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Desire Not to Appear ‘Desperate’ Fueled Pugh’s Fraud: Prosecutors

Former Baltimore mayor Catherine E. Pugh (D) leaving the federal courthouse in Baltimore late last year after pleading guilty to four corruption charges. She was sentenced to three years in prison Thursday. Capital News Service photo

State Sen. Catherine E. Pugh (D) was worried.

It was early 2016, and Pugh was running for mayor of Baltimore.

As federal prosecutors detailed publicly for the first time in U.S District Court on Thursday, “Pugh believed that the mayoral candidate who had the greatest number of donors had the best chance of winning the primary election.”

She was also worried that “if voters learned that Pugh had injected her own money into the campaign, she would appear desperate.”

So, she and an aide decided to ramp up a “sophisticated and complicated” scheme involving fraudulent bulk sales of children’s books called “Healthy Holly” that Pugh had written — sales to non-profit groups that had already been underway for several years.

What made the arrangement corrupt, prosecutors said, was that Pugh sold more books than she printed.

She was using the connections she built as a member of powerful legislative committees — and her service on non-profit boards — to sell tens of thousands of books at a time, pocketing tens of thousands of dollars per transaction.

The purchasers were supposed to donate the books — which promoted healthy eating and exercise — to the city’s school system, a gift for which some could take a tax credit. Often the books never arrived, or orders were only partially fulfilled, which meant school kids were often cheated of Pugh’s wisdom.

The $800,000 in Healthy Holly sales, the government documented, boosted Pugh’s campaign, helped her pay off a home equity line of credit, funded new homes, and generally “lined her pocket.”

They also allowed her to create a series of straw donations in which friends, relatives and supporters would appear to be giving money to her campaign — boosting her profile to the insiders who track donation activity — without the supposed donors having to actually dip into their own funds.

In the face of a mountain of evidence, the former mayor formally pleaded guilty to four of the 11 counts she faced on Thursday, including conspiracy and tax evasion.

“She betrayed the trust placed in her by the public,” Robert K. Hur, the U.S. attorney for Maryland, told reporters outside the courthouse in Baltimore following Pugh’s appearance there.

“The City of Baltimore faces many pressing issues. And we need dedication and professionalism from our leaders, not fraud and corruption, if we are to have any hope of fixing these problems.”

As government prosecutors spoke during the two-hour hearing, Pugh sat at the defense table surrounded by her legal team.

Asked a long series of questions by U.S. District Court Judge Deborah K. Chasanow — “Do you understand the charges?” “Do you accept the facts laid out by the government?” “Have you spoken to your attorneys?” — Pugh responded “I do” each time.

She spoke in a soft voice and generally sat motionless throughout the proceedings, though she did appear to shake her head on at least three occasions as government lawyers offered their proffer. Occasionally she would pause before answering to look at her lead attorney, Steven D. Silverman, who would signal for her to respond.

Hur said repeatedly that the University of Maryland Medical System, the Baltimore City School System and the other entities and individuals that purchased or intended to distribute “Healthy Holly” books were “victims” of the “scheme to defraud.”

U.S. Attorney Robert K. Hur talks to reporters after former mayor Catherine E. Pugh’s appearance in federal court. Photo by Bruce DePuyt

Nevertheless, it remains to be seen who else will face charges. Asked about this outside court, Hur refused to comment.

Prosecutors told Chasanow that Pugh used Healthy Holly LLC bank accounts for both business and personal purposes, in violation of the law. They said she misled her accountant by saying that one $100,000 payment was a loan, not income, and that another five-figure check was repayment of a prior loan. She concealed another $100,000 check by cashing it herself at a bank — an act Hur called unusual but legal.

In each case, Pugh’s actions made it appear to her accountant that her tax liability was lower than it really was.

She faces a maximum 20 years in prison and a possible $1 million fine on the conspiracy charge, and five years in prison, with fines ranging from $100,000 to $250,000, on each of the tax evasion charges.

In reality, Hur told reporters, Pugh likely faces approximately five years behind bars under federal sentencing guidelines.

Chasanow made it clear to the former mayor that she is not bound by the agreement that prosecutors struck with her attorneys. At sentencing, Chasanow said she will take into account the need to deter other officials who might contemplate wrongdoing, Pugh’s high position of public trust, her record and her willingness to plead guilty, among other factors.

Sentencing has been set for Feb. 27 at 10 a.m.

The former mayor left the courthouse about an hour after the proceeding. Reporters asked her several questions but she did not respond. She was helped into a large black SUV, which quickly sped away.

She was forced to give up her passport, is forbidden to travel outside the country, may not contact “co-conspirators” or potential jurors, and must check in with court officials regularly between now and sentencing.

Pugh’s guilty plea does nothing to relieve her obligations to the IRS, the judge said. Whatever back taxes, interest and penalties she owes the government must be addressed, Chasanow stressed.

According to The Baltimore Sun, Silverman released this statement late Thursday afternoon:

“This has been a challenging process for former Mayor Pugh. After careful consideration of the charges brought against her, Ms. Pugh has decided to forego a long trial,” Silverman said. “Such a trial would drain essential government resources and cause further distraction from the serious issues our region faces.”

He went on: “Ms. Pugh sincerely apologizes to all of those that she let down, most especially the citizens of Baltimore whom she had the honor to serve in multiple capacities for decades. She looks forward to the conclusion of this process.”

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Desire Not to Appear ‘Desperate’ Fueled Pugh’s Fraud: Prosecutors