BALTIMORE — Former Baltimore Mayor Catherine Pugh has been federally indicted on 11 counts related to wire fraud and tax evasion.
A Federal Grand Jury handed down the indictment on November 14, which was unsealed Wednesday.
The charges stem from Pugh's Healthy Holly book scandal, which led to her resignation as Mayor in May.
Also revealed on Wednesday, were the guilty pleas of former Baltimore City employees and Pugh associates, Gary Brown, Jr., and Roslyn Wedington.
Between June 2011 and August 2017, the indictment says that the majority of Healthy Holly books were marketed and sold directly to non-profit organizations and foundations, doing business or attempting to with Maryland and Baltimore City government.
The wire fraud allegations against Pugh date back from November 2011 through March 2019, when Pugh allegedly conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.
According to the indictment, Pugh and Brown used several methods to defraud, including: not delivering books after accepting payments for them; accepting payments for books to be delivered to a third party, and then converting some or all of the purchased books for their own use without the purchaser’s or third party’s knowledge; and by double-selling books without their knowledge or consent.
Pugh is accused of storing those books at several locations, including her residence, state legislative offices, mayoral office, and a public storage locker used by her mayoral campaign.
On April 25, FBI agents raided Pugh's Ashburton home and City Hall office.
The indictment also charges that Pugh used the proceeds of the fraudulent book sales for her own benefit, including to fund straw donations to her mayoral election campaign, and to fund the purchase and renovation of her Baltimore home.
Further, the indictment alleges that Pugh wrote Brown Healthy Holly checks, for the purpose of funding straw donations to the Committee to elect her. The indictment charges that Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.
The straw donations purchased with that cash were then allegedly deposited into the bank account of the Committee to Elect Catherine Pugh.
Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave to Pugh.
On January 11, 2017, Brown was charged and convicted of violating Maryland’s election laws for funneling $18,000 in straw donations to Pugh’s campaign.
The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a memo on each stating “returned contribution.” The indictment alleges that none of the straw donors received any of that returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense.
According to the indictment, since 1997, Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company. The principal address for that company and Healthy Holly was Pugh’s Baltimore home. Pugh reportedly didn't have a personal bank account, and used her business bank accounts for personal and business finances.
“Our elected officials must place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “Corrupt public employees rip off the taxpayers and undermine everyone’s faith in government. The U.S. Attorney’s Office and our law enforcement partners will zealously pursue those who abuse the taxpayers’ trust and bring them to justice.”
Pugh is scheduled for an initial appearance and arraignment in U.S. District Court in Baltimore before U.S. District Judge Deborah K. Chasanow on Thursday, at 1:00 p.m.
Officials say Pugh is expected to turn herself into the U.S. Marshals prior to the hearing.
On November 13 Brown pleaded guilty to a new set of charges, including conspiracy to commit wire fraud, two counts of conspiracy to defraud the United States, and filing a false tax return, in connection to his work with Pugh.
Current Baltimore Mayor Jack Young placed Brown on leave from his position at City Hall on April 10, and fired him shortly after.
According to his plea agreement, from November 2011 until March 2019, Brown conspired with Catherine Pugh to fraudulently sell and distribute tens of thousands of Healthy Holly books. He admitted to carrying out the wire fraud conspiracy in three ways:
First; by selling the books and keeping the money and not delivering the books.
Second; by providing books to purchasers, but later re-purposing them for use at campaign events and government functions.
Third; reselling books that had already been purchased and supposedly donated to the Baltimore City Public Schools.
As for the charge of defrauding the United States, Brown admitted to cashing checks Pugh wrote to him from the Healthy Holly account, and then using the cash to fund payments submitted to the Committee to Elect Catherine Pugh. Brown also admitted that he cashed some of the Healthy Holly checks and gave the cash to Pugh.
To hide the straw-donations and avoid paying taxes that might result from the scheme, Pugh and Brown gave false information to the IRS regarding the purpose of the Healthy Holly checks.
On the same day of Brown's plea, Wedington also pleaded guilty to conspiracy to defraud the United States and to five counts of filing a false tax return.
Brown and Wedington both admitted that they conspired to avoid tax withholding's from Wedington’s payroll checks while she was Executive Director of the Maryland Center for Adult Training (MCAT), and Brown was the Chairman of the Board of Directors.
In 2013, Wedington’s salary was garnished due to student loan debt and medical bills. To avoid further garnishments, Wedington asked Brown to take her “off payroll,” so MCAT would no longer give her name to the payroll service provider for the purpose of calculating taxes to be withheld from her salary.
Brown agreed to the arrangement and had MCAT make electronic deposits into his personal bank account in an amount that exceeded the annual salary owed to Wedington, making it look as though he was doing work for MCAT as an independent contractor. Brown then wrote checks to Wedington and/or gave her cash equal or greater than her salary, which was more than $80,000 per year.
No taxes were withheld from the funds Brown paid to Wedington, nor did her salary go through her bank account, where it could be garnished.
Additionally, Brown prepared fraudulent tax returns for Wedington from 2013 through 2017, which did not report Wedington’s MCAT income. Brown also listed a variety of deductions, resulting in Wedington receiving refunds, she wasn't entitled to, which totaled over $121,000 in taxes.
In 2016, Brown filed a false income tax return for himself, which falsely listed the $64,325 of Healthy Holly payments as business income.
Finally, from 2016 through 2018, Brown worked on a paid part-time, freelance basis to prepare dozens of tax returns that he filed on behalf of his family, friends, and associates. Brown included false information in all of those tax returns in order to obtain larger refunds for his customers, which totaled more than $100,000.
“Public officials should be a role model for the citizens they serve - adhering to the highest of standards,” said IRS-CI SAC Kelly Jackson. “These individuals chose to evade payment of their fair share of taxes instead, actions for which they must be held accountable in order to preserve public trust and confidence.”
Brown faces a maximum of 20 years in federal prison for the wire fraud conspiracy. He and Wedington each face a maximum sentence of five years in federal prison for each count of conspiracy to defraud the United States, and three years in prison for each count of filing a false tax return.
Judge Chasanow has not yet scheduled sentencing for Brown or Wedington.
To read more on the Healthy Holly scandal, click here.
Read the full 34 page indictment below.
This is a breaking news story. We will update this article as more information becomes available.