Businessman accused of trying to scam banks out of millions in federal stimulus funds

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Updated: Oct. 1, 2020 at 5:44 AM HST
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HONOLULU, Hawaii (HawaiiNewsNow) - A prominent Hawaii businessman has been arrested in connection with an alleged scheme to defraud banks of more than $12.8 million in federal Paycheck Protection Program funds, money that was supposed to be used to help buoy struggling businesses.

Martin Kao, CEO of Martin Defense Group (previously known as Navatek), was arrested Wednesday and charged with bank fraud and money laundering in connection with the alleged scheme.

US Attorney for the District of Hawaii Kenji Price said Kao submitted fraudulent information in his PPP loan documents, including by inflating the number of employees he had and what they earn.

“Martin Kao’s claim that Navatek had 490 employees was false because Navatek ... only had 140 employees combined," Price said, in a news conference.

After getting a $10 million loan through the program, Price said, Kao deposited $2 million into his personal bank account. Kao then allegedly applied for a second loan through the program.

In a statement, Navatek said it is a “highly reputable company” and that the government’s actions Wednesday “were a complete surprise.” The statement continued: “As a company, we will address the allegations and have retained legal counsel to review these claims.”

The Paycheck Protection Program was created to help businesses stay afloat amid the pandemic.

Over 25,000 loans were issued in Hawaii, amounting to $2.5 billion federal aid.

Loans through the program can be forgiven as long as the money goes to keeping employees on the payroll or to cover other business expenses.

“Mr. Kao stole money from honest, hard-working Americans ... and struggling American businesses that are trying to stay afloat,” said Wayne Chan, supervisory special agent for the IRS.

“There’s no morality among criminals, nothing is off limits. Today, we are talking about an individual who is extremely greedy to exploit a global pandemic.”

The Martin Defense Group is a defense contractor and Kao owns 99% of it.

Price said prosecution of the alleged scheme is a message to other businesses. To those who try to game the system, he said, “we will find you ... and expose you.”

Meanwhile, Price also said that other businesses are being investigated for potential fraud in connection with funds through the CARES Act.

This story will be updated.

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