Heather Cobun//November 21, 2019
//November 21, 2019
Former Baltimore Mayor Catherine Pugh was subdued as she pleaded guilty Thursday to fraud and tax evasion in federal court, where prosecutors laid out more than a decade of abuse of her elected positions in state and city government.
Pugh was indicted last week on 11 counts for a years-long scheme to enrich herself and fund her political campaigns by selling her “Healthy Holly” children’s books to organizations that did business with the state and Baltimore city. The indictment was unsealed Wednesday.
At a hearing in U.S. District Court in Baltimore, Judge Deborah K. Chasanow accepted Pugh’s guilty plea to conspiracy to commit wire fraud, conspiracy to defraud the United States and two counts of tax evasion.
U.S. Attorney Robert K. Hur called Pugh’s fraud scheme “complex and sophisticated,” pointing out that she and former aide Gary Brown Jr., who pleaded guilty to related charges last week, spent years enriching themselves and hiding profits.
“I would say this was a significant betrayal of the public trust,” Hur said outside the courthouse following the hearing.
Hur said that federal sentencing guidelines for Pugh’s case call for an approximately five-year sentence but that Chasanow is not bound by the guidelines. The maximum penalty is 20 years for wire fraud conspiracy and five years each for the remaining counts.
Sentencing is set for Feb. 27. Pugh surrendered her passport at the hearing and is not permitted to travel outside the continental United States. She will be monitored by pretrial services.
A lengthy statement of facts was summarized on the record by prosecutors Martin Clarke and Leo Wise.
Clarke said Pugh began selling “Healthy Holly” books in 2010 and formed Healthy Holly LLC in 2011, when she was a state senator. Brown helped her promote and sell the books and the two “participated in a scheme to fraudulently sell and distribute tens of thousands of Healthy Holly books,” according to the statement of facts.
In 2010, Pugh asked the University of Maryland Medical System for $100,000 to purchase more than 20,000 copies of the first book and have them distributed to Baltimore City Public Schools, according to the statement of facts, which said UMMS paid the amount in 2011. After the books were printed, most of them were delivered to the school system, which kept the books in a city warehouse. Two thousand copies were sent to Pugh’s legislative office.
The books were never distributed to children but instead were moved around the city and resold by Pugh and Brown to other organizations, according to the statement of facts. UMMS purchased more books in later years, all of which were similarly stored and double-sold or never even printed, the statement said.
Pugh used Associated Black Charities (ABC) to resell the books, directing that payments be made to ABC, which retained a portion of the proceeds and sent the rest of the money to Healthy Holly LLC, according to the statement of facts, which added that Pugh and Brown then coordinated the transport of books paid for by UMMS to fulfill the orders.
Organizations including CareFirst BlueCross BlueShield, Kaiser Permanente and the Maryland Automobile Insurance Fund purchased copies of the books, as did Chicago-based Ariel Investments, which wanted to include the book in gift bags at a conference at which Pugh was to speak.
Pugh and Brown conspired to use the funds from the “Healthy Holly” book sales to fund Pugh’s mayoral campaign through straw donations to make it appear that Pugh had more supporters than she actually did, according to the statement of facts. Pugh believed voters would think she looked “desperate” if they knew she was using her own money, the statement said.
Pugh issued checks to Brown, who cashed them and made donations in the names of family and friends – often with their knowledge — to Pugh’s campaign fund, the statement said.
Brown was charged with and convicted of state campaign finance violations in 2017 for the straw donor scheme, but he did not cooperate with investigators so they were unable to learn that the source of the funds was Healthy Holly LLC.
In March 2016, before the mayoral primary, Pugh approached J.P. Grant, of Grant Capital Management Inc. in Columbia, to say she needed additional campaign funds, the statement of facts said. Pugh described her book business to Grant, who purchased books to donate to children, knowing that after paying for printing Pugh would use the remaining funds for her campaign, the statement said.
Pugh also used funds from the books to pay off personal credit card bills and a home equity loan, according to the statement of facts.
To conceal the misuse of funds, Pugh and Brown worked to establish the pretense of a business relationship by having Brown sign an independent contractor agreement and by reporting payments to him as business expenses. Brown created false invoices and back-dated them to support Pugh’s representations on her taxes, which reduced the income tax she paid.
For 2016, Pugh told the Internal Revenue Service that her taxable income was $31,020 when it was nearly 10 times that. She reported the tax due as $4,168 when it was actually more than $100,000.
Chasanow noted that the plea agreement does not resolve any civil tax liability Pugh may have and that one of the conditions of her release is to enter an agreement with the IRS.
In a statement after the hearing, Pugh’s attorney Steven D. Silverman said the process has been challenging for Pugh, who, he said, decided to forego a lengthy trial that would “drain essential government resources and cause further distraction from the serious issues our region faces.”
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,” Silverman said.
The case is USA v. Catherine Elizabeth Pugh, 1:19-cr-0541.
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