Baltimore, Maryland – U.S. District Judge Deborah K. Chasanow today sentenced Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, to three years in federal prison, followed by three years of supervised release, on charges of conspiracy to commit wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  Judge Chasanow also ordered Pugh to pay $411,948 in restitution and to forfeit $669,688 including property on Ellamont Road in Baltimore and $17,800 from the Committee to Re-elect Catherine Pugh.

The sentence was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Baltimore City faces many pressing issues, and we need our leaders to place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “Catherine Pugh betrayed the public trust for her personal gain and now faces three years in federal prison, where there is no parole—ever.  Law enforcement will remain vigilant to ensure that our citizens receive the honesty and professionalism they deserve from government officials and will prosecute officials who betray the public’s trust.” 

“The defendant's scheme to cheat the taxpayers of Baltimore was as bold as it was brazen, and today's sentence shows that the punishment for those actions is swift and severe,” said Alfred Watson, Assistant Special Agent in Charge of the Baltimore Division of the FBI.  “The public has a right to expect and demand honesty and integrity from their public servants and the FBI stands ready with our law enforcement partners to uphold those principals in our system.”

“Today, Catherine Pugh learned the consequences of her actions.  When those in positions of trust conspire to defraud the government and engage in corrupt ventures, they must be held accountable,” said IRS-CI Special Agent in Charge Kelly R. Jackson.  “We will continue to pursue justice against those whose actions deteriorate the confidence of the citizens that they were elected to serve.” 

According to her plea agreement, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

Between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

From approximately 2011 until December 2016, Gary Brown, Jr. worked as a legislative aide to Pugh.  Brown actively campaigned for Pugh’s reelection to the State Senate in 2014 and served as her campaign aide during her 2016 mayoral election campaign.  Following Pugh’s election and inauguration as mayor of Baltimore City in December 2016, Brown was hired as the Deputy Director of Special Events in the mayor’s office.  In December 2016, Brown was nominated by the Maryland Democratic Central Committee to fill the vacancy in the Maryland House of Delegates created by Pugh’s mayoral victory.  However, the Governor withdrew Brown’s nomination after he was indicted for election law violations in January 2017.

Brown was the sole owner and operator of Stricker Abstracting, LLC, and GB Abstracting, LLC, both Maryland companies that purported to be title-abstracting businesses, and GBJ Consulting, LLC, a Maryland consulting business.  Brown ran all three companies from his residences in Baltimore.  Brown also freelanced as a tax return preparer.  Between March 2011 until March 2019, Brown helped Pugh promote and sell the Healthy Holly books.  Brown oversaw the transportation and storage of the books, drafted invoices, and corresponded with purchasers.  Much of Brown’s work on Healthy Holly occurred during work hours while serving as Pugh’s legislative aide and mayoral staff member.  Brown was not an employee of Healthy Holly and received no salary or compensation until approximately mid-2016 when he started to get sales commissions.  None of his companies received compensation for services purportedly provided to Healthy Holly.

Wire Fraud

Pugh admitted that from November 2011 until March 2019, she conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  Pugh and Brown admitted that they employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, the War Memorial building in Baltimore City, and a public storage locker used by Pugh’s mayoral campaign.  

Specifically, Pugh admitted that she sold approximately 20,000 each of Healthy Holly books one, two, and three to the University of Maryland Medical System (UMMS) for $100,000 each.  UMMS agreed to the purchase on the condition that it be on behalf of, and for distribution to, school children in the Baltimore City Public School system (BCPS), in part, to further the mission of UMMS’s community outreach program.  As part of the agreement Pugh was to deliver the donated books to BCPS.

As detailed in her plea agreement, Pugh did not deliver the full 20,000 Healthy Holly books one, two, and three that UMMS purchased to BCPS, instead keeping some of the books for herself.  In addition, Pugh sold to unwitting purchasers copies of Healthy Holly books one, two, and three that had already been sold to UMMS and donated to BCPS.  Pugh used Associated Black Charities, a Baltimore-based public charity, to facilitate the resale and distribution of the books to new purchasers.  Neither the charity nor the new purchasers knew that Pugh was double-selling the books.  Pugh also accepted payment for books that were never delivered to the purchaser.

Conspiracy to Defraud the United States/Tax Evasion

Pugh further admitted that she used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Specifically, Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were then deposited into the bank account of the Committee to Elect Catherine Pugh.  Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  In total, Brown and Pugh cashed out approximately $62,100 of Healthy Holly checks during 2016, all of which went to straw donors or Pugh.  To conceal the scheme, Brown and Pugh created the pretense of a legitimate business relationship between Brown and Healthy Holly.  In furtherance of the pretense, Pugh and Brown signed an independent contractor agreement between Healthy Holly and GBJ Consulting, and Brown created a business ledger that misrepresented the Healthy Holly checks as payments for promotion services rendered by Brown’s company on behalf of Healthy Holly.  At Pugh’s urging, Brown also created bogus GB Consulting invoices and backdated them.

On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” In fact, Pugh acknowledges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense in the state election-law prosecution, a case that had legal implications for Pugh.  

Pugh also admitted that she conspired to evade taxes on the income received from the sales of Healthy Holly books.  To accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh filed false income tax returns for 2015 and 2016, in which she underreported her income.  For example, for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

Former Baltimore City employee Gary Brown, Jr., age 38, of Baltimore, previously pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  Judge Chasanow has not yet scheduled a sentencing date for Brown.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who prosecuted the case.

# # #

Baltimore, Maryland – Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, pleaded guilty today to the federal charges of conspiracy to commit wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  U.S. District Judge Deborah K. Chasanow has scheduled sentencing for February 27, 2020, at 10:00 a.m.

The guilty plea was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Catherine Pugh betrayed the public trust for her personal gain,” said United States Attorney Robert K. Hur. “Baltimore City faces many pressing issues, and we need dedication and integrity from our leaders—not corruption—in order to solve them.  Law enforcement will continue to be vigilant for evidence of fraud and corruption, to ensure that our citizens receive the honesty and professionalism they deserve from government officials.” 

“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,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division.  “Catherine Pugh betrayed the public's trust.  The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.” 

“For over 100 years, IRS Criminal Investigation has been committed to enforcing our nation’s tax laws.  This case should serve as an example to the public that everyone will be held to the same standard when it comes to paying their fair share of taxes.” Said Kelly Jackson, IRS Special Agent in Charge, Washington D.C. Field Office. “IRS Criminal Investigation will continue to work diligently with our law enforcement partners to identify and bring to justice those who endeavor to evade taxes, especially those elected to serve the public.”

According to her plea agreement, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

Between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

From approximately 2011 until December 2016, Gary Brown, Jr. worked as a legislative aide to Pugh.  Brown actively campaigned for Pugh’s reelection to the State Senate in 2014 and served as her campaign aide during her 2016 mayoral election campaign.  Following Pugh’s election and inauguration as mayor of Baltimore City in December 2016, Brown was hired as the Deputy Director of Special Events in the mayor’s office.  In December 2016, Brown was nominated by the Maryland Democratic Central Committee to fill the vacancy in the Maryland House of Delegates created by Pugh’s mayoral victory.  However, the Governor withdrew Brown’s nomination after he was indicted for election law violations in January 2017.

Brown was the sole owner and operator of Stricker Abstracting, LLC, and GB Abstracting, LLC, both Maryland companies that purported to be title-abstracting businesses, and GBJ Consulting, LLC, a Maryland consulting business.  Brown ran all three companies from his residences in Baltimore.  Brown also freelanced as a tax return preparer.  Between March 2011 until March 2019, Brown helped Pugh promote and sell the Healthy Holly books.  Brown oversaw the transportation and storage of the books, drafted invoices, and corresponded with purchasers.  Much of Brown’s work on Healthy Holly occurred during work hours while serving as Pugh’s legislative aide and mayoral staff member.  Brown was not an employee of Healthy Holly and received no salary or compensation until approximately mid-2016 when he started to get sales commissions.  None of his companies received compensation for services purportedly provided to Healthy Holly.

Wire Fraud

Pugh admitted that from November 2011 until March 2019, she conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  Pugh and Brown admitted that they employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, the War Memorial building in Baltimore City, and a public storage locker used by Pugh’s mayoral campaign. 

Specifically, Pugh admitted that she sold approximately 20,000 each of Healthy Holly books one, two, and three to the University of Maryland Medical System (UMMS) for $100,000 each.  UMMS agreed to the purchase on the condition that it be on behalf of, and for distribution to, school children in the Baltimore City Public School system (BCPS), in part, to further the mission of UMMS’s community outreach program.  As part of the agreement Pugh was to deliver the donated books to BCPS.

As detailed in her plea agreement, Pugh did not deliver the full 20,000 Healthy Holly books one, two, and three that UMMS purchased to BCPS, instead keeping some of the books for herself.  In addition, Pugh sold to unwitting purchasers copies of Healthy Holly books one, two, and three that had already been sold to UMMS and donated to BCPS.  Pugh used Associated Black Charities, a Baltimore-based public charity, to facilitate the resale and distribution of the books to new purchasers.  Neither the charity nor the new purchasers knew that Pugh was double-selling the books.  Pugh also accepted payment for books that were never delivered to the purchaser.

Conspiracy to Defraud the United States/Tax Evasion

Pugh further admitted that she used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Specifically, Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were then deposited into the bank account of the Committee to Elect Catherine Pugh.  Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  In total, Brown and Pugh cashed out approximately $62,100 of Healthy Holly checks during 2016, all of which went to straw donors or Pugh.  To conceal the scheme, Brown and Pugh created the pretense of a legitimate business relationship between Brown and Healthy Holly.  In furtherance of the pretense, Pugh and Brown signed an independent contractor agreement between Healthy Holly and GBJ Consulting, and Brown created a business ledger that misrepresented the Healthy Holly checks as payments for promotion services rendered by Brown’s company on behalf of Healthy Holly.  At Pugh’s urging, Brown also created bogus GB Consulting invoices and backdated them.

On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” In fact, Pugh acknowledges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense in the state election-law prosecution, a case that had legal implications for Pugh. 

Pugh also admitted that she conspired to evade taxes on the income received from the sales of Healthy Holly books.  To accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh filed false income tax returns for 2015 and 2016, in which she underreported her income.  For example, for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.  Actual sentences for federal crimes are typically less than the maximum penalties.  A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.  Pugh remains released on conditions under the supervision of U.S. Pretrial Services.

Former Baltimore City employees Gary Brown, Jr., age 38, of Baltimore, previously pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  No sentencing date has been set.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are prosecuting the case.

# # #

Baltimore, Maryland – A federal grand jury has indicted Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, on the federal charges of conspiracy to commit wire fraud, seven counts of wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  The indictment was returned on November 14, 2019, and was unsealed today. Catherine Pugh is scheduled for an initial appearance and arraignment in U.S. District Court in Baltimore before U.S. District Judge Deborah K. Chasanow on November 21, 2019 at 1:00 p.m.  Pugh is expected to self-surrender to the U.S. Marshals prior to the hearing on November 21st. 

The guilty pleas of former Baltimore City employees Gary Brown, Jr., age 38, of Baltimore, and Roslyn Wedington, age 50, of Rosedale, Maryland, were also unsealed today.  On November 13, 2019, Brown pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  That same day, Wedington pleaded guilty to conspiracy to defraud the United States and to five counts of filing a false tax return.

The indictment and guilty pleas were announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Our elected officials must place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “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.” 

“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,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division.  “The indictment alleges that Catherine Pugh betrayed the public's trust. The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.” 

“Public officials should be a role model for the citizens they serve - adhering to the highest of standards,” said IRS-CI SAC Kelly Jackson. “These individuals chose to evade payment of their fair share of taxes instead, actions for which they must be held accountable in order to preserve public trust and confidence.”

According to Pugh’s 11-count indictment, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

As stated in the indictment, between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

Wire Fraud Allegations

The indictment alleges that from November 2011 until March 2019, Pugh conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  The indictment alleges that the conspirators employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh allegedly stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, and a public storage locker used by Pugh’s mayoral campaign.  The indictment alleges that Pugh used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Conspiracy to Defraud the United States/Tax Evasion

Further, the indictment alleges that Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  The indictment alleges that Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were allegedly then deposited into the bank account of the Committee to Elect Catherine Pugh.  The indictment alleges that Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” The indictment alleges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense.  

In addition, the indictment alleges that Pugh conspired to evade taxes on the income received from the sales of Healthy Holly books.  The indictment alleges that to accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh allegedly filed false income tax returns for 2016 and 2015, in which she underreported her income.  For example, the indictment alleges that for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

If convicted, Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy and for each of the seven counts of wire fraud; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.  Actual sentences for federal crimes are typically less than the maximum penalties.  A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors. 

An indictment is not a finding of guilt.  An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

Brown Wire Fraud Conspiracy

According to Gary Brown’s plea agreement, from November 2011 until March 2019, he conspired with Catherine Pugh to fraudulently sell and distribute tens of thousands of Healthy Holly books.  Brown admitted that over that period they executed the scheme in three ways: by selling the books, keeping the money and not delivering the books; provided books to purchasers, but later converted them to their own use at campaign events and government functions; and resold books that had previously been purchased and donated to the Baltimore City Public Schools. 

Brown Conspiracy with Pugh to Defraud the United States

Further, as detailed in his plea agreement, Brown cashed checks Pugh wrote to him from the Healthy Holly account, then used the cash to fund money orders, debit cards, and personal checks in the names of straw donors, which were then submitted to the Committee to Elect Catherine Pugh.  Brown also admitted that he cashed some of the Healthy Holly checks and gave the cash to Pugh.  To conceal the straw-donation scheme and avoid paying taxes that might result from the scheme, Pugh and Brown provided false information to the IRS regarding the purpose of the Healthy Holly checks.   

Brown and Wedington Conspiracy to Defraud the United States/Filing False Tax Returns

Brown and Wedington both admitted that they conspired to avoid tax withholdings from Wedington’s payroll checks while Wedington was the Executive Director of the Maryland Center for Adult Training (MCAT) and Brown was the Chairman of the Board of Directors.  Specifically, in 2013, Wedington’s salary was garnished due to outstanding student loan debt and medical bills.  In order to avoid further garnishments, Wedington asked Brown to take her “off payroll,” which meant that MCAT would no longer submit her name to the payroll service provider for the purpose of calculating taxes to be withheld from her salary.  Brown agreed to the arrangement and had MCAT make electronic deposits into his personal bank account in an amount that exceeded the annual salary owed to Wedington, creating the pretense that he was doing work for MCAT as an independent contractor.  Brown then wrote checks to Wedington and/or gave her cash equal to or greater than her salary, which was more than $80,000 per year.  No taxes were withheld from the funds Brown paid to Wedington, nor did her salary go through Wedington’s bank account, where it could be garnished.  In addition, Brown prepared fraudulent tax returns for Wedington for tax years 2013 through 2017, which did not report Wedington’s MCAT income and made a variety of false entries, resulting in refunds to which Wedington was not entitled and avoiding over $121,000 in total taxes due and owing.  Brown also filed a false individual income tax return for tax year 2016 for himself, which falsely listed the $64,325 of Healthy Holly payments as business income.  In addition, from 2016 through 2018, Brown worked part-time as a freelance tax preparer and charged a fee to prepare dozens of tax returns that he filed on behalf of his family, friends, and associates.  Brown included false information in all of those tax returns in order to obtain larger refunds for his customers.  The fraudulently obtained refunds totaled more than $100,000.

Brown faces a maximum of 20 years in federal prison for the wire fraud conspiracy.  Brown and Wedington each face a maximum sentence of five years in federal prison for each count of conspiracy to defraud the United States, and three years in prison for each count of filing a false tax return.  Judge Chasanow has not yet scheduled sentencing for Brown or Wedington.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are prosecuting the case.

# # #

Baltimore, Maryland – A federal grand jury has indicted Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, on the federal charges of conspiracy to commit wire fraud, seven counts of wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  The indictment was returned on November 14, 2019, and was unsealed today. Catherine Pugh is scheduled for an initial appearance and arraignment in U.S. District Court in Baltimore before U.S. District Judge Deborah K. Chasanow on November 21, 2019 at 1:00 p.m.  Pugh is expected to self-surrender to the U.S. Marshals prior to the hearing on November 21st. 

The guilty pleas of former Baltimore City employees Gary Brown, Jr., age 38, of Baltimore, and Roslyn Wedington, age 50, of Rosedale, Maryland, were also unsealed today.  On November 13, 2019, Brown pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  That same day, Wedington pleaded guilty to conspiracy to defraud the United States and to five counts of filing a false tax return.

The indictment and guilty pleas were announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Our elected officials must place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “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.” 

“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,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division.  “The indictment alleges that Catherine Pugh betrayed the public's trust. The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.” 

“Public officials should be a role model for the citizens they serve - adhering to the highest of standards,” said IRS-CI SAC Kelly Jackson. “These individuals chose to evade payment of their fair share of taxes instead, actions for which they must be held accountable in order to preserve public trust and confidence.”

According to Pugh’s 11-count indictment, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

As stated in the indictment, between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

Wire Fraud Allegations

The indictment alleges that from November 2011 until March 2019, Pugh conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  The indictment alleges that the conspirators employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh allegedly stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, and a public storage locker used by Pugh’s mayoral campaign.  The indictment alleges that Pugh used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Conspiracy to Defraud the United States/Tax Evasion

Further, the indictment alleges that Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  The indictment alleges that Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were allegedly then deposited into the bank account of the Committee to Elect Catherine Pugh.  The indictment alleges that Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” The indictment alleges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense.  

In addition, the indictment alleges that Pugh conspired to evade taxes on the income received from the sales of Healthy Holly books.  The indictment alleges that to accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh allegedly filed false income tax returns for 2016 and 2015, in which she underreported her income.  For example, the indictment alleges that for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

If convicted, Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy and for each of the seven counts of wire fraud; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.  Actual sentences for federal crimes are typically less than the maximum penalties.  A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors. 

An indictment is not a finding of guilt.  An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

Brown Wire Fraud Conspiracy

According to Gary Brown’s plea agreement, from November 2011 until March 2019, he conspired with Catherine Pugh to fraudulently sell and distribute tens of thousands of Healthy Holly books.  Brown admitted that over that period they executed the scheme in three ways: by selling the books, keeping the money and not delivering the books; provided books to purchasers, but later converted them to their own use at campaign events and government functions; and resold books that had previously been purchased and donated to the Baltimore City Public Schools. 

Brown Conspiracy with Pugh to Defraud the United States

Further, as detailed in his plea agreement, Brown cashed checks Pugh wrote to him from the Healthy Holly account, then used the cash to fund money orders, debit cards, and personal checks in the names of straw donors, which were then submitted to the Committee to Elect Catherine Pugh.  Brown also admitted that he cashed some of the Healthy Holly checks and gave the cash to Pugh.  To conceal the straw-donation scheme and avoid paying taxes that might result from the scheme, Pugh and Brown provided false information to the IRS regarding the purpose of the Healthy Holly checks.   

Brown and Wedington Conspiracy to Defraud the United States/Filing False Tax Returns

Brown and Wedington both admitted that they conspired to avoid tax withholdings from Wedington’s payroll checks while Wedington was the Executive Director of the Maryland Center for Adult Training (MCAT) and Brown was the Chairman of the Board of Directors.  Specifically, in 2013, Wedington’s salary was garnished due to outstanding student loan debt and medical bills.  In order to avoid further garnishments, Wedington asked Brown to take her “off payroll,” which meant that MCAT would no longer submit her name to the payroll service provider for the purpose of calculating taxes to be withheld from her salary.  Brown agreed to the arrangement and had MCAT make electronic deposits into his personal bank account in an amount that exceeded the annual salary owed to Wedington, creating the pretense that he was doing work for MCAT as an independent contractor.  Brown then wrote checks to Wedington and/or gave her cash equal to or greater than her salary, which was more than $80,000 per year.  No taxes were withheld from the funds Brown paid to Wedington, nor did her salary go through Wedington’s bank account, where it could be garnished.  In addition, Brown prepared fraudulent tax returns for Wedington for tax years 2013 through 2017, which did not report Wedington’s MCAT income and made a variety of false entries, resulting in refunds to which Wedington was not entitled and avoiding over $121,000 in total taxes due and owing.  Brown also filed a false individual income tax return for tax year 2016 for himself, which falsely listed the $64,325 of Healthy Holly payments as business income.  In addition, from 2016 through 2018, Brown worked part-time as a freelance tax preparer and charged a fee to prepare dozens of tax returns that he filed on behalf of his family, friends, and associates.  Brown included false information in all of those tax returns in order to obtain larger refunds for his customers.  The fraudulently obtained refunds totaled more than $100,000.

Brown faces a maximum of 20 years in federal prison for the wire fraud conspiracy.  Brown and Wedington each face a maximum sentence of five years in federal prison for each count of conspiracy to defraud the United States, and three years in prison for each count of filing a false tax return.  Judge Chasanow has not yet scheduled sentencing for Brown or Wedington.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are prosecuting the case.

# # #

Baltimore, Maryland – U.S. District Judge Deborah K. Chasanow today sentenced Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, to three years in federal prison, followed by three years of supervised release, on charges of conspiracy to commit wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  Judge Chasanow also ordered Pugh to pay $411,948 in restitution and to forfeit $669,688 including property on Ellamont Road in Baltimore and $17,800 from the Committee to Re-elect Catherine Pugh.

The sentence was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Baltimore City faces many pressing issues, and we need our leaders to place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “Catherine Pugh betrayed the public trust for her personal gain and now faces three years in federal prison, where there is no parole—ever.  Law enforcement will remain vigilant to ensure that our citizens receive the honesty and professionalism they deserve from government officials and will prosecute officials who betray the public’s trust.” 

“The defendant's scheme to cheat the taxpayers of Baltimore was as bold as it was brazen, and today's sentence shows that the punishment for those actions is swift and severe,” said Alfred Watson, Assistant Special Agent in Charge of the Baltimore Division of the FBI.  “The public has a right to expect and demand honesty and integrity from their public servants and the FBI stands ready with our law enforcement partners to uphold those principals in our system.”

“Today, Catherine Pugh learned the consequences of her actions.  When those in positions of trust conspire to defraud the government and engage in corrupt ventures, they must be held accountable,” said IRS-CI Special Agent in Charge Kelly R. Jackson.  “We will continue to pursue justice against those whose actions deteriorate the confidence of the citizens that they were elected to serve.” 

According to her plea agreement, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

Between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

From approximately 2011 until December 2016, Gary Brown, Jr. worked as a legislative aide to Pugh.  Brown actively campaigned for Pugh’s reelection to the State Senate in 2014 and served as her campaign aide during her 2016 mayoral election campaign.  Following Pugh’s election and inauguration as mayor of Baltimore City in December 2016, Brown was hired as the Deputy Director of Special Events in the mayor’s office.  In December 2016, Brown was nominated by the Maryland Democratic Central Committee to fill the vacancy in the Maryland House of Delegates created by Pugh’s mayoral victory.  However, the Governor withdrew Brown’s nomination after he was indicted for election law violations in January 2017.

Brown was the sole owner and operator of Stricker Abstracting, LLC, and GB Abstracting, LLC, both Maryland companies that purported to be title-abstracting businesses, and GBJ Consulting, LLC, a Maryland consulting business.  Brown ran all three companies from his residences in Baltimore.  Brown also freelanced as a tax return preparer.  Between March 2011 until March 2019, Brown helped Pugh promote and sell the Healthy Holly books.  Brown oversaw the transportation and storage of the books, drafted invoices, and corresponded with purchasers.  Much of Brown’s work on Healthy Holly occurred during work hours while serving as Pugh’s legislative aide and mayoral staff member.  Brown was not an employee of Healthy Holly and received no salary or compensation until approximately mid-2016 when he started to get sales commissions.  None of his companies received compensation for services purportedly provided to Healthy Holly.

Wire Fraud

Pugh admitted that from November 2011 until March 2019, she conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  Pugh and Brown admitted that they employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, the War Memorial building in Baltimore City, and a public storage locker used by Pugh’s mayoral campaign.  

Specifically, Pugh admitted that she sold approximately 20,000 each of Healthy Holly books one, two, and three to the University of Maryland Medical System (UMMS) for $100,000 each.  UMMS agreed to the purchase on the condition that it be on behalf of, and for distribution to, school children in the Baltimore City Public School system (BCPS), in part, to further the mission of UMMS’s community outreach program.  As part of the agreement Pugh was to deliver the donated books to BCPS.

As detailed in her plea agreement, Pugh did not deliver the full 20,000 Healthy Holly books one, two, and three that UMMS purchased to BCPS, instead keeping some of the books for herself.  In addition, Pugh sold to unwitting purchasers copies of Healthy Holly books one, two, and three that had already been sold to UMMS and donated to BCPS.  Pugh used Associated Black Charities, a Baltimore-based public charity, to facilitate the resale and distribution of the books to new purchasers.  Neither the charity nor the new purchasers knew that Pugh was double-selling the books.  Pugh also accepted payment for books that were never delivered to the purchaser.

Conspiracy to Defraud the United States/Tax Evasion

Pugh further admitted that she used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Specifically, Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were then deposited into the bank account of the Committee to Elect Catherine Pugh.  Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  In total, Brown and Pugh cashed out approximately $62,100 of Healthy Holly checks during 2016, all of which went to straw donors or Pugh.  To conceal the scheme, Brown and Pugh created the pretense of a legitimate business relationship between Brown and Healthy Holly.  In furtherance of the pretense, Pugh and Brown signed an independent contractor agreement between Healthy Holly and GBJ Consulting, and Brown created a business ledger that misrepresented the Healthy Holly checks as payments for promotion services rendered by Brown’s company on behalf of Healthy Holly.  At Pugh’s urging, Brown also created bogus GB Consulting invoices and backdated them.

On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” In fact, Pugh acknowledges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense in the state election-law prosecution, a case that had legal implications for Pugh.  

Pugh also admitted that she conspired to evade taxes on the income received from the sales of Healthy Holly books.  To accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh filed false income tax returns for 2015 and 2016, in which she underreported her income.  For example, for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

Former Baltimore City employee Gary Brown, Jr., age 38, of Baltimore, previously pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  Judge Chasanow has not yet scheduled a sentencing date for Brown.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who prosecuted the case.

# # #

Baltimore, Maryland – Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, pleaded guilty today to the federal charges of conspiracy to commit wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  U.S. District Judge Deborah K. Chasanow has scheduled sentencing for February 27, 2020, at 10:00 a.m.

The guilty plea was announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Catherine Pugh betrayed the public trust for her personal gain,” said United States Attorney Robert K. Hur. “Baltimore City faces many pressing issues, and we need dedication and integrity from our leaders—not corruption—in order to solve them.  Law enforcement will continue to be vigilant for evidence of fraud and corruption, to ensure that our citizens receive the honesty and professionalism they deserve from government officials.” 

“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,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division.  “Catherine Pugh betrayed the public's trust.  The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.” 

“For over 100 years, IRS Criminal Investigation has been committed to enforcing our nation’s tax laws.  This case should serve as an example to the public that everyone will be held to the same standard when it comes to paying their fair share of taxes.” Said Kelly Jackson, IRS Special Agent in Charge, Washington D.C. Field Office. “IRS Criminal Investigation will continue to work diligently with our law enforcement partners to identify and bring to justice those who endeavor to evade taxes, especially those elected to serve the public.”

According to her plea agreement, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

Between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

From approximately 2011 until December 2016, Gary Brown, Jr. worked as a legislative aide to Pugh.  Brown actively campaigned for Pugh’s reelection to the State Senate in 2014 and served as her campaign aide during her 2016 mayoral election campaign.  Following Pugh’s election and inauguration as mayor of Baltimore City in December 2016, Brown was hired as the Deputy Director of Special Events in the mayor’s office.  In December 2016, Brown was nominated by the Maryland Democratic Central Committee to fill the vacancy in the Maryland House of Delegates created by Pugh’s mayoral victory.  However, the Governor withdrew Brown’s nomination after he was indicted for election law violations in January 2017.

Brown was the sole owner and operator of Stricker Abstracting, LLC, and GB Abstracting, LLC, both Maryland companies that purported to be title-abstracting businesses, and GBJ Consulting, LLC, a Maryland consulting business.  Brown ran all three companies from his residences in Baltimore.  Brown also freelanced as a tax return preparer.  Between March 2011 until March 2019, Brown helped Pugh promote and sell the Healthy Holly books.  Brown oversaw the transportation and storage of the books, drafted invoices, and corresponded with purchasers.  Much of Brown’s work on Healthy Holly occurred during work hours while serving as Pugh’s legislative aide and mayoral staff member.  Brown was not an employee of Healthy Holly and received no salary or compensation until approximately mid-2016 when he started to get sales commissions.  None of his companies received compensation for services purportedly provided to Healthy Holly.

Wire Fraud

Pugh admitted that from November 2011 until March 2019, she conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  Pugh and Brown admitted that they employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, the War Memorial building in Baltimore City, and a public storage locker used by Pugh’s mayoral campaign. 

Specifically, Pugh admitted that she sold approximately 20,000 each of Healthy Holly books one, two, and three to the University of Maryland Medical System (UMMS) for $100,000 each.  UMMS agreed to the purchase on the condition that it be on behalf of, and for distribution to, school children in the Baltimore City Public School system (BCPS), in part, to further the mission of UMMS’s community outreach program.  As part of the agreement Pugh was to deliver the donated books to BCPS.

As detailed in her plea agreement, Pugh did not deliver the full 20,000 Healthy Holly books one, two, and three that UMMS purchased to BCPS, instead keeping some of the books for herself.  In addition, Pugh sold to unwitting purchasers copies of Healthy Holly books one, two, and three that had already been sold to UMMS and donated to BCPS.  Pugh used Associated Black Charities, a Baltimore-based public charity, to facilitate the resale and distribution of the books to new purchasers.  Neither the charity nor the new purchasers knew that Pugh was double-selling the books.  Pugh also accepted payment for books that were never delivered to the purchaser.

Conspiracy to Defraud the United States/Tax Evasion

Pugh further admitted that she used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Specifically, Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were then deposited into the bank account of the Committee to Elect Catherine Pugh.  Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  In total, Brown and Pugh cashed out approximately $62,100 of Healthy Holly checks during 2016, all of which went to straw donors or Pugh.  To conceal the scheme, Brown and Pugh created the pretense of a legitimate business relationship between Brown and Healthy Holly.  In furtherance of the pretense, Pugh and Brown signed an independent contractor agreement between Healthy Holly and GBJ Consulting, and Brown created a business ledger that misrepresented the Healthy Holly checks as payments for promotion services rendered by Brown’s company on behalf of Healthy Holly.  At Pugh’s urging, Brown also created bogus GB Consulting invoices and backdated them.

On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” In fact, Pugh acknowledges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense in the state election-law prosecution, a case that had legal implications for Pugh. 

Pugh also admitted that she conspired to evade taxes on the income received from the sales of Healthy Holly books.  To accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh filed false income tax returns for 2015 and 2016, in which she underreported her income.  For example, for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.  Actual sentences for federal crimes are typically less than the maximum penalties.  A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors.  Pugh remains released on conditions under the supervision of U.S. Pretrial Services.

Former Baltimore City employees Gary Brown, Jr., age 38, of Baltimore, previously pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  No sentencing date has been set.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are prosecuting the case.

# # #

Baltimore, Maryland – A federal grand jury has indicted Catherine Elizabeth Pugh, age 69, of Baltimore, Maryland, on the federal charges of conspiracy to commit wire fraud, seven counts of wire fraud, conspiracy to defraud the United States, and two counts of tax evasion.  The indictment was returned on November 14, 2019, and was unsealed today. Catherine Pugh is scheduled for an initial appearance and arraignment in U.S. District Court in Baltimore before U.S. District Judge Deborah K. Chasanow on November 21, 2019 at 1:00 p.m.  Pugh is expected to self-surrender to the U.S. Marshals prior to the hearing on November 21st. 

The guilty pleas of former Baltimore City employees Gary Brown, Jr., age 38, of Baltimore, and Roslyn Wedington, age 50, of Rosedale, Maryland, were also unsealed today.  On November 13, 2019, Brown pleaded guilty to conspiracy to commit wire fraud, to two counts of conspiracy to defraud the United States, and to filing a false tax return.  That same day, Wedington pleaded guilty to conspiracy to defraud the United States and to five counts of filing a false tax return.

The indictment and guilty pleas were announced by United States Attorney for the District of Maryland Robert K. Hur; Special Agent in Charge Jennifer C. Boone of the Federal Bureau of Investigation, Baltimore Field Office; and Special Agent in Charge Kelly R. Jackson of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office.

“Our elected officials must place the interests of the citizens above their own,” said United States Attorney Robert K. Hur. “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.” 

“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,” said Special Agent in Charge Jennifer Boone of the FBI's Baltimore Division.  “The indictment alleges that Catherine Pugh betrayed the public's trust. The FBI will continue to diligently work to detect fraud and corruption and hold those who violate this trust accountable.” 

“Public officials should be a role model for the citizens they serve - adhering to the highest of standards,” said IRS-CI SAC Kelly Jackson. “These individuals chose to evade payment of their fair share of taxes instead, actions for which they must be held accountable in order to preserve public trust and confidence.”

According to Pugh’s 11-count indictment, from approximately 2007 through 2016 Pugh served in the Maryland State Senate, where she served on various legislative committees, including the Senate Health Committee.  In 2011, Pugh ran an unsuccessful campaign to be mayor of Baltimore.  In September 2015, Pugh again ran for mayor of Baltimore, and won, becoming Mayor on December 6, 2016.  Pugh owned Healthy Holly, LLC, a company formed in Maryland on January 14, 2011, and used to publish and sell children’s books she had written.  Pugh also owned Catherine E. Pugh and Company, Inc., a marketing and public relations consulting company organized in Maryland in 1997.  The principal address for both companies was Pugh’s residence in Baltimore.  Pugh was also the sole signatory on the Healthy Holly and Pugh Company bank accounts.  Pugh did not maintain a personal bank account, using her business bank accounts for personal and business finances.  

As stated in the indictment, between June 2011 and August 2017, four Healthy Holly books were published, with each book listing “Catherine Pugh” as author.  The vast majority of books published by Healthy Holly were marketed and sold directly to non-profit organizations and foundations, many of whom did business or attempted to do business with the Maryland and Baltimore City governments.

Wire Fraud Allegations

The indictment alleges that from November 2011 until March 2019, Pugh conspired with Gary Brown to defraud purchasers of Healthy Holly books in order to enrich themselves, promote Pugh’s political career, and fund her campaign for mayor.  The indictment alleges that the conspirators employed several methods to defraud, including: not delivering books after accepting payments for the books; accepting payments for books to be delivered to a third party on behalf of a purchaser, then converting some or all of the purchased books to their own use without the purchaser’s or third party’s knowledge; and by double-selling books without either purchaser’s knowledge or consent.  Pugh allegedly stored quantities of fraudulently obtained Healthy Holly books at various locations, including Pugh’s residence, her state legislative offices, her mayoral office, and a public storage locker used by Pugh’s mayoral campaign.  The indictment alleges that Pugh used the proceeds of the sale of fraudulently obtained Healthy Holly books for her own purposes, including: to fund straw donations to Pugh’s mayoral election campaign; and to fund the purchase and renovation of a house in Baltimore City.

Conspiracy to Defraud the United States/Tax Evasion

Further, the indictment alleges that Pugh issued Healthy Holly checks payable to Brown, for the purpose of funding straw donations to the Committee to Elect Catherine Pugh.  The indictment alleges that Brown cashed the checks and used the untraceable cash to fund money orders, debit cards, and personal checks in the names of straw donors totaling approximately $35,800.  The straw donations purchased with the cash were allegedly then deposited into the bank account of the Committee to Elect Catherine Pugh.  The indictment alleges that Pugh wrote additional Healthy Holly checks to Brown totaling $26,300, which he cashed and gave the cash to Pugh.  On January 11, 2017, Brown was charged with, and ultimately convicted of, violating Maryland’s election laws for funneling $18,000 of the straw donations to Pugh’s campaign. The Committee to Elect Catherine Pugh issued five checks in the names of three of the straw donors, with a notation in the memo line on each check stating “returned contribution.” The indictment alleges that none of the straw donors received any of the returned money, and instead, at Pugh’s direction, Brown used the money to pay for his legal defense.  

In addition, the indictment alleges that Pugh conspired to evade taxes on the income received from the sales of Healthy Holly books.  The indictment alleges that to accomplish this, Pugh concealed from the IRS the fact that she created false business expenses to offset the income she received from the sale of books by issuing Healthy Holly checks to Brown for services and/or products purportedly supplied by his company.  Pugh allegedly filed false income tax returns for 2016 and 2015, in which she underreported her income.  For example, the indictment alleges that for tax year 2016 Pugh claimed her taxable income was $31,020 and the tax due was $4,168, when in fact, Pugh’s taxable income was $322,365, with an income tax due of approximately $102,444.

If convicted, Pugh faces a maximum sentence of 20 years in federal prison for the wire fraud conspiracy and for each of the seven counts of wire fraud; five years in federal prison for conspiracy to defraud the United States; and five years in federal prison for each of the two counts of tax evasion.  Actual sentences for federal crimes are typically less than the maximum penalties.  A federal district court judge will determine any sentence after taking into account the U.S. Sentencing Guidelines and other statutory factors. 

An indictment is not a finding of guilt.  An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

Brown Wire Fraud Conspiracy

According to Gary Brown’s plea agreement, from November 2011 until March 2019, he conspired with Catherine Pugh to fraudulently sell and distribute tens of thousands of Healthy Holly books.  Brown admitted that over that period they executed the scheme in three ways: by selling the books, keeping the money and not delivering the books; provided books to purchasers, but later converted them to their own use at campaign events and government functions; and resold books that had previously been purchased and donated to the Baltimore City Public Schools. 

Brown Conspiracy with Pugh to Defraud the United States

Further, as detailed in his plea agreement, Brown cashed checks Pugh wrote to him from the Healthy Holly account, then used the cash to fund money orders, debit cards, and personal checks in the names of straw donors, which were then submitted to the Committee to Elect Catherine Pugh.  Brown also admitted that he cashed some of the Healthy Holly checks and gave the cash to Pugh.  To conceal the straw-donation scheme and avoid paying taxes that might result from the scheme, Pugh and Brown provided false information to the IRS regarding the purpose of the Healthy Holly checks.   

Brown and Wedington Conspiracy to Defraud the United States/Filing False Tax Returns

Brown and Wedington both admitted that they conspired to avoid tax withholdings from Wedington’s payroll checks while Wedington was the Executive Director of the Maryland Center for Adult Training (MCAT) and Brown was the Chairman of the Board of Directors.  Specifically, in 2013, Wedington’s salary was garnished due to outstanding student loan debt and medical bills.  In order to avoid further garnishments, Wedington asked Brown to take her “off payroll,” which meant that MCAT would no longer submit her name to the payroll service provider for the purpose of calculating taxes to be withheld from her salary.  Brown agreed to the arrangement and had MCAT make electronic deposits into his personal bank account in an amount that exceeded the annual salary owed to Wedington, creating the pretense that he was doing work for MCAT as an independent contractor.  Brown then wrote checks to Wedington and/or gave her cash equal to or greater than her salary, which was more than $80,000 per year.  No taxes were withheld from the funds Brown paid to Wedington, nor did her salary go through Wedington’s bank account, where it could be garnished.  In addition, Brown prepared fraudulent tax returns for Wedington for tax years 2013 through 2017, which did not report Wedington’s MCAT income and made a variety of false entries, resulting in refunds to which Wedington was not entitled and avoiding over $121,000 in total taxes due and owing.  Brown also filed a false individual income tax return for tax year 2016 for himself, which falsely listed the $64,325 of Healthy Holly payments as business income.  In addition, from 2016 through 2018, Brown worked part-time as a freelance tax preparer and charged a fee to prepare dozens of tax returns that he filed on behalf of his family, friends, and associates.  Brown included false information in all of those tax returns in order to obtain larger refunds for his customers.  The fraudulently obtained refunds totaled more than $100,000.

Brown faces a maximum of 20 years in federal prison for the wire fraud conspiracy.  Brown and Wedington each face a maximum sentence of five years in federal prison for each count of conspiracy to defraud the United States, and three years in prison for each count of filing a false tax return.  Judge Chasanow has not yet scheduled sentencing for Brown or Wedington.

United States Attorney Robert K. Hur commended the FBI and the IRS Criminal Investigation for their work in the investigation and thanked the U.S. Department of Labor - Office of Inspector General, Office of Investigations - Labor Racketeering and Fraud, the Maryland State Prosecutor’s Office, and the Baltimore City Office of Inspector General for their assistance.  Mr. Hur thanked Assistant U.S. Attorneys Martin J. Clarke and Leo J. Wise, who are prosecuting the case.

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