It could be a “first” in the annals of white-collar crime: the alleged use of cartoonish, grammatically-incorrect books – aimed at promoting healthy lifestyles among school children – to enrich, promote and bankroll the career of a powerful politician.
Today’s 11-count federal indictment against Catherine Elizabeth Pugh, who resigned as Baltimore’s mayor last May, adds many details and unexpected twists to the story of her efforts to peddle for profit her Healthy Holly books to the University of Maryland Medical System (UMMS) and other organizations.
One telling detail: Whenever Pugh wanted cash, her aide, Gary Brown Jr., headed to various storage units around Baltimore – most frequently, a city warehouse on Pulaski Highway – to pick up Healthy Holly books for re-sale.
Although Brown is depicted in the indictment as a one-man bookmobile and ATM, Pugh wasn’t above handling a big wad of Benjamins herself.
The indictment describes how Brown carried more than $62,000 in Healthy Holly checks to “the teller’s window,” then handed over “the untraceable cash to Pugh” for use in her 2016 mayoral campaign.
The indictment is brimming with new details of the alleged scheme that brought down Baltimore’s 50th mayor – the fraudulent IRS documents, the fake invoices and the fact that Pugh had no personal bank account, instead commingling personal and business finances in the same account.
And there’s yet another angle to the story: she wasn’t alone.
Prominent people in Baltimore, whose names can be directly inferred from today’s indictment, helped champion, sell or store the books, though some of them were apparently unaware of her overall efforts to conceal her dealings.
Among them are:
• Robert A. Chrencik. The longtime CEO and president of UMMS was removed last spring after it was revealed that he had authorized a total of $500,000 in payments to Pugh, who sat on UMMS’ board of directors, to print the books for the alleged benefit of children in Baltimore City schools.
The books cost a fraction of the $5-a-copy price that UMMS paid Pugh, and many of the books ordered by the medical system were never actually printed, according to the indictment.
• Ex-Baltimore Schools CEO Andrés Alonso. In 2011, he agreed to store the Healthy Holly books after being approached by Pugh.
However, Alonso had his staff first copy-edit the books, in which they “identified various grammatical and spelling errors which Pugh corrected,” according to the indictment.
• Associated Black Charities executive director Diane L. Bell-McKoy. The co-chair of Pugh’s 2017 Mayoral Transition Team was allegedly involved in what turned out to be the “fraudulent” re-sale of Healthy Holly books, many of them stored by the school system.
ABC currently is the fiscal agent for the $14 million Ryan White HIV and AIDS treatment programs in Baltimore. Its handling of grants for the Baltimore Children and Youth Fund was the subject of a critical audit that McKoy recently brushed aside.
• J.P. Grant, a Columbia-based financier whose Grant Capital Management has multi-million-dollar leasing contracts with the city. Grant (apparently “Purchaser G” in the indictment) made two payments in 2016 to Pugh’s business entity, Healthy Holly LLC.
The first payment of $50,000 was made in March 2016 after Pugh “told Purchaser G that she needed to raise more money for her [mayoral] campaign and she asked for Purchaser G’s help,” according to the indictment.
The second payment of $100,000 was made by Grant in October 2016. “Pugh told Purchaser G that she wanted to buy a larger house so she could entertain people when she became mayor,” the indictment says, adding:
“On or about October 13, 2016, Purchaser G wrote a check from his company’s bank account for $100,000 payable to ‘Healthy Holly’ with the notation ‘book donation’ in the memo line of the check.”
None of the above parties was part of today’s indictment, which deals exclusively with the alleged criminal activity of 69-year-old Pugh who is facing felony charges of fraud, tax evasion and conspiracy.
Brown, her 38-year-old aide, it was revealed today, has pleaded guilty to four counts of wire fraud, filing of false federal tax returns and conspiracy.
Selling and Re-selling
The indictment goes through the financial history of the four illustrated children’s books that Pugh wrote and sold after she had formed Healthy Holly LLC in January 2011 (as first reported by The Brew).
They are Healthy Holly: Exercising is Fun published in June 2011; Healthy Holly: A Healthy Start for Herbie published in March 2013; Healthy Holly: Fruits Come in Colors like the Rainbow published in August 2015; and Healthy Holly: Vegetables are not just Green published in August 2017.
Starting with Exercising is Fun, Pugh devised a unique way to sell her book – avoid wholesale, retail or Internet sales in favor of approaching an organization she intimately knew.
Her main benefactor was UMMS, the non-profit corporation that took over the former public University of Maryland hospital in Baltimore, whose board of directors was festooned with political appointees, including former Baltimore County state senator Francis X. Kelly Jr. and and the late Michael E. Busch, speaker of the Maryland House of Delegates.
Pugh joined the board after she became a state senator (D-40th) and wielded wide legislative influence over state funding of the $4 billion medical system through her appointments on the Senate Health and Finance committees.
In 2011, Pugh negotiated a deal with “Purchaser A” (as UMMS is identified in the indictment) to buy 20,000 copies of Healthy Holly: Exercising is Fun for $100,000 “on the condition that the purchase be on behalf of, and for distribution to, school children in the Baltimore City Public Schools.”
UMMS promptly cut two $50,000 checks to Pugh, while Pugh went to visit then-schools chief Alonso.
Alonso was so unimpressed by Pugh’s literary effort that – even after his staff identified the books’ spelling and grammatical errors – he refused to make it part of the school curriculum.
Instead, copies of the book were authorized to be taken home by students if they so choose, which few did.
Warehouse Becomes a Piggy Bank
By June 2011, Pugh had pocketed $100,000 in UMMS funds, while spending only $13,480 to print the book.
Some 20,020 copies of the book were delivered to the mail room of school headquarters on North Avenue. At a loss of what do to with them, “BCPS employees moved the books to a warehouse used by the school system located at 5300 Pulaski Highway,” the indictment says.
Some of the books gathered dust, but many of them had another fate. “Beginning in or about October 2011, Pugh and Brown arranged for thousands of copies of Book One to be removed from the city warehouse for Pugh’s personal use and benefit,” the indictment says.
Thus began the Pugh-Brown conspiracy that lies at the heart of today’s indictment – the fraudulent “double-sale” of Healthy Holly books paid for by UMMS to other nonprofits and individuals.
“Pugh and Brown began selling to unwitting purchasers copies of Healthy Holly Books One, Two and Three that had already been sold to Purchaser A and donated to BCPS.”
“Pugh and Brown used a Baltimore-based public charity,” the indictment continues, “to facilitate the resale and distribution of the books to new purchasers.”
“The Charity” Assists
To accomplish this, Pugh called and texted what the indictment refers to as “the Charity,” presumably Associated Black Charities, to make arrangements to sell the books that Brown was removing from the warehouse and other locations.
In one transaction, Pugh “confirmed” that the Charity could deduct $1,000 from the payment of a $10,000 order as long as “the balance would be given to Pugh via a check made payable to Healthy Holly, which she [Pugh] would ‘pick-up.’”
(As it happened, the purchaser wound up ordering only 556 copies of the book, to which the Charity pocketed $552 and gave Pugh the balance of $4,448, according to the indictment.)
And so it went. In one case in 2012, “Purchaser C” (presumably CareFirst BlueCross BlueShield) agreed to pay Associated Black Charities $7,500 for 1,000 copies of A Healthy Start for Herbie, but instead sent the check directly to Pugh.
Pugh deposited the check without sharing any of the proceeds with ABC. “Neither the Charity nor Purchaser C ever received the 1,000 copies of Book Two for further distribution to a charitable cause,” the indictment says.
Concealing the Cash
Baltimore’s former mayor went to great lengths to hide the income she received from Healthy Holly sales. For example, the indictment says that she reported a total taxable income of $31,020 on her 2016 federal return.
In fact, her taxable income was 10 times more – $322,365, according to the indictment, which resulted in an underpayment of more than $100,000 in taxes.
Today’s charges carry a potential prison sentence of 175 years.
Prosecutors are seeking to seize over $760,000 of profits from her book sales, together with her house in Ashburton, which they allege was bought and expensively renovated with fraudulently obtained funds.
Before she resigned, Pugh proclaimed that she had “done nothing wrong” and had complied with all IRS tax and reporting requirements.
– Fern Shen contributed to this story.