On August 11, three individuals facing fraud charges stemming from schemes perpetrated on the Hawaiʻi County Office of Housing and Community Development were arraigned in federal court. All three – Rajesh Budhabhatti, Gary Zamber, and Paul Sulla – pleaded not guilty to the charges.
Budhabhatti had been expected to enter a guilty plea on August 2. Unlike Zamber and Sulla, who were charged by means of a grand jury indictment, Budhabhatti was originally charged in July by means of a felony information issued by the U.S. Attorney’s office in Honolulu, a charging document that suggests the defendant had already acknowledged participation in the crimes and had accepted a plea deal. This was the same manner in which the fourth defendant in the schemes, Alan Rudo, was charged earlier in July.
However, the scheduled plea entry did not occur. Instead, on August 4, Budhabhatti was named as a participant in the same schemes as Zamber and Sulla in a superseding indictment from the federal grand jury.
In the August 11 arraignment, the court allowed each defendant to remain free on an unsecured $50,000 bond. All the defendants were instructed to surrender their passports and to obtain court approval for any inter-island travel. Zamber was given permission to travel to California from August 25 to August 29. Sulla had requested permission to travel to Boston for a wedding; Judge Wes Reber Porter advised his attorney to make the request through the U.S. Pretrial Services for the court’s further consideration.
The next day, the U.S. attorney’s office filed with the court a “motion to declare case complex and to continue trial.” The charges “involve multiple limited liability corporations and other businesses and trusts allegedly connected to the defendants,” the motion states. “The Superseding Indictment is the culmination of a nearly three-year investigation that involved the collection of voluminous financial and real estate records, voluminous pertinent email communications and attachments, and numerous witness interviews. … Furthermore, the criminal relationships of the various defendants with each other are complex, and a number of individual instances of alleged wire fraud fall within the framework of the charges or provide evidence of defendants’ knowledge and intent. … [I]t is unreasonable to expect adequate preparation for either pretrial proceedings or the trial itself within the time limits” established by federal law.
Attorneys for the defendants indicated they did not oppose the continuance, the motion states.
County Audit
On August 16, the Hawaiʻi County Council’s Finance Committee approved a resolution calling for the county auditor to “conduct a performance audit of the Office of Housing and Community Development [OHCD] to ensure the efficient issuance and utilization of affordable housing credits,” including a “comprehensive accounting of all credits issued, outstanding, transferred or redeemed, and recommendations that enhance program controls, efficiency, and effectiveness.”
The issuance of housing credits to unqualified companies was a key part of the fraud that is alleged to have been perpetrated by Rudo, Budhabhatti, Zamber, and Sulla.
The Finance Committee heard the first draft of the resolution on August 2. Among other things, it called on the county auditor, Tyler Benner, to conduct a performance audit to ensure that the OHCD had “adequate fundamental and strategic plans to guarantee the lawful and efficient issuance and utilization of affordable housing credits.”
At that hearing, Benner testified that his office had had meetings with the county corporation counsel and the OHCD administrator. “We’ve developed some understanding of the issues,” he said, adding that there were “factors in play that potentially complicate or prevent us from conducting an audit.”
First, he noted that it was already known that OHCD had no strategic plans. This was acknowledged, he said, when the council earlier passed a resolution urging the OHCD to “conduct a study and develop a strategic roadmap for housing development” in the county. As a result of that, the OHCD retained a consultant, whose report is due “between September and October,” Benner said.
“I suggest that there is significant overlap between what we are being asked to look at and what is already in progress,” he stated.
The second point he raised was the matter of possible “ongoing allegations surrounding activities that have taken place,” referring to the criminal charges. General accounting standards require auditors to “inquire of management whether investigation or legal proceedings significant to the audit have been initiated or are in process. The threat level to the audit must then be evaluated.” The standards then say that audits are to “avoid interference with investigations or legal proceedings,” Benner said.
He said OHCD management has “an appetite and expressed a willingness” to participate in an evaluation of their system. But, he added, “right now, I see an entanglement of the alleged activities and the credits.”
Seeing the auditor’s lack of enthusiasm, as well as potential concerns, over the prospect of an audit exploring the full panoply of issues called out in the resolution, the council shelved it.
Two weeks later, the Finance Committee heard the slimmed-down version of the resolution. It passed out of committee and was scheduled to be heard by the full council on August 30.
Late Filing
Last month, Environment Hawaiʻi reported on the properties that were apparently acquired by companies controlled by the defendants in the federal fraud case. Several of those properties were mentioned in the indictment, with the federal government seizing proceeds from the sale of those properties.
Our report noted that according to public records, Margaret Reynolds, now the wife of Alan Rudo, appeared last February to have paid off a $1.08 million mortgage on a home purchased in 2019 for $1.35 million. With no other recorded lien on the property, it would appear that she owned the home free and clear.
Then, on August 1, the Bureau of Conveyance recorded a mortgage against the property that Reynolds had signed on February 4. This one, covering a loan of $1.26 million, allowed the earlier mortgage to be paid off.
Customarily, when a bank or other lender has accepted a note from a debtor, there is not a significant time lag before the debt is put on the record. A time lag of five months is unusual.
Apologies
In our earlier reporting, we identified former Office of Housing and Community Development administrator Neil Gyotoku as the county employee who notified the FBI of his suspicions regarding Rudo, following our reporting in 2018 and 2019 on what the U.S. Attorney’s office calls the “Waikoloa Scheme.” Gyotoku has since informed Environment Hawaiʻi that although he cooperated with the FBI’s investigation, he was not the county employee who tipped them off.
— Patricia Tummons
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