You can’t bribe yourself.
That’s what counsel for Hawaiʻi island attorney Paul Sulla Jr. said during closing arguments last month before a jury and U.S. District Judge Jill A. Otake. It’s also what counsel for another Hawaiʻi attorney, Gary Zamber, and businessman Rajesh Budhabhatti said.
In its case against them, the trial for which began May 13, the Department of Justice has arguedthat between late-2014 and late-2021, the three men were involved in a conspiracy to provide bribes or kickbacks to former Hawaiʻi County Office of Housing and Community Development employee Alan Rudo in exchange for his help in securing affordable housing agreements, valuable excess affordable housing credits (made even more valuable by building restriction waivers he facilitated), and land in Waikoloa meant for the development of affordable housing.
The DOJ estimated that their schemes netted them nearly $11 million and eventually charged the men with honest-services wire fraud. It also charged Sulla, who created the various “shell” companies involved, with money laundering.
Rudo pleaded guilty to honest services wire fraud in the summer of 2022 for his part — being the “inside man” — in the scheme. Budhabhatti — the “face” of the companies that received the affordable housing credits — almost pleaded guilty later that year, as well, but backed out at the last minute, choosing instead to go to trial along with Sulla and Zamber, who the DOJ alleged were the attorneys who worked to make the schemes look legitimate.
Rudo had a hidden financial interest — an ownership interest, the defendants argued — in the companies that received the agreements, credits, and land. While a public official exploiting his position to benefit companies he secretly owns is unethical, it’s not illegal under U.S. Code Section 1346 regarding honest services fraud.
According to a May 2020 Congressional Research Service report, under the U.S. Supreme Court’s 2010 ruling in the case Skilling v. United States, which involved Enron executives enriching themselves while lying about the company’s poor health, “mail and wire fraud prosecutions under an honest services theory may extend only to those who, in violation of a fiduciary duty, participate in bribery or kickback schemes. Notably, the Skilling decision withdrew from the reach of Section 1346 a significant category of cases that had been prosecuted as honest services fraud up to that point: cases involving more general financial self-dealing or conflicts of interest, where no bribes or kickbacks are given. Congress has considered legislation on more than one occasion that would reinstate the self-dealing category of honest services fraud rejected in Skilling, though the law remains unchanged as of this writing.”
And so throughout the trial held over 10 days last month, the attorneys for the three men harped on Rudo’s financial ties to Plumeria at Waikoloa, Luna Loa Developments, LLC, and West View Developments, LLC. Those three companies were the beneficiaries of the affordable housing agreements and related documents that Rudo recommended county officials sign.
Plumeria at Waikoloa, which acquired 11.8 acres from a developer at a steal with Rudo’s help and later sold it for $1.5 million, was co-owned by Rudo, Sulla, and Zamber. Plumeria was later renamed Peaceful Ventures. Rudo was the majority owner through his company Dezign Artz (then later via two trusts benefitting him), and Sulla and Zamber owned the remainder through their company SZ Ventures, in which Sulla was the majority owner.
Rudo testified that he had a “gentleman’s agreement” with Budhabhatti to receive 50 percent of whatever profits came from deals involving land that Budhabhatti did not already own, such as the land Budhabhatti’s Luna Loa Development company acquired from DR Horton using affordable housing credits.
Also, Rudo’s then-wife, Margaret Reynolds, owned shares in Budhabhatti’s company West View, which were eventually transferred to Budhabhatti after the FBI began investigating.
“She shouldn’t be on the company records. That was a mistake. I knew the jig was up. … I told them to remove Margaret,” Rudo testified. While he stopped short of saying that he was the actual owner of her shares, he testified, “I had a financial interest in West View” and that his wife was listed as a member of the company “to hide my interest.”
‘Not Hiding’
Sulla, who was facing an additional charge of money laundering, was the only one of the three defendants to testify at trial.
In his testimony, Sulla explained that some of the companies and trusts he created for Rudo, a client, were merely products of estate planning, and not, as the DOJ suggested, efforts to hide Rudo’s role in the affordable housing schemes.
He also testified at first that he believed the original intent was for Plumeria to develop affordable housing, although he admitted it was really just a shell company. “We didn’t even have a bank account,” he said.
He also said he had no prior knowledge of and had nothing to do with Rudo’s misrepresentations to the county that Plumeria was a non-profit company, which had enabled the 11.8 acres in Waikoloa acres to be given to Plumeria for such a bargain.
According to minutes of meetings of Plumeria’s members, discussions had been held early on with an architect and a contractor about the possibility of building affordable housing on the site. But, Sulla said, Rudo suddenly came up with a buyer, a company called Pua Melia, that had wanted for years to build a True Value hardware store there and would commit to building the required affordable housing. (The land was later reverted by the state Land Use Commission back to the Agricultural District, thereby preventing Pua Melia from proceeding with its development plans.)
During cross-examination, U.S. attorney Mohammad Khatib questioned Sulla about his statements that he believed what he and Rudo were doing was legal.
Khatib asked Sulla whether he ever called anyone from the county to see if it was okay to work with Rudo on the Plumeria deal.
“Why would I do that?” Sulla replied, but later added that, in hindsight, it might have been nice to check on what Rudo told him. “He sugarcoated it to me. It was affordable housing. It was a mixed-use thing,” he said.
Khatib noted that after Plumeria sold the land for just under $1.5 million to Pua Melia, Sulla took a three percent increase in his share of the profit. Rudo’s ownership interest in Plumeria — through his Sulla-created company, Dezign Artz — dropped from 70 percent to 67 percent.
Sulla claimed that because Dezign Artz wound up “not doing what it was supposed to do,” which was securing contractors to build the affordable housing in exchange for lots, Sulla needed to replace Rudo as the owner of Dezign Artz with two trusts that benefitted Rudo, Active REI and Ad Astra.
That extra legal work is what warranted the three percent increase in his share in Plumeria, Sulla explained.
Khatib suggested that further work was done to conceal Rudo’s involvement.
“Absolutely not. … You keep saying ‘hiding.’ This is estate planning. This is how it’s done,” Sulla replied. (This “not hiding” claim came after his direct examination, in which he admitted he initially represented to the government that he was not a member of Plumeria. “I was being glib,” he said, adding that his statement was not under oath and “technically, I wasn’t a member,” SZ Ventures was. “I was being a little glib. … Sorry about that.”)
Addressing Sulla’s and the other defendants’ arguments that Rudo was merely self-dealing or just had a conflict of interest, Khatib reminded Sulla, “You were the sole signatory on Plumeria. Rudo had no access to these funds,” referring to the profits from the sale of the Waikoloa land.
From that sale, Rudo received $1.1 million, Sulla received nearly $400,000, and Zamber received about $80,000 in land and/or money.
When Khatib asked Sulla what purpose Plumeria served, Sulla did not repeat his earlier claim that it was to build affordable housing. He said instead, “You should really ask Mr. Rudo about that.”
“So you were naive of this matter approximately to the tune of $400,000? … Did you receive land or anything of value [worth] approximately $400,000 from Plumeria?” Khatib later asked.
At the risk of sounding glib again, Sulla responded only that Rainha Iemanja Capital Holdings, LLC did. The company, which the DOJ dubbed “RICH,” was managed by Sulla and his wife, Jamie Ann Wallace-Sulla.
Despite Sulla’s testimony that the work he did for Rudo was not to hide his interest in Plumeria, Birney Bervar, Sulla’s attorney, began his closing arguments by stating that Sulla never bribed Rudo. Rather, “Alan Rudo used Sulla to set up companies to hide self-dealing,” Bervar said.
Bervar also argued that Dezign Artz was not created to hide illegal activity, but to protect Rudo’s assets from the wife he was divorcing at the time and for consulting jobs he did outside of his work for the county.
With regard to the schemes involving affordable housing credits, Bervar argued that Sulla was not involved in either the 2014 “test run” deal by a company owned by Budhabhatti called ERH1, LLC, that was not charged in the indictments, or the Luna Loa or West View deals, “except as an attorney” for the latter two.
Bervar pointed out that Sulla received only a few thousand dollars for his legal services for those deals, for which he provided at least one invoice.
Regarding Sulla’s actions surrounding the Plumeria deal (including the receipt of property in Ninole, which RICH then sold after Sulla learned of the FBI investigation), Bervar said that for someone to be found guilty of money laundering, the money has to come from an illegal transaction and the person has to know it was illegal.
There’s no evidence here of that, Bervar said, adding, “This is estate planning, not money laundering.”
Bogus Checks
When it came to the deals involving the award and sales of affordable housing credits, there was no question about whether or not there was a concerted effort to hide Rudo’s involvement.
Rudo testified that he approached Budhabhatti with a plan to provide him with affordable housing credits and they discussed various options of how to take advantage of them. Rudo said he trusted Budhabhatti because they had a longstanding relationship.
“I would do affordable housing agreements. He was going to develop affordable housing,” Rudo said. That was the plan, and it started with ERH1, which involved two parcels in Keaʻau that Budhabhatti already owned. In emails, Rudo had raised the possibility of building container homes that could be rented out. Developing some kind of affordable housing would provide “cover” so “we smell like roses,” which would allow them to keep doing deals, Rudo testified.
But as soon as ERH1 was awarded the credits, Budhabhatti sold them, Rudo said. The proceeds, $68,000, were split among Budhabhatti, Zamber, and Rudo.
“That’s when I realized we’re in it for the credits. … I told him [Budhabhatti] I want 25 percent of what he got for selling the credits after Zamber [took his cut of 5 percent]. If it wasn’t your property, I wanted 50 percent.”
“We reaffirmed my agreement when we turned to Luna Loa,” he continued.
After Rudo facilitated the award of 212 credits to Luna Loa, the company sold them to other developers for cash, or, in the case of DR Horton, land.
Luna Loa, after owning that land for a “split second,” as Khatib put it, sold it.
Budhabhatti paid nearly $350,000 in profits from Luna Loa deals to Rudo via checks to Dezign Artz and Kaha Kii Hale LLC, another Rudo company. On those checks were written “fake memos” to make it look like the companies were getting paid for consulting services.
“This is bogus. Mr. Rudo said he never provided those services,” Khatib told the jury. He also informed it that Rudo testified that “most, if not all, of the checks were handed to him by Zamber.”
Similar to the Plumeria deal, Khatib also pointed out that in the deals involving Luna Loa and West View, Rudo did not control their bank accounts. Therefore, he argued, the payments were not self-dealing.
‘Red Herring’
Is there a difference between being an owner of a company and having a financial interest in it? Does it matter with regard to the cases against Sulla, Zamber and Budhabhatti?
The way that so much of the arguments and questioning of witnesses revolved around these two questions, it would seem to make all the difference between whether the case was one of self-dealing or bribes and kickbacks. If it was the former, the defendants were not guilty. If the latter, guilty, it seemed at first.
When did Rudo and the federal government start calling what transpired bribes and kickbacks? And Why didn’t Rudo ever use those terms in so many of his interviews with the FBI? the defense attorneys wanted to know. When did the government stop referring to Rudo’s ownership of the companies and start calling it an “interest” in them?
In response to questioning by Zamber’s defense attorney, Gary Springstead, Rudo said he didn’t know that what he was doing was accepting bribes and kickbacks until his attorney at the time informed him that’s what it was.
Yet despite all the time and energy spent during the trial debating the ownership/interest issue, both Kanai and Khatib stated in their closing arguments that, ultimately, it didn’t matter.
Khatib called the ownership issue a “red herring.” Why did Rudo get ownership interest in the companies? Because it was his reward for his official acts, Khatib stated.
“If even one percent of the money Rudo got was because of his position at the county, they’re guilty of kickbacks,” he said.
He also said that it didn’t matter whether there was any benefit to the community from these deals. One of them did eventually lead to the construction of affordable housing by another developer; a second one may yet.
Further, since the affordable housing agreements associated with the credits lifted building restrictions on future construction, some of the benefits to the community were “sucked out,” Khatib said.
In any event, he said, the detriment to the public was the bribe.
In her closing arguments, Kanai first addressed “the elephant in the room” – that what Budhabhatti did was “not okay.” It just wasn’t as wrong as the DOJ was making it out to be, she argued.
She then leaned into the blurriness surrounding the alleged illegal activities.
“Everyone is getting these issues confused,” she said with regard to whether what Budhabhatti did involved a conflict of interest or bribes and kickbacks.
“We can all agree it’s offensive to exploit the affordable housing code,” she said.
However, she continued, “Why are we fighting about ownership? … What is really the difference between ownership, ownership interest and financial interest? … These semantics and quibbling with words do not matter.”
She then highlighted the commonality in the evidence used in Budhabhatti’s defense and in his prosecution. She stated that if the same evidence can suggest someone is either guilty or not guilty, the reasonable doubt standard requires the jury to return a verdict of not guilty.
“You should expect and demand quality evidence, not evidence that makes you hesitate,” she added.
The jury received 37 instructions on how to deliberate. Those instructions stated, “Bribes and kickbacks involve the exchange of a thing or things of value for official acts by a fiduciary, in other words, a quid pro quo (a Latin phrase meaning ‘this for that’ or ‘these for those’). A quid pro quo is satisfied if the evidence shows that the defendant promised or provided to Mr. Rudo something of value in exchange for his promise to take one or more future official acts in his capacity as an employee of the County’s Office of Housing and Community Development.”
The instructions also included this one: “Undisclosed self-dealing or undisclosed conflicts of interest are insufficient to constitute honest services wire fraud. Undisclosed conflicts of interest and undisclosed self-dealing do not involve quid pro quos.”
In his rebuttal, Khatib argued that the evidence shows there was a quid pro quo.
He also said the defendants want the jury to believe that by creating shell companies and making public officials partners in them, you can shield yourself from bribery charges.
In this case, if everything was legal and above board, why hide Rudo or send fake invoices or blind copy him to emails to the county? Khatib continued.
While every one of the schemes was a conflict of interest, “This is not one man acting alone. This is concerted action,” he said.
He pointed out that during Springstead’s closing arguments, he tried to deny that a meeting of the parties had ever occurred regarding ERH1 in Zamber’s office. But Sulla had testified that that meeting did, in fact, occur, Khatib argued. “They discussed the fact that Rudo was a public employee,” he said.
Khatib said that “the defense is blaming everyone for what they did,” be it Rudo, or the county, or even Sulla’s wife, who Sulla said pushed for one of the land exchanges involved in the Plumeria deal.
“America is supposed to be a democracy … The defendants want a government for [the] politically connected. … A government that works for the rich and steals from the poor,” he said.
Rudo’s Testimony
The jury was also instructed as to how to deal with Rudo’s testimony: “You have heard testimony from Alan Scott Rudo, a witness who pleaded guilty pursuant to a plea agreement to a crime arising out of the same events for which the defendants are on trial. This guilty plea and plea agreement are not evidence, and you may consider them only in determining this witness’s believability.
“In evaluating the testimony of Mr. Rudo, you should consider the extent to which or whether his testimony may have been influenced by his plea agreement. In addition, you should examine the testimony of Mr. Rudo with greater caution than that of other witnesses.”
During their closing arguments, all three defense attorneys attacked Rudo’s testimony.
Bervar said that in Rudo’s guilty plea, he acknowledged being advised that he could face seven-and-a-half to nine years in prison. Bervar suggested that influenced Rudo’s trial testimony, which sounded “like he was getting $100 every time he said bribe or kickback.”
Springstead likened Rudo’s testimony to that of a professional witness and criticized him for sitting on the witness stand for hours on end, answering questions from the defendants’ attorneys with evasion or “No, I don’t recall.”
“He’s the government’s star witness. He’s also someone that’s not very credible,” Springstead said.
Finally, Kanai said that it was “patently obvious Rudo wanted to testify in a way that pleased the government.” She said when questioned by the defense attorneys, she counted some 50 instances of Rudo saying he didn’t remember or recall something.
Recounting how Rudo had been deceitful about so many things, she asked the jury, “What would a man like that do to avoid years in prison time?”
In his rebuttal, Khatib said little about Rudo’s testimony, leaving it up to the jury to decide how to weigh it.
Fiduciary Duty
For the jury to find the defendants guilty of honest services wire fraud, it had to find, among other things, that Rudo owed a fiduciary duty to the county, its Office of Housing and Community Development, and the county’s citizens, according to jury instruction No. 22.
For a fiduciary duty to exist, the instructions said, the jury must find that the county, the OHCD, and the citizens placed “special trust and confidence” in Rudo, “expecting that he would then exercise his discretion and expertise with the utmost honesty and forthrightness in the interest” of the county, the OHCD, and the citizens, “such that they relaxed the care and vigilance that they would ordinarily exercise.”
The jury must also find that Rudo “knowingly accepted that special trust and confidence and thereafter undertook to act on behalf” of the county, OHCD, and the citizens.
“If the [OHCD] employed Mr. Rudo and thereafter directed, supervised, or approved his actions, Mr. Rudo was not necessarily a fiduciary. Rather, as previously stated, it is only when one party places, and the other accepts, a special trust and confidence—usually involving the exercise of professional expertise and discretion—that a fiduciary relationship exists,” the instruction stated.
During the trial, documents showed Rudo’s initials indicating that the was recommending approval of affordable housing agreements or housing credit awards that his higher-ups within the OHCD ultimately approved.
For the ERH1 deal, Budhabhatti and then-housing administrator Stephen Arnett signed the affordable housing agreement and assignment of affordable housing credits.
Khatib reminded the jury that Arnett had testified at trial that he relied on Rudo’s advice “100 percent” and absolutely trusted him.
Arnett also said that if he had known that Rudo was receiving kickbacks from the deals, he would never have signed them.
Another former housing administrator, Susan Akiyama Kunz, also testified that she relied on Rudo’s advice when she signed the assignment of affordable housing credits and, like Arnett, would not have signed it if she had known what was really going on.
Khatib said the politically appointed housing administrators don’t have the expertise in the county affordable housing code and it was “natural they rely on their employees to do their job. … That’s what she thought Rudo was doing.”
Kanai, however, argued that Rudo had no fiduciary duty. She said that the county seemed to just rubber-stamp Rudo’s deals and it was no wonder that he was able to “exploit the power vacuum.”
“What I heard was plain old ordinary trust. … not a special trust,” she said.
The jury was still deliberating at press time.
Also, on June 3, Judge Otake denied motions by the defendants for a mistrial or curative jury instruction addressing alleged false testimony by FBI special agent John Radzicki regarding Rudo’s ownership interest in the companies involved. The DOJ argued that Radzicki did not falsely testify.
— Teresa Dawson
(This article has been updated to include Birney Bervar’s first name, and to reflect Judge Otake’s June 3 order denying the motions for a mistrial or curative jury instruction.)
Environment Hawaiʻi’s Role
In August 2022, we reported on the Department of Justice’s announcement of charges against four men who allegedly schemed to defraud the Hawaiʻi County affordable housing program. In that issue, we noted that then-U.S. attorney Clare Connors confirmed that articles in Environment Hawaiʻi about one of those schemes — the Plumeria at Waikoloa deal — led a Hawaiʻi county employee to contact the FBI. The investigation that ensued eventually led to the indictments.
Several years ago, Plumeria at Waikoloa acquired 11.8 acres from the developer of Waikoloa Highlands in West Hawaiʻi for a mere $50,000. Plumeria was supposed to be — and initially presented itself to be — a non-profit that would develop affordable housing on the land. In actuality, Plumeria was a for-profit company secretly co-owned by Alan Rudo, the county employee who blessed the deal. The land was quickly sold for a profit of more than a million dollars.
During testimony last month by one of the alleged schemers, attorney Paul Sulla Jr., Environment Hawaiʻi came up again during a discussion of how Plumeria’s name changed to Peaceful Ventures, LLC.
Sulla had created Plumeria and co-owned it with Rudo and attorney Gary Zamber.
In August 2018, shortly after Environment Hawaiʻi reported on the questionable transfer and sale of the Waikoloa land, Plumeria changed its name to Peaceful Ventures.
When asked at trial by his attorney, Birney Bervar, for the reason behind the name change, Sulla testified that Rudo was concerned about the publicity and thought that “Plumeria should disappear.” Although he mangled Environment Hawaiʻi’s name and that of its editor, Patricia Tummons (calling her Pat Timmons), Sulla said Rudo was concerned about her exploration of the Plumeria deal.
“I don’t know what he thought, [that it would be a] magic bullet to change the name,” Sulla said.
— T.D.
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