,600 times the actual account value, according to the indictment.
The fraudulently altered records in each case were submitted to Bank of America in support of his loan application.
According to the indictment, the federal government intends seek forfeiture of the property if Kao is convicted.
On September 27, 2022, the Internal Revenue Service filed a federal tax lien against Kao and his wife, alleging the couple has an unpaid balance from the 2020 tax year of $1,184,227.06, further compounding their financial woes.
In my view, the specifics are what make this story interesting, and it only took a very few minutes to locate and download the indictment, and review available real estate records. It’s just another example of how news consumers are being shortchanged by mainstream media.
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This kind of story is why I love reading your blogs Ian.
When some dirtbag is busted for rape, burglary, assault, etc., it’s usually not his first crime or even his worst, but simply the one he finally got popped for.
Thank you, Ian, for doing your due diligence. This man appears to have no scruples. I hope they’re not still occupying said house?
I hope that you don’t “ retire” your interests.
You’d think for that kind of money, the house wouldn’t look like a Persian brothel.
It’s very easy these days to alter documents without leaving much, if any, trace of the changes. I thought it was routine for mortgage brokers to confirm with banks or investment companies that the statements provided are authentic.
What happened here? Were procedures overridden? Or does BOA need to update their due diligence processes?
Mortgage brokers will sell their own parents to secure a commission. It’s one of the biggest reasons 2008 happened. “The Big Short” was a good educational film covering some of that.
The Big Short was a great movie. I would hope that people learned from the 2007 – 2008 financial crisis and that going forward from there those responsible would be held accountable.
I couldn’t agree more about being short changed by the mainstream media. Hawaii News Now (that they should rename the weather channel) now has in addition to their 3 or 4 weather reports in each 30 minute news segment as a promo for their ridiculous ” First Alert Weather” that runs longer than the weather forecasts – this in a place for the most part doesn’t have any weather! My daughter is a climate scientist so I am not oblivious to the need for weather forecasting bu this is ridiculous!
And great work Ian!
My goodness Ian, thank you for these details! Stories like these always get me thinking about how much I would never do such a thing and how on earth people could have this sociopathic* behavior.
*I guess because they are sociopaths! “They think and act without regard for others, and their behavior may include lying, cheating, and manipulating for personal gain. Typically, their narcissism and lack of remorse allow them to achieve their desires. On the surface, sociopaths may appear like anyone else”.
Hawaii Banks routinely deny homeowners small loans of less than $50k for Photo Voltaic (PV) Electric / Battery upgrades with no liens or mortgage with 100% equity.
But any con in Hawaii can obtain loans with a printer. Scofflaws definitely enjoy all the benefits. Without question.