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Payments by auto insurer for former Baltimore Mayor Pugh were illegal, state review finds

Payments made by Maryland’s quasi-governmental auto insurer to then-Mayor Catherine Pugh for her amateurish Healthy Holly children’s books violated state law, according to a letter state regulators sent to the Maryland Automobile Insurance Fund and obtained by The Baltimore Sun.

The ruling made by the Maryland Insurance Administration is likely among the last of the outstanding reviews into the book deals that led to Pugh’s resignation and guilty plea in federal court last year for a fraud scheme that brought her hundreds of thousands of dollars.

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The disgraced former mayor is expected to plead guilty Friday to a misdemeanor charge of perjury in state court for willfully omitting the lucrative children’s book business from financial disclosure forms she filed as a state senator.

The MIA had said it was investigating at least three insurers that acknowledged making payments for the books, but officials deferred action until other law enforcement agency investigations were complete.

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MIA officials declined to comment beyond their June 1 letter, so it’s unclear if the probe continues into CareFirst BlueCross BlueShield and Kaiser Permanente, which both paid more for books than the auto insurer. Both firms said they were cooperating with all investigations.

The Sun previously reported that Kaiser acknowledged paying $114,000 for 20,000 books and CareFirst said it paid $14,000 for 2,000 books. The state auto insurer, known as MAIF, paid a total of $12,500 for 600 books.

MIA wrote in the letter that payments by MAIF “violated Maryland insurance law.”

They refer to a $7,500 payment in August 2012 to Healthy Holly LLC and another in August 2013 for $5,000 to Associated Black Charities. The Sun previously reported book payments from several companies were made through the charity, including for MAIF and CareFirst. The charity has not been accused of a crime.

The MIA letter says the payments were inconsistent with the insurer’s mission of providing auto insurance to those in Maryland who can’t get it from private insurers. The firm’s revenue comes from premiums and other payments and is supposed to be used to pay auto claims.

“The administration does not believe the Healthy Holly payments fall within the scope of the statutorily prescribed purpose of MAIF and, thus, that MAIF violated the statute by making the Healthy Holly payments,” the letter said.

This is potentially a distinction from the other insurers that offer health insurance and participate in programs to improve community health. The mayor described the “Healthy Holly” books as a way to encourage children to exercise and eat healthy foods.

The letter to the auto insurer is likely the end of the matter because MIA says it has no authority to fine the insurer. Further, the payments are years old, MAIF’s leadership has changed, and the outfit has instituted several new internal controls, the letter said. Officials did write that they could reopen the matter if new information comes to light.

In a statement, the auto insurer said it has taken several steps to insure accountability and transparency since the payments were made during a prior administration.

“We self-reported the suspected 2012 and 2013 violations when the Healthy Holly story was first in the news,” said Mark McCurdy, who took over as the insurer’s executive director in 2015 and had ordered a review to look for any payments to Pugh once stories about the books began appearing last year in the news.

“The MIA review found significant changes in Maryland Auto’s Board of Trustees, leadership and internal controls and noted our full and complete transparency throughout the examination,” he said. “The changes MIA noted and tested allow Maryland Auto to maintain the highest level of accountability and transparency.”

McCurdy plans to retire July 1. He will be replaced by Al Redmer Jr., who led the MIA until recently. Redmer recused himself from the review of the auto insurer.

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The Sun reported previously that the $7,500 donation in 2012 to then state-Sen. Pugh’s Healthy Holly book company came shortly before she successfully sponsored legislation supported by the insurer.

The auto insurer’s contributions were made while M. Kent Krabbe was its executive director, McCurdy has said. Krabbe went on to become a paid staffer on Pugh’s mayoral campaign in 2016 and served later that year as president of her inauguration committee. In March 2017, a few months after Pugh took office as mayor, he started a $107,000-a-year job at the city’s department of transportation. He left that post in February 2018.

The Sun has been unable to contact Krabbe.

In all, federal investigations revealed Pugh accepted more than $850,000 for the Healthy Holly books. Much of it came through a deal with the University of Maryland Medical System, where she was a board member.

The Sun revealed she entered into a no-bid deal in which the system would buy 100,000 copies of the self-published books for $500,000. She resigned from the board and as mayor as investigators probed the sales. Prosecutors later said she failed to print thousands of copies, double-sold thousands more and used others for self-promotion. Prosecutors said she laundered illegal campaign contributions and failed to pay taxes.

She was sentenced in February to three years in federal prison and ordered to pay restitution.

Among the money she was ordered to repay was $12,000 to the Maryland Auto Insurance Fund. The insurer has not received the money. Her campaign recently returned $860,000 to donors.

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