Former Baltimore Mayor Pugh Charged With Fraud, Tax Evasion in Federal Court

Former Baltimore mayor and state senator Catherine E. Pugh (D) has been indicted on federal charges of wire fraud, tax evasion and conspiracy to defraud the United States.

Pugh was indicted by a federal grand jury last week and an 11-count, 34-page indictment was unsealed Wednesday.

She is expected to surrender to U.S. Marshals before an initial hearing in U.S. District Court on Thursday.

According to the U.S. Attorney’s Office for the District of Maryland, Pugh and Gary Brown, Jr., who has pleaded guilty to related charges, defrauded purchasers of Healthy Holly books by accepting payment for books that were never delivered, double-selling books without telling buyers, and reselling books that had previously been purchased and donated to the Baltimore City Public Schools.

The indictment alleges that Pugh used profits from the sale of fraudulently obtained Healthy Holly books for her own purposes, including to fund straw donations to her mayoral election campaign and to purchase and renovate a home in Baltimore City.

Pugh stored thousands of fraudulently obtained Healthy Holly books at various locations, including her home, her state legislative offices, her mayoral office, and a public storage locker used by her mayoral campaign, according to the indictment.

Between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author. The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

In charges that Pugh conspired to defraud the U.S., prosecutors say she issued Healthy Holly checks to Brown for the purpose of funding straw donations to the Committee to Elect Catherine Pugh. The expenses were disguised as Healthy Holly business expenses.

The indictment alleges that Brown cashed checks and used untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.

The indictment alleges that Pugh also wrote $26,300 in Healthy Holly checks to Brown, which he cashed and then gave the cash to Pugh.

Pugh was the sole signatory on the bank accounts for Healthy Holly LLC and the Pugh Company, a marketing and telecommunications firm; she did not maintain a personal bank account, using her business bank accounts for personal and business finances, according to prosecutors.

The indictment also alleges that the Committee to Elect Catherine Pugh’s funds were mismanaged after Brown was charged on Jan. 11, 2017 for violating Maryland’s election laws. The Committee to Elect Catherine Pugh issued five checks in the name of three straw donors with the memo “returned contribution.” However, none of the alleged straw donors were repaid and Pugh told Brown to use the money to pay for his legal defense. He was ultimately convicted of the charges.

(Brown, in fact, had been appointed to fill a vacancy in the House of Delegates, representing Pugh’s old legislative district, but Gov. Lawrence J. Hogan Jr. rescinded the appointment after Brown’s 2017 indictment.)

The indictment also details Pugh’s efforts to evade taxes on income received from the sale of Healthy Holly books. According to prosecutors, she created false business expenses to offset income by issuing Healthy Holly checks to Brown for services or products purportedly supplied by his company.

Pugh filed false income tax returns under-reporting her income in 2015 and 2016, according to the indictment, which alleges that for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

If convicted, Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy and for each of the seven counts of wire fraud; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.

Pugh, 69, is not the only person charged in the federal investigation surrounding her finances and city business.

Guilty pleas by former Baltimore City employees Brown, 38, and Roslyn Wedington, 50, were also unsealed Wednesday.

Brown pleaded guilty last week to conspiracy to commit wire fraud, two counts of conspiracy to defraud the United States, and filing a false tax return. Wedington pleaded guilty to conspiracy to defraud the United States and to five counts of filing a false tax return on the same day.

Among other charges, Brown and Wedington both admitted that they conspired to avoid tax withholdings from Wedington’s payroll checks while Wedington was executive director of the Maryland Center for Adult Training (MCAT) and Brown was the chairman of the board of directors.

In 2013, after Wedington’s salary was garnished for outstanding bills, she asked Brown to take her “off payroll,” according to prosecutors.

Brown had MCAT make electronic deposits into his personal bank account in an amount that exceeded Wedington’s salary, creating the pretense that he was a contractor for MCAT. Brown then gave cash and checks to Wedington equal to or greater than her salary, which was more than $80,000 per year, according to prosecutors.

No taxes were withheld from the funds paid to Wedington, nor did her salary go through her bank account, where it could be garnished.

Prosecutors say Brown also prepared fraudulent tax returns for Wedington from 2013 through 2017, which did not report Wedington’s MCAT income and included other false entries. The result was more than $121,000 in refunds Wedington was not entitled to or taxes that were unpaid the government.

Brown also filed a false individual income tax return for tax year 2016 for himself, which falsely listed the $64,325 of Healthy Holly payments as business income, according to court records.

Brown filed a number of fraudulent tax returns on behalf of his family, friends and associates, helping them get refunds totaling more than $100,000, according to prosecutors.

Brown faces a maximum of 20 years in federal prison for the wire fraud conspiracy. Brown 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. Their sentencing hearings have not yet been scheduled.

A news conference about the indictments is set in Baltimore for 10 a.m.

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