Alleged COVID Scammer Threatened Banks With His D.C. Connections 1

The CEO of a Hawaii defense contractor invoked his connections to powerful lawmakers in Washington, D.C. in order to pressure banks into approving what federal prosecutors now say were millions of dollars in fraudulently obtained coronavirus bailout loans.

Prosecutors say Martin Kao, the chief executive of the Honolulu-based Navatek, which was rebranded last week as the Martin Defense Group, illegally obtained more than $12 million in financing through the Paycheck Protection Program. The criminal complaint against Kao alleges that he lied to banks about the number of people employed by his company and applied for multiple PPP loans through various subsidiaries in order to illegally maximize the amount of money he extracted from the program. Kao was arrested on Wednesday on bank fraud and money laundering charges, as first reported by Civil Beat.

“The charges announced today send a very clear message to COVID-19 fraudsters,” U.S. Attorney for Hawaii Kenji Price said in a statement on the charges. “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.”

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

Kao’s attorney did not respond to a request for comment on the charges.

There have been numerous cases of PPP loan recipients exaggerating the number of employees they have or using satellite companies to apply for—and receive—more federal assistance. What stands out in Kao’s case is how he leaned on what he described as his extensive political connections in the nation’s capital to pressure banks into approving his loan applications.

“Navatek now has a significant and growing presence and employees” in several states, Kao allegedly told an executive at Central Pacific Bank, which eventually awarded Navatek a PPP loan worth $10 million, the highest value available to businesses under the program. Kao said he “work[ed] very closely” with U.S. Senators from those states who had “championed” the PPP program.

Kao added that he “expected to provide an update [on the status of the PPP loan] shortly to each of them,” and he “strongly urge[d] CPB to process Navatek’s application as quickly as possible, so I can give great praise to how CPB was able to administer quickly the intent of Congress and the President, in helping Navatek keep its jobs and payroll in each of their respective states.”

About a week later, Kao reached out to CPB once again, saying in an email that he had just spoken with a senator who insisted that the bank should approve Navatek’s loan application. The senator “is suggesting a conference call with his Banking Committee and [Small Business Administration] staff director…SHE HELPED WRITE THE PPP RULES,” Kao wrote. “She has confirmed directly that CPB should and is obligated to fund” the PPP loan.

In conversations with a separate financial institution, First Hawaiian Bank, Kao claimed to have “an ‘insider’ at SBA via our contacts at pretty high levels on the Senate Banking Committee. Should hear soon from them.”

None of the lawmakers with whom Kao allegedly claimed to have close working relationships are identified in the criminal complaint. But The Daily Beast confirmed that Sen. Brian Schatz (D-HI), a Senate Banking Committee member whose former chief of staff has lobbied for Navatek since July, was one of the lawmakers who consulted with the company as it sought funding from the PPP program.

“At the start of the pandemic, our staff worked around the clock to provide information to constituents and businesses on how to access federal help, including unemployment benefits and loans,” Schatz Spokesman Mike Inacay said in an emailed statement. “Mr. Kao was one of hundreds of Hawaii residents and businesses who reached out to our office seeking assistance with CARES Act relief and was provided with status updates and publicly available guidance after his loan was approved.”

“The senator’s office was not involved in the application or approval process of any PPP loans,” Inacay said.

Schatz is one of a handful of U.S. lawmakers to whom Kao and other Navatek executives have steered campaign contributions in recent years. Many of those donations have benefitted lawmakers in the states where Navatek operates—not just Hawaii but also Kansas, Maine, Michigan, Oklahoma, Rhode Island, South Carolina, and Virginia.

The company’s business in Maine has drawn particular scrutiny due to Kao’s financial support for one of that state’s senators, Republican Susan Collins. Kao donated the legal maximum to Collins’ reelection campaign in May of last year. Then, on December 31, 2019, a nonprofit reportedly linked to Kao’s wife gave $150,000 to a super PAC supporting Collins’ competitive reelection fight this year. The Campaign Legal Center, a nonprofit watchdog group, subsequently filed a complaint with the Federal Election Commission alleging that the contribution was an illegal straw donation designed to obscure the true source of those funds.

That donation came a few months after Collins helped Navatek secure an $8 million contract to develop advanced hulls and propulsion systems for the U.S. Navy. Collins also signed onto a statement from the Maine congressional delegation in August of this year hailing a $5 million contract awarded to Navatek by the Navy and the University of Maine.