Scandal in Baltimore: Why a former mayor is charged with fraud, evading taxes

At the same time, prosecutors said, she was evading taxes. In 2016, for instance, when she was a state senator and ran for mayor, she told the Internal Revenue Service she had made just $31,000. In fact, her income was more than $322,000 that year, meaning she shorted the federal government of about $100,000 in taxes, according to the U.S. attorney's office.

Faces 175 years in prison

The charges Pugh faces carry potential sentences totaling 175 years in prison. Prosecutors are seeking to seize $769,688 of her profits, along with her current home in Ashburton, which they allege she bought and renovated with fraudulently obtained funds.

Credit: Brian Witte.

Credit: Brian Witte.

The former Democratic mayor is expected to appear Thursday in U.S. District Court in downtown Baltimore.

“Our elected officials must place the interests of the citizens above their own,” U.S. Attorney Robert K. Hur said in a statement. “Corrupt public employees rip off the taxpayers and undermine everyone's faith in government.”

Associates to plead guilty

Two of Pugh’s associates — longtime aide Gary Brown Jr. and Roslyn Wedington, the director of a nonprofit Pugh championed — have agreed to plead guilty in the investigation, according to agreements.

Brown, 38, an aide to Pugh as a state senator and mayor, pleaded guilty earlier this month to four counts: one for conspiracy to commit wire fraud, one for filing a false tax return, and two for conspiring to defraud the United States. Of the latter two charges, one is related to his work with Pugh, while the other is related to his work with Wedington, the director of the nonprofit training center for which Pugh served as board chairwoman.

Wedington, 50, pleaded guilty in September to one count of conspiracy to defraud the United States and five counts of filing false tax returns. According to her plea deal, she “knowingly filed false tax returns” each year from 2013 to 2017, with Brown’s help.

Prosecutors declined to say whether Brown and Wedington are cooperating with investigators.

Brandon Mead, an attorney for Wedington, said she regrets her actions.

“Ms. Wedington has been an incredibly hard worker. She unfortunately got put in a situation that many Americans face today, where she was behind on student loans, behind on health care debt, and she unfortunately made some wrong decisions,” he said.

Previously

The charges against Pugh, who rose from the City Council to a leadership position in the Maryland Senate before becoming Baltimore’s 50th mayor in 2016, come more than six months after she resigned amid scandal.

“The people of Maryland expect elected officials to make decisions based on the public’s best interests, not to abuse their office for personal gain,” Jennifer Boone, special agent in charge of the FBI’s Baltimore division, said in a statement. “The indictment alleges that Catherine Pugh betrayed the public’s trust.”

Criminal charges against the former mayor are the latest blow to a city plagued by relentless violence, persistent poverty and decades of population loss.

Tumble began with book deal 

Pugh was once seen as a more ethical option for voters in a city with a history of wrongdoing by politicians. But her political career came to an end this spring amid public outcry over the "Healthy Holly" book deals.

Those sales were revealed in a series of articles in The Baltimore Sun that began March 13. Pugh collected $500,000 over several years selling the books in a no-bid deal with the medical system, where she was on the board of directors. She later resigned from the board and as mayor amid multiple investigations into her finances and the book sales, including to other entities doing business with the city.

Pugh said she sold the clumsily published books — they contain grammatical and spelling errors, such as a main character's name being spelled two different ways and the word "vegetable" appearing as "vegetale" — to the medical system to distribute to city schoolchildren. School officials, however, said they hadn't asked for the books, never used them for instruction and had thousands sitting unread in a warehouse.

As some in city and state government blasted what they called self-dealing, Pugh was unrepentant — and called inquiries into her deals with UMMS a “witch hunt.”

But her side of the story began to evolve.

She acknowledged the medical system paid her more than she had initially acknowledged. And she later said she hadn't produced thousands of the ordered books and gave back $100,000 to the hospital network.

Then it came out that — despite Pugh saying she had sold only to UMMS — she'd collected at least another $300,000 from other entities.

Book sold to insurer, charity

The Sun revealed health insurer Kaiser Permanente and Associated Black Charities bought a total of roughly 30,000 copies of Pugh’s books, paying her nearly $200,000. Pugh voted in 2017 to approve a $48 million contract for Kaiser Permanente to provide insurance to city employees. Associated Black Charities has a deal with the city to manage a $13 million fund that makes grants to groups that help children.

And Columbia businessman J.P. Grant — whose Grant Capital Management has long done business with the city — said his company cut a check for $100,000 to Pugh's Healthy Holly LLC in 2016. He received a sample copy of a book but no documentation of how his money would be used, Grant said.

After being hospitalized amid the emerging scandal for pneumonia, Pugh apologized for the UMMS sales at a March 28 news conference at City Hall.

Credit: Amy Davis

Credit: Amy Davis

But at the same event, she disclosed that some 40,000 books UMMS paid for were never produced. And in a bizarre twist, the still seriously ill mayor showed off a line of "Healthy Holly" baby clothes.

Pressure mounted on Pugh to resign, with the City Council, the governor and the city's delegation to the General Assembly calling on her to step down. While she went on leave in April, citing health reasons, she refused to leave office until after investigators raided City Hall, her homes and other locations connected with her in May. She apologized to the public in a resignation letter read by her attorney, Steven Silverman.

“I'm sorry for the harm that I have caused to the image of the city of Baltimore and the credibility of the office of the mayor,” Pugh said in the statement. “Baltimore deserves a mayor who can move our great city forward.”

Credit: John Strohsacker

Credit: John Strohsacker

The Sun’s series of investigative stories resulted in major change at the medical system, a network of hospitals in the state. The medical system accepted the resignations of CEO Robert A. Chrencik and four other executives. The General Assembly passed sweeping legislation that demanded the resignation of the entire board of directors.

Medical system spent $100K 

In the indictment, prosecutors say Pugh’s scheme began in December 2010, when she persuaded the medical system to pay her $100,000 to purchase 20,000 copies of her first "Healthy Holly" book to donate to Baltimore’s schools. Because the book contained "various grammatical and spelling errors," a school system staffer copy edited the books, and then-CEO Andres Alonso ultimately decided they couldn’t be used for instruction but would be donated to students, prosecutors said.

Then a state senator, Pugh had about 20,000 copies of the books delivered to the school system, and those copies were stored in a warehouse. However, Pugh and Gary Brown, who worked as her legislative aide, arranged for thousands of the books to be removed for their "personal use and benefit," prosecutors say.

Over the years, Pugh re-upped the sales to the hospital network four more times but never told medical officials she had not used the books as intended, according to prosecutors. Instead, the mayor stored thousands of copies of the books at her house, the mayor’s office at City Hall, her legislative offices, the War Memorial Building, a public storage locker used by Pugh’s mayoral campaign, her and Brown’s vehicles, and the vehicles of other aides.

Money for the campaign

Meanwhile, Brown, who runs several limited liability companies out of his house, helped Pugh manage her book publishing business, including overseeing “the transportation and storage of the books, drafted invoices, and corresponded with purchasers” while on the clock as “Pugh's legislative aide and mayoral staff member,” prosecutors say.

During her successful mayoral campaign, Pugh and Brown decided to inflate her campaign finance report through illegal means by using money from the books, prosecutors allege.

On Nov. 8, 2016, prosecutors say Pugh and Brown decided to “secretly” donate book sale money to the campaign — an action that could have been done legally under Maryland law, because candidates may contribute an unlimited amount of their own campaigns. But because Pugh and Brown believed “that if the voters learned that Pugh had injected her own money into the campaign, she would appear desperate” they decided to make “contributions to her campaign in other people’s names, i.e., to use straw donors, which is a violation of Maryland’s election laws,” according to the indictment.

Came onto FBI’s radar

The FBI said it had been investigating Pugh since 2016, when her campaign that year for mayor came under scrutiny.

In 2017, Brown was found guilty of violating state election laws for funneling cash to Pugh’s campaign through relatives. Pugh kept Brown working at City Hall after the conviction. His home was among those the FBI raided this spring.

Tax returns in question

Meanwhile, prosecutors say, Pugh and Brown also defrauded the IRS by falsely representing “Healthy Holly” checks to Brown as payments for services and therefore deductible business expenses.

Brown’s deductions included fictitious expenses such as fake labor costs for nonexistent employees, prosecutors allege. When not working as a staff member for Pugh, Brown worked as a part-time freelance tax preparer and included materially false information in all of those tax returns to obtain larger refunds — totaling more than $100,000 — for his customers, prosecutors say.