Former Mayor Catherine Pugh Charged With Wire Fraud, Tax Evasion
A federal grand jury has indicted former Baltimore Mayor Catherine Pugh of conspiracy to commit wire fraud, seven counts of wire fraud, conspiracy to defraud the United States and two counts of tax evasion.
The indictment, handed up Nov. 14 and unsealed Wednesday, was announced by the U.S. Attorney for the District of Maryland Robert K. Hur, the Federal Bureau of Investigations and the Internal Revenue Service.
The 11-count indictment focused on Healthy Holly, LLC, a company Pugh formed in 2011. As a state senator, the Democrat struck a series of children’s book deals with the University of Maryland Medical System (UMMS), a private statewide hospital network where she was a board member.
Federal prosecutors allege the 69-year-old defrauded local businesses and nonprofit organizations with nearly $800,000 in sales of her "Healthy Holly" children’s books in order to build personal wealth, advance her political career and illegally fund her mayoral campaign.
She could face up to 175 years in prison if convicted on all counts. U.S. Attorney Hur said the investigations into her alleged federal offenses took more than three years.
The Baltimore Sun first reported in late March that Pugh received $500,000 from UMMS for a total of 100,000 Healthy Holly books starting in 2011, when she was a state Senator on a committee that partially funded the system.
Pugh directly sold Healthy Holly books to other non-profit organizations and foundations, many of whom did business with or received funding or grants from state and city governments, including Associated Black Charities and Kaiser Permanente .
The former mayor was the sole signatory on the Healthy Holly and Pugh Company bank accounts. She did not have a personal bank account and used her business accounts for both business and personal finances, according to the indictment.
The indictment alleges that Pugh, whose customers purchased more than 100,000 copies of books, failed to print many of those copies and "intentionally double-sold Healthy Holly books by selling books purchased by one buyer to a different buyer without either buyer’s knowledge or consent."
For example, in 2011, CareFirst BlueCross BlueShield ordered $7,000 worth of books. To fill their order, Pugh allegedly took 1,000 copies that were already sold to UMMS and resold them to the insurance carrier.
In a news conference Wednesday, U.S. Attorney Hur said the former mayor and her longtime aide Gary Brown, Jr., allegedly removed thousands of books that were donated to the Baltimore City Public Schools from the school system's storage warehouse for personal use.
The former mayor allegedly used her proceeds to buy a second house, pay off debts and make illegal straw payments to her own campaign. She was assisted in the straw payments scheme by Brown, who has entered guilty pleas to fraud, conspiracy and tax evasion charges.
In April 2016, when Pugh was running for mayor, she and Brown "decided to inflate the amount of total contributions by secretly contributing Pugh’s own money to the campaign," the indictment says. The pair thought that "if voters learned that Pugh had injected her own money into the campaign, she would appear desperate" and lower her chances of winning the mayor's office.
So, prosecutors say, the two used $35,800 worth of Healthy Holly proceeds to make contributions to her in campaign in the names of Pugh's inner circle and associates.
Roslyn Wedington, the former executive director for the Maryland Center for Adult Training, also has pleaded guilty to tax charges.
In 2013, Wedington's salary was garnished due to student loans and medical debt. She allegedly asked Brown, then the chairman of the board of directors, to remove her name from payroll. He allegedly agreed and wrote her checks equivalent to or greater than her salary.
Brown could face up to 20 years for wire fraud conspirancy; he and Wedington both could face up to five years for defrauding the U.S. and three years for each count of filing a false tax report.
After winning the primary and esentially clinching the election in deep-blue Baltimore, the indictment says Pugh told an unnamed donor she wanted a second, bigger house to host gatherings as mayor.
The donor asked Pugh how he could assist; she said he could write a $100,000 check to Healthy Holly.
The donor, described as the owner of a Maryland financial company in business with the city of Baltimore, wrote the check. He wrote "book donation" in the check's memo line, understanding, according to the indictment, that "Pugh would use the money to produce and distribute Healthy Holly books, with the balance of the money going toward the purchase of a new house."
Prosecutors also allege that at the same time, Pugh was evading taxes. In 2016, as a state senator running for mayor, she told the IRS that she made around $31,000 that year. Her income was actually $322,000 -- more than 10 times that number. She shorted the IRS about $100,000 according to the indictment.
Pugh initially called the allegations of corruption a witch hunt. She stepped down from the UMMS board, where she’d served for 18 years. She also returned $100,000 to the hospital network for an order of Healthy Holly books she said was not completed.
After fierce national criticism and FBI and IRS raids on her homes and City Hall office, Pugh resigned as mayor on May 2nd.
“Our elected officials must place the interests of the citizens above their own,” Hur said in a statement. “Corrupt public employees rip off the taxpayers and undermine everyone’s faith in government.”
“The indictment alleges that Catherine Pugh betrayed the public's trust,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division. “The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.”
Pugh is scheduled to appear in federal court at 1 p.m. Thursday. She is expected to surrender to U.S. Marshalls and could enter a plea.Prosecutors are seeking to seize around $770,000 of her profits and the Ashburton home she allegedly purchased and renovated with fraudulently obtained money.
Pugh's attorney, Steven Silverman, declined a request for comment on Wednesday, saying he'll "address this manner in open court tomorrow."
Hur said there "is more to come" in the following weeks.
This post has been updated.
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