Officials with Baltimore County Executive Kevin Kamenetz's administration say they won't immediately seek to recoup a $300,000 taxpayer-funded loan granted to a Pikesville family business that was raided this week in a federal cigarette-smuggling case.
Health-Way Pharmacy was allegedly used to aid a black-market cigarette trade and the illegal sale of foreign drugs, according to a federal indictment unsealed Wednesday. Its owners received the loan in 2010 from a county fund meant to revitalize downtown Pikesville. But the county is now "in a holding pattern" because no members of the family have been proven guilty, said Don Mohler, Kamenetz's chief of staff.
"We have to let the legal process play out," Mohler said Thursday. "An indictment is not a conviction. Depending on the outcome of the trial, we'll evaluate all of our options."
But State Sen. Jim Brochin, who has been critical of government loans to business, said the case shows the county's loan program needs more oversight.
"Besides being illegal and immoral, to add insult to injury, now it's on the back of the taxpayer," Brochin said of the alleged trafficking operation. "This can't go on."
Eleven people in the Baltimore area and in New York were indicted in the case. Federal investigators also allege that pharmacy owner Salim Yusufov illegally sold prescription drugs from Germany and Eastern Europe that are not approved by the FDA for distribution in the United States.
Prosecutors say the group trafficked more than $6.6 million in contraband cigarettes over the past few years, buying them in Maryland and then re-selling them in New York, where tobacco taxes are higher. Some of the defendants allegedly laundered money through banks in Cyprus, Latvia and Estonia, and the banks returned the money disguised as payments for medical supplies or equipment.
The cigarettes were stored at another family business, the Europe Restaurant in Baltimore, investigators allege.
In 2010, the county granted Health-Way a "conditional loan," a financing tool that has been criticized by some elected officials. With such loans, businesses don't need to pay the money back if they meet certain goals, such as job creation. So far, the company has not been legally obligated to pay back any of the money.
The loan was meant to help demolish vacant properties at the corner of Reisterstown Road and Sudbrook Lane to make way for a 10,000-square-foot retail and office center anchored by the pharmacy. Health-Way was once located at a nearby strip mall but had to move after Walgreens bought that property.
Under the terms of the loan, the owner had to invest $1 million in the property, county officials said. Also, the building must be 75 percent leased by March 2014.
"The owner has made the required $1 million investment," county spokeswoman Fronda Cohen said Thursday in an email. "We do not know the current percent of the building that is leased. That information is not due to the county until March 2014."
According to a Baltimore Sun review of county records earlier this year, the county has granted nearly $15 million in loans to businesses and organizations over the past five years — and has forgiven or has offered to forgive about $4 million.
Brochin, a Towson Democrat, said the County Council should be required to vote on loans granted to businesses from county funds.
Jessica Normington, executive director of the Pikesville Chamber of Commerce, said the loan program is an invaluable asset to local business owners.
"I hope it doesn't deter the county from continuing to offer them," she said of the Health-Way allegations. "It's a huge benefit to the small-business owners who might not be able to afford the renovations they want to do, but with the help of the county, they can."
County Councilwoman Vicki Almond, a Reisterstown Democrat whose district includes Pikesville, said the county should try to recoup its money from the loan, but should wait until the criminal legal process unfolds.
"I think we have to wait and see where this case is going to go," she said.
The pharmacy is located in an area county officials have targeted for redevelopment, and the public financing was meant to bolster Pikesville's main street. Almond said the case — which she called "really quite sad" — won't dampen interest in the area.
"There's a lot of energy, there's a lot of interest" in downtown Pikesville, she said. "So I am thinking that interest is going to continue."
The allegations have sparked worry among Pikesville business and community members about the future of the property on Reisterstown Road.
"If this pharmacy's not there, we'll work very hard to attract another pharmacy or another viable business," Mohler said. "This is disappointing, but I have every expectation that we'll continue to redevelop that area."
The pharmacy appeared to be open Thursday, with lights on and cars going in and out of the parking lot, Normington said. Marcia Murphy, a spokeswoman for the U.S. attorney's office, said it will be up to state regulators to decide whether the pharmacy keeps its license to operate.
"That's not a determination that would be made by federal authorities," Murphy said.
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