Federal prosecutors charged former Mayor Catherine Pugh with 11 counts of wire fraud, conspiracy to defraud the U.S., conspiracy to commit wire fraud and tax evasion related to her “Healthy Holly” children’s book scheme.
The feds allege Pugh would sell orders of her books promoting healthy living to kids and then not deliver them, have them purchased on behalf of a third party and then use some or all of the order for personal use, or pick up copies from previous orders to re-sell them.
According to the indictment, Pugh would issue checks from the proceeds to a political aide, Gary Brown Jr., who would then cash the checks and get money orders, debit cards and personal checks in the names of straw donors to put in an account for the Committee to Elect Catherine Pugh.
In one instance, Brown was given $26,300 in “Healthy Holly” money, which he then cashed and gave to Pugh, prosecutors allege.
After Brown was charged for making illegal campaign contributions in 2017, Pugh said her campaign would return the donations, but instead it used the money to help fund Brown’s legal defense. Brown was eventually convicted.
Federal prosecutors also allege Pugh concealed all of the money she made from her publishing company. In 2016, while she was still in the Maryland State Senate and running for mayor of Baltimore, Pugh claimed her income was $31,020 when, prosecutors allege, it was in fact $322,365. That shorted the government more than $98,000 in tax revenue.
If convicted, Pugh faces a maximum 20-year sentence for each of the seven wire fraud charges and the conspiracy to commit wire fraud charge, and a maximum five-year sentence for the conspiracy to defraud the U.S. charge and each of the two charges of tax evasion.
The disgraced mayor is scheduled to appear in U.S. District Court in Baltimore on Nov. 21 for an arraignment.
In a statement, U.S. Attorney for Maryland Maryland Robert K. Hur said: “Our elected officials must place the interests of the citizens above their own. Corrupt public employees rip off the taxpayers and undermine everyone’s faith in government. The U.S. Attorney’s Office and our law enforcement partners will zealously pursue those who abuse the taxpayers’ trust and bring them to justice.”
Prosecutors also unsealed guilty pleas from Brown, who pleaded guilty to conspiracy to commit wire fraud, two counts of conspiracy to defraud the U.S. and filing a false tax return, and Roslyn Wedington, the executive director of a job-training center with ties to Pugh. She pleaded guilty to conspiracy to defraud the U.S. and five counts of filing a false tax return.
Pugh, was first elected to the Maryland State Senate in 2007, and went on to serve on a number of committees, including the Senate Health committee, the indictment notes. In 2011, the same year she made a failed bid for Baltimore mayor, she formed Healthy Holly, LLC, and began selling children’s books directly to nonprofit organizations, “many of whom did business or attempted to do business with Maryland state government and Baltimore City.”
Pugh also maintained a public relations and marketing business, Catherine Pugh and Company, Inc., she formed in 1997. She did not keep a personal bank account, prosecutors say, and instead mixed her personal and business finances.
With the help of Brown, a legislative aide with Pugh in the senate, she solicited organizations to purchase the books. The University of Maryland Medical System, on whose board Pugh sat since 2001, when she was a member of the Baltimore City Council, ordered 20,000 copies of “Healthy Holly: Exercising is Fun” for $100,000.
Pugh was to deliver them to Baltimore City Public Schools headquarters, and the books would then be distributed to students. Then-City Schools CEO Andrés Alonso agreed to accept the “Healthy Holly” books, but he first had his staff copy edit them. They found a number of grammatical and spelling errors, which were later corrected. Alonso decided that, instead of using the books for lessons, the school system would sent them home with students.
The order was fulfilled in June and deposited in a school system warehouse on Pulaski Highway. After that, prosecutors allege, Pugh and Brown would coordinate trips back to the warehouse, without the knowledge of UMMS or City Schools, to take copies of the books to then re-sell or redistribute.
An order was placed in 2012 for the second book in the series, “Healthy Holly: A Healthy Start for Herbie.” City Schools staff once again flagged errors that needed correction. In December, Pugh emailed the publisher to instruct them “Let’s make that 18500 [for the] and 1500 [for] Me,” the indictment says.
The copies were broken up between the office of the Baltimore City Board of Education and Pugh’s legislative office.
“The fraudulent conversion provided Pugh and Brown with a free inventory of books that they used as giveaways at various events in order to promote Book Two and Pugh’s political campaigns,” the indictment says.
Pugh allegedly worked the same scheme for the third book, “Healthy Holly: Fruits Come in Colors Like the Rainbow.”
As has previously been reported, Pugh eventually reached book deals with insurer Kaiser Permanente, Associated Black Charities, insurer CareFirst BlueCross BlueShield, businessman J.P. Grant and the quasi-public Maryland Automobile Insurance Fund, with Asscociated Black Charities serving as a facilitator in multiple purchases. In those instances, prosecutors allege those orders would be filled with books taken from the school warehouse.
But from 2016 to 2018, Pugh took more than a half dozen orders for the books, totaling more than $400,000, and did not print or distribute them at all. During one transaction with Grant, identified in the indictment as “Purchaser G,” she asked for a $50,000 order to help finance her run for Mayor in 2016.
“Purchaser G understood that Pugh would use the money to produce and distribute the Healthy Holly books, with the balance of the money going toward her mayoral campaign,” the indictment says. “Purchaser G knew that providing money to Pugh’s campaign via Pugh’s company was a violation of Maryland’s election laws.”
In October, ahead of the general election but after Pugh had secured the Democratic Party’s nomination, Pugh went back to Grant and said she wanted to buy a larger house to entertain in when she’s mayor, the indictment says. Grant wrote a check for $100,000.
The indictment also outlines how Pugh allegedly distributed profits from the “Healthy Holly” books into her campaign coffers and avoided paying taxes to the IRS.
In 2016, Brown formed a company called GBJ Consulting. Pugh would pay Brown’s company checks under the pretenses of a business relationship, prosecutors allege, and then he would cash the checks at the same bank holding the “Healthy Holly” account. He gave the cash–approximately $62,100 in all–to Pugh or straw donors.
Brown was later convicted for violating state election law for funneling $18,000 in straw donations. But those funds were not returned to the people whose names were used; instead, the money was used to pay Brown’s attorneys, prosecutors allege.
Pugh allegedly used her purported business relationship with Brown to conceal that she “created false business expenses to offset the income she received from the sale of the books,” the indictment says.
News of Pugh’s “Healthy Holy” book deals first broke in March, when The Sun reported she had taken $500,000 in a series of payments for 100,000 copies of her books from UMMS. The story exposed a larger issue of self-dealing on the board, whose members, a group that included other politicians and well-connected business people, received lucrative contracts from the organization.
State Sen. Jill Carter (D-41st District) sponsored legislation to ban board members from doing business with UMMS.
Initially, Pugh called media probes into her “Healthy Holly” dealings a “witch hunt.” She said she had properly reported all income from the book business on her taxes and updated seven years worth of financial disclosure forms with the state ethics commission. Pugh also resigned from the UMMS board and promised to return the final payment of $100,000 she received from the hospital system.
At a press conference on March 28, Pugh apologized, saying, “I am deeply sorry for any lack of confidence or disappointment which this initiative may have caused among Baltimore City residents, friends and colleagues. In hindsight, this arrangement with the University of Maryland Medical System was a regrettable mistake.”
After reports of other payments surfaced–including one with Kaiser Permanente where she Pugh failed to recuse herself when the insurers contract came up for a vote before the Board of Estimates–the mayor took a leave of absence at the start of April.
Later that month, federal authorities raided her Ashburton home and left with boxes and boxes of “Healthy Holly” books and documents.
On May 2, Pugh resigned.
This story has been updated.
