Four Charged in Schemes to Defraud Hawai‘i County Housing Program

On June 22, Alan Scott Rudo, a former staffer with the Hawai`i County Office of Housing and Community Development, signed a plea agreement with federal prosecutors, admitting his participation in a conspiracy to commit honest services wire fraud.

That plea agreement, made public in July, was the first inkling that the Justice Department was moving against four individuals involved in a series of schemes that put into their collective pockets more than $10 million in land and other goods. 

On July 18, Rudo appeared in court and formally entered his guilty plea to charges enumerated in a felony information filed with the U.S. District Court in Honolulu on July 11. On July 21, his co-conspirator Raj Budhabhatti was charged by means of a felony information filed in the same court. He was scheduled to enter a guilty plea on August 2.

July 21 saw the filing of a grand jury indictment against the remaining two conspirators: Hilo attorneys Gary Zamber and Paul Sulla Jr. Their arraignment is set for August 11.

In one sense, what Rudo and his co-conspirators did is simple: They devised at least three schemes that gamed the county’s system of encouraging affordable housing development, with Rudo, on the inside of the housing agency, using his knowledge and position to advance the frauds.

In another sense, the schemes were quite complex. Two of the schemes involved setting up sham limited liability companies, having the county award them affordable housing credits despite no ability or intention of developing affordable housing, using those credits to pay for land that was then sold off or leased, and enriching the co-conspirators by millions of dollars. In a third fraud, described by Environment Hawai`i in reports on the now-defunct Waikoloa Mauka housing project, Rudo, Sulla, and Zamber schemed to acquire, through a shell company called Plumeria at Waikoloa, 11.7 acres of land along Waikoloa Road at minimal cost. Plumeria at Waikoloa then sold that land for $1.5 million, more than 27 times the nominal fee paid for it.

Forfeited Proceeds

The plea agreement signed by Rudo calls for the forfeiture of funds and other goods acquired through the fraudulent schemes.

First, there’s a “money judgment” against Rudo in the amount of $2,114,170. The felony information filed against Budhabhatti seeks a money judgment of at least $925,724.

Second, there are proceeds from the sales of properties they acquired using the fraudulently obtained funds. These seizures total an additional $2,323,890.

The Kealakehe property. West View Developments, a company that Rudo, Budhabhatti, and Zamber put together, with the blessing of then-county housing administrator Susan Akiyama Kunz, acquired around 14 acres of land in 2015 for what was supposed to be an affordable housing development encompassing all three parcels that made up the acreage. Soon thereafter, the OHCD agreed that the development could be built on just two of the three parcels, freeing up the third, a seven-acre parcel, to be used without restriction. In May 2021, that parcel was sold for $950,000. On June 4, the federal government seized proceeds from that sale in the amount of $938,428.16.

The Florida property. This is a 5,088-square-foot commercial building in Cape Coral, Florida, near Fort Myers, that a Rudo-owned LLC, Dezign Artz, acquired in July 2020 with funds gained through his illegal housing schemes, for $600,000. He sold it on November 8, 2021, for $800,000. The government seized proceeds of $752,064.46 from that sale on November 9.

The Ninole property. The government has claimed proceeds in the amount of $499,626.34 from the sale of this property, a 2.7-acre parcel of vacant land along the Mamalahoa Highway in Ninole, around 20 miles north of Hilo. This property was purchased in 2018 by Plumeria at Waikoloa, which by this time had a new name: Peaceful Ventures. The recorded sale price at that time was $350,000, but it is doubtful that this was a true arms-length transaction, since the seller, Rainha Iemanja Capital Holdings, LLC, was managed by Sulla himself and his wife, Jamie Ann Wallace-Sulla, who had held the land, under one or another LLC or trust, since 2000. In April 2020, Peaceful Ventures conveyed the title to another LLC, SZ Ventures, whose sole member was Sulla. SZ Ventures sold the property on December 17, 2021, for $537,500, well above the assessed value of $215,000. On January 6, the federal government seized proceeds from that sale in the amount of $499,626.34.

The Puna property. Kaha Kii Hale, LLC, whose sole member was Rudo, acquired this 12,000-square-foot lot with a small home on it in July 2015 for $85,000. In September 2016, the title was transferred to Rudo as the trustee of Bright Antares Trust, with Sulla preparing the conveyance documents. The recorded sales price was the same — $85,000. In June 2020, Sulla again prepared the documents conveying title from the trust to Rudo himself. On January 26 of this year, Rudo sold the property for $150,000. On January 31, the same day that the transaction was recorded at the Bureau of Conveyances, the government seized the proceeds of that sale, amounting to $133,771.33.

The total value of the cash judgment and seized proceeds from property sales comes to roughly $4.5 million. In addition to that, according to Rudo plea agreement, the government on April 4 seized 45 affordable housing credits; the value of such credits varies but has ranged as high as $60,000 each in the past. At that upper range, the value of the credits would be in excess of $2 million.

But there are other properties that Rudo acquired in recent years that the government has left untouched, so far.

The most expensive one is a 3,000-square foot home on an acre of land in the O`oma Heights subdivision in Kona. This property was purchased for $950,000 by Plumeria at Waikoloa in June 2018. On April 14, 2020, Plumeria at Waikoloa – a.k.a. Peaceful Ventures – conveyed title to Rudo’s Dezign Artz, with a recorded purchase price of $900,000. Less than three months later, Dezign Artz sold the property for $725,000, with Rudo’s wife, Margaret Reynolds, signing the conveyance documents as Dezign Artz’s manager.

Reynolds herself also acquired significant property in recent years. In February 2019, she bought a 3,000-square-foot house on half an acre of land in Kona for $1.35 million, taking out a $1 million mortgage to finance the purchase. Three years later, this past February, the mortgage was paid off and she now owns the property free and clear.

Over and above the seizures and forfeitures, the government has placed a lis pendens on the two lots at Kealakehe that are still held in the name of West View Developments. As stated in the government’s filing with the federal court, “the United States shall seek to forfeit certain real property … titled in the name of West View Developments, LLC … as property, real or personal, which constitutes or is derived from proceeds traceable to a violation of any offense constituting a ‘specified unlawful activity.’”

‘The Waikoloa Scheme’

The government describes in some detail the three schemes Rudo and his co-conspirators orchestrated. The “Waikoloa Scheme” involved Rudo working with principals of a development company, Waikoloa Mauka, LLC, to engineer a scheme intended to satisfy county requirements that it earn about 80 affordable housing credits. This was eventually accomplished by having the developer subdivide an 11.7-acre parcel from its much larger holdings and transfer title to what Rudo put forward as a non-profit organization called Plumeria at Waikoloa.

The scheme began around December 2016, the government alleges, when Rudo “took various steps to obtain OHCD’s approval of an AHA,” or Afforable Housing Agreement. Rudo “represented that Company-C [now identified as Plumeria at Waikoloa] ‘was a Hawai`i non-profit corporation,’ as required by county regulations. In fact, and as Rudo then knew, [it] was a for-profit corporation that had been formed by Individual-1 [Sulla] for the purpose of selling the Waikoloa property for a profit.” The scheme was finalized in June 2017, when the county, relying on Plumeria at Waikoloa’s representations that it was a non-profit, released the developer from its obligations to provide affordable housing.

The conspiracy gets more complicated in January 2018. According to the indictment, on January 22, “Sulla formed two trusts – Active REI and Ad Astra – benefitting Rudo. On the same day, Sulla formed SZ Ventures, LLC, which was to be operated by Sulla and Zamber with the understanding that “no profits or cash distributions shall be guaranteed until [the Waikoloa property] is sold.”

The following day, SZ Ventures and Dezign Artz, LLC – a company set up by Sulla but owned by Rudo – entered an agreement calling for their joint ownership of Plumeria, again with the understanding that “no profits or cash distributions” were to occur until the Waikoloa property sold.

Then, on January 28, Rudo was removed as the owner of Dezign Artz and replaced with the two trusts, Active REI and Ad Astra, that benefited Rudo.

All this set the stage for the transfer of the Waikoloa land to be conveyed to Plumeria at Waikoloa on January 29. The recorded sale price was $55,000. Less than a month later, Plumeria at Waikoloa had identified a buyer and in May of that year the property was transferred to Pua Melia, LLC, owned by Danny Julkowski, at a cost of $1.5 million.

“Through a variety of subsequent transactions,” the indictment states, “the proceeds of the Waikoloa sale were distributed by Sulla and divided among himself, Zamber, and Rudo, with Rudo’s share constituting bribes and kickbacks.”

The information against Rudo then states that later that year, on November 5, Sulla sent an email to Rudo and Zamber, “directing the disposition of the proceeds in proportion to our percentages.” Finally, “On or about February 18, 2019, [Sulla] sent an email to Rudo, [Zamber], and another person explaining the entities created to conceal Rudo’s financial and ownership interest in [Plumeria at Waikoloa.] Through a variety of subsequent transactions, the proceeds of the Waikoloa sale were distributed among Rudo, [Sulla], and [Zamber].”

The Kailua-Kona Scheme

To effect this scheme, Rudo and all three of his co-conspirators formed West View Developments, the government alleges. The felony information adds that in September 2015, using his official county email address, Rudo emailed Ron Brown, who owned around 13 acres of land in Kailua-Kona. Rudo explained to Brown “the benefits of owning [affordable housing credits]. Rudo made it appear as if he was acting in the county’s best interest to provide affordable housing,” the information states, when in fact he was attempting to persuade Brown to sell the property to West View.

Rudo then proceeded to obtain the OHCD’s approval for an affordable housing agreement (AHA-2) between the county and West View Developments. “AHA-2 granted [West View] 104 AHCs in exchange for a promise to develop approximately 52 affordable housing units on the Kailua-Kona property, which it did not own,” the information says. (A fuller history of how West View Developments acquired the affordable housing credits and the land itself is in the June issue of Environment Hawai`i.)

After the county released about seven acres from the requirement that affordable housing be built on the site, West View sold that land for $950,000, and, according to the government, “the proceeds of that sale were intended to be distributed among Rudo and the co-conspirators.”

As Environment Hawai`i reported, West View went on to lease the remaining land for $84,000 a year to a prospective developer. It also sold two of the affordable housing credits for $60,000, the government states, “which [Budhabhatti] intended to use to purchase ‘a Hawaiʻi-like home’ … in the Bay area.” The sale of those two credits, it goes on to say, “was facilitated by a letter drafted by Rudo for [Zamber’s] signature under which [West View] sought OHCD’s approval of the transfer.

“While taking official acts on behalf of the county with regard to [the West View affordable housing agreement], Rudo failed to disclose his ownership interest in [the company]. Following his December 2018 resignation from OHCD, Rudo was prohibited from having any involvement with [the company] for one year. Rudo nonetheless continued to engage in, and benefit from, [the company’s] business without the county’s knowledge.”

The South Kohala Scheme

“In or about February 2015, Rudo endorsed and ultimately secured OHCD approval of an AHA (‘AHA-3’) between the county and Company E,” the federal information states, referring to Luna Loa Developments. That agreement, signed by the then-OHCD administrator Stephen Arnett, granted the company 212 affordable housing credits on its promise to develop 106 affordable units on 4.6 acres of land in Waikoloa, South Kohala. The government’s information says, “While participating in OHCD’s approval process, Rudo did not disclose his ownership interest in [Luna Loa], which was also owned by” Budhabhatti and Zamber. 

The government provides details of how Luna Loa obtained the land by helping it “negotiate deals to buy the South Kohala property, resell it at a profit, and retain and sell AHCs, all without developing any affordable housing units.”

Steps taken by Rudo, it continues, included: “using knowledge and expertise gained from his position at OHCD, Rudo identified various landowners who might be interested in buying AHCs. Rudo thereafter drafted letters for [Zamber] to sign … soliciting offers from those landowners for the purchase of AHCs that the company had acquired through AHA-3.

“On or about April 8, 2015, [Luna Loa] sold four AHCs … for $200,000, and the proceeds were deposited into a bank account belonging to [Luna Loa] and controlled by [Budhabhatti]. This occurred even before Luna Loa had title to the property.”

The government continues: “In late April 2015, [Luna Loa] entered agreements under which it would (i) purchase the South Kohala property from one real estate development company and (ii) resell the property to another real estate development company. After closing the two transactions on the same day, [it] retained 17 AHCs from AHA-3 and took fees of approximately $45,000.”

In March 2016, Budhabhatti and Zamber sold five of the affordable housing credits for $150,000, with the proceeds from the sale deposited into Luna Loa’s bank account, controlled by Budhabhatti. Two months later, West View transferred four of its credits to Luna Loa. Two weeks later, Luna Loa sold 12 affordable housing credits for $384,000, the government says. Again, proceeds were placed into the Luna Loa bank account.

“Through a variety of subsequent transactions, the proceeds of the foregoing AHC sales were distributed among Rudo and the co-conspirators,” the government says. “While taking official acts on behalf of the county with regard to AHA-3, Rudo failed to disclose his ownership interest in [Luna Loa], or the fact that he was receiving proceeds from the foregoing transactions.”

---

The Indictment

While both Rudo and Budhabhatti were the subject of felony informations that set forth the charges against them, Zamber and Sulla were indicted by a federal grand jury. While many of the crimes are the same, the difference is that both Rudo and Budhabhatti agreed to plead guilty. Zamber and Sulla apparently did not, resulting in charges being brought by means of a grand jury indictment. Zamber and Sulla face one count of conspiracy to commit honest services wire fraud and six counts of honest services wire fraud. In addition, Sulla was charged with one count of money laundering.

Over and above the forfeitures and seizures set forth in the informations against Rudo and Budhabhatti, the government seeks personal money judgments against Sulla for $551,225 and against Zamber for $171,792, such sums “having been obtained directly or indirectly” as a result of the criminal actions listed in the indictment.

As to the money laundering charge against Sulla, the government states: “On or about December 23, 2021, … the defendant knowingly conducted a financial transaction affecting interstate commerce, which financial transaction involved the proceeds of specified unlawful activity, … knowing that the transaction was designed in whole and in part to conceal and disguise the nature, location, source, ownership and control of the proceeds” of the unlawful activity. The transaction involved shifting more than $500,000 from a Title Guarantee Escrow account to one managed by Old Republic Exchange.

Both Sulla and Zamber have stated that they will contest the charges against them.

— Patricia Tummons

For Further Reading

Many articles in the June 2022 edition of Environment Hawai`i discuss what the government calls the Kailua-Kona Scheme and the South Kohala Scheme. These include:

“The Intriguing History that Underlies a Kona Affordable Housing Development;”

“Editorial: Big Island’s Housing Policy: Troubled, Confusing, Ineffective;”

“Housing Agency Has Had Difficulty Tracking Low-Cost Housing Credits;”

“He Owned the Land for Just a Day But Received 212 Credits from County.”

The following articles provide details on what the government calls the Waikoloa Scheme:

“Waikoloa Mauka Project Now Subject of FBI Investigation, Developer Says,” September 2020;

“Editorial: Oversight Required for Hawai`i County Housing Office,” January 2019;

“As Owner Is Held in Moscow Jail, LUC Mulls Reverting Waikoloa Land,” July 2018.

---

The Key Role Played By Environment Hawai`i

In a July 25 news conference announcing the charges against Rajesh Budhabhatti, Gary Zamber, and Paul Sulla, Clare Connors, the U.S. attorney for the district of Hawai`i, gave credit to reporting done by Environment Hawai`i in launching the investigation into corruption within the Hawai`i County Office of Housing and Community Development.

Near the end of the conference, Connors was asked whether there had been a whistleblower who tipped off the FBI.

Connors replied that a county employee provided the tip after he had been alerted to the fact that some of the documents he had been involved in approving were suspect. “When he became aware of that, he reached out to the FBI,” she stated.

“The media had been covering certain of these transactions,” Connors went on to say. “The Plumeria deal had been in the media. That’s when this particular county employee became aware of the involvement of the county.”

“The media, was it the Environment Hawai`i newsletter?” Connors was asked.

“Yes, I believe it was,” she replied.

Environment Hawai`i reported on the Plumeria at Waikoloa deal beginning in July 2018, when questions began to arise about the deal in the context of hearings by the state Land Use Commission.

(This article was amended to delete reference to Neil Gyotoku as the county employee who tipped off the FBI. He told Environment Hawaiʻi he was not the source.)

— Patricia Tummons