Indictment against Pugh alleges years-long scheme

This item is part of The Daily Record’s coverage of the Catherine Pugh "Healthy Holly" scandal.
Sentencing: Former Baltimore mayor Pugh sentenced to 3 years in prison | After sentencing, Pugh says she hopes to rebuild her life
Timeline: A timeline of the Catherine Pugh scandal
Earlier coverage: Pugh pleads guilty to conspiracy and tax evasion charges | In a hushed courtroom, a stoic Pugh admits to her crimes | Former Baltimore mayor Pugh indicted on 11 federal counts | Indictment renews focus on UMMS self-dealing scandal | Trail to Catherine Pugh started with obscure aide’s campaign finance violation | Read the indictment | Watch the U.S. Attorney's news conference | Ex-Pugh aide’s swearing-in for House delayed following indictment | Pugh aide found guilty of campaign finance violations

The federal indictment against former Baltimore Mayor Catherine Pugh lays out an alleged years-long scheme to defraud multiple nonprofits through sales of her “Healthy Holly” children’s books and to divert hundreds of thousands of dollars to support her political ambitions.

A federal grand jury handed down an 11-count indictment on Nov. 14 that was unsealed Wednesday. Pugh is charged with seven counts of wire fraud, two counts of tax evasion and a count each of conspiracy to commit wire fraud and conspiracy to defraud the United States stemming from the sale of her books.

Pugh obtained nearly $800,000 from the alleged conspiracy, according to the indictment.

If convicted, Pugh faces 20 years in prison for each of the counts of wire fraud and conspiracy to commit wire fraud, five years for conspiracy to defraud the United States and five years for each count of tax evasion, according to the U.S. Attorney’s Office. The indictment said that, if convicted, Pugh would also forfeit a house in Baltimore and a sum of money equal to the amount gained in the alleged scheme.

“There are many victims in this case,” U.S. Attorney Robert Hur said Wednesday in announcing the charges. “The victims are all of us: the taxpayers, the people of Baltimore, who expect and deserve integrity from their public officials. The people of Baltimore expect — and they should expect — that elected officials will place the interests of their citizens above their own.”

Pugh is scheduled for an initial appearance and arraignment on Thursday in U.S. District Court in Baltimore before U.S. District Judge Deborah K. Chasanow. Pugh’s attorney Steven D. Silverman declined to comment Wednesday, saying he would “address this matter in open court tomorrow.”

The investigation into Pugh’s finances has been going on for almost three years, FBI Special Agent Jennifer C. Boone said Wednesday, calling the probe “complex and demanding.” The allegations in the indictment stretch from Pugh’s time in the Maryland Senate through her tenure as mayor beginning in 2016.

Hur said the investigation dates at least to the 2017 indictment and conviction of former city employee Gary Brown Jr. on state campaign finance charges stemming from illegal contributions to Pugh’s campaign fund.

Hur also announced Wednesday that Brown has pleaded guilty to conspiracy to commit wire fraud, conspiracy to defraud the United States and filing a false tax return in connection with Pugh’s “Healthy Holly” books. Another former city employee, Roslyn Wedington, pleaded guilty to conspiracy to defraud the U.S. and five counts of filing a false tax return, Hur announced.

Members of the Office of the State Prosecutor and the Internal Revenue Service, as well as Baltimore Inspector General Isabel M. Cumming, were also present Wednesday at the announcement of federal charges. Hur declined to comment on any ongoing investigations but said his office was looking at “all possible charges.”

‘Blurred the lines’

Pugh resigned in May after mounting pressure following allegations that she made hundreds of thousands of dollars by selling her “Healthy Holly” books to organizations that did business with the state and the city. Federal agents raided Pugh’s offices and multiple locations linked with the children’s books in April.

“I am sorry for the harm that I’ve caused to the image of the city of Baltimore and the credibility of the office of the mayor,” Pugh said in a statement announcing her resignation on May 2. “Baltimore deserves a mayor who can move our great city forward.”

The indictment alleges Pugh conspired with Brown between November 2011 and March 2019 to defraud purchasers of the children’s books in order to enrich themselves, promote Pugh’s political career and fund her mayoral campaign. Pugh and Brown are accused of not delivering books after receiving payment, accepting payments for books to be delivered to third parties and then failing to provide them, and double-selling books.

Hur said Wednesday that the alleged creation of false documents, including tax forms and invoices, required a degree of forethought.

“As alleged in the indictment, there are certain facts here that suggest that this was a fraud scheme that required certain thought,” he said.

FBI Special Agent Boone said Pugh’s alleged actions eroded public confidence and abused her office.

“Ms. Pugh blurred the lines between her public duties and private business and failed to act in the best interest of her constituents,” she said.

The indictment details a scheme that involved asking “Purchaser A” — likely the University of Maryland Medical System, which admitted it had spent $500,000 to buy “Healthy Holly” books — to purchase copies of the books for children in Baltimore city public schools.

The books were delivered to the school system’s warehouse, though Pugh and Brown later arranged to reacquire the books and stored them at various city offices and in their homes and vehicles, according to the indictment.

The books were later delivered to other purchasers without Purchaser A’s authorization, the indictment said, adding that in other cases copies of the books that purchasers paid for were never delivered.

Essentially, the indictment said, Pugh used the medical system to fund the printing of the “Healthy Holly” books before she took the books and resold them to other purchasers. The indictment said UMMS did not know the books were being resold.

A group listed as “Charity” — likely Associated Black Charities (ABC), which admitted in April to selling “Healthy Holly” books to entities including the Frederick Frank Trust — was described in the indictment as a go-between for book sales. The indictment alleges that Pugh or Brown would direct payments to the charity, but would tell the charity that the majority of the payments should be remitted to Pugh, with just a percentage staying with the charity.

In one example described in the indictment, “Purchaser E” sent ABC a $50,000 check; Pugh told ABC that the check was for “Healthy Holly” books and had the charity send her $45,000 for them. Purchaser E is likely the Frederick Frank Trust, which provided $50,000 to ABC, according to a summary of the charity’s interactions with book buyers that ABC provided to the city Ethics Board.

Money for the books was allegedly used to fund Pugh’s campaign for mayor and to pay for the purchase and renovation of a house in the city.

Pugh also allegedly issued “Healthy Holly” checks payable to Brown that he deposited to fund the Committee to Elect Catherine Pugh or that he cashed before returning the funds to her, according to the U.S. Attorney’s Office.

Pugh allegedly concealed the fact that she created false business expenses to offset the money she earned from selling the books and underreported her income in 2015 and 2016, according to the U.S. Attorney’s Office. In 2016, for example, Pugh allegedly claimed her taxable income was $32,020, with $4,168 due in taxes, when in fact her income was $322,365, with $102,444 due in taxes, the U.S. Attorney’s Office said.

Daily Record reporter Tim Curtis contributed to this story.