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How the feds investigated ‘Healthy Holly’: Prosecutors share new details of case against former Baltimore Mayor Pugh

Former Baltimore Mayor Catherine Pugh, leaving the federal courthouse in downtown Baltimore in February, 2020 after being sentenced to three years in prison. Federal prosecutors said this week they were building their own criminal case as The Sun produced stories that uncovered a range of schemes that helped push her from office.
Former Baltimore Mayor Catherine Pugh, leaving the federal courthouse in downtown Baltimore in February, 2020 after being sentenced to three years in prison. Federal prosecutors said this week they were building their own criminal case as The Sun produced stories that uncovered a range of schemes that helped push her from office. (Kim Hairston/Baltimore Sun)

Assistant U.S. Attorney Martin Clarke was driving back from Richmond, Virginia, in late March 2019 when he tuned his radio to a City Hall news conference held by Baltimore Mayor Catherine Pugh. A couple weeks earlier The Baltimore Sun had published its first stories about her Healthy Holly children’s book series, and Pugh went public to address mounting questions.

Clarke knew she was not telling the truth. He was among the investigators who had been looking into Pugh’s finances for more than two years at that point.

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“It was the scene of the crime, and she’s standing there, giving excuses that made absolutely no sense to what we knew,” Clarke recounted in an interview with The Sun this week. “I was simultaneously astonished, and sad for her, because I knew where this was all going.”

Prosecutors offered new insight into the genesis of their case, following its conclusion with the sentencing last month of the final co-defendant. They also discussed why others, such as executives and board members at the University of Maryland Medical System, did not face charges in their investigation.

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“The scope of what we can charge has gotten tighter and tighter and narrower and narrower,” said Assistant U.S. Attorney Leo Wise, who also worked on the case. “It’s become very challenging.”

Pugh is serving a three-year prison sentence after pleading guilty to fraud and tax evasion charges; one of her aides, Gary Brown Jr., is serving 27 months, while Roslyn Wedington, the director of a Pugh-affiliated job training center was sentenced March 4 to two years.

The Sun won a Pulitzer Prize for its reporting on Pugh’s book deals with the University of Maryland Medical System and other organizations, revealing that Pugh had not disclosed money she received on ethics forms. That reporting was prompted by state legislator Jill P. Carter’s concerns about self-dealing on the board, and The Sun continued reporting on the arrangements behind the books and the contracts other members of the UMMS board had with the medical system. The CEO, Robert A. Chrencik, and several board members stepped down.

Pugh resigned as mayor in May, and was criminally charged in November.

The prosecutors say their investigation, however, dated to January 2017, when Brown was indicted by the state prosecutor for exceeding campaign contribution limits to Pugh.

While the state prosecutor’s office was unable to determine the source of the funds, the case caught the eye of the FBI. Pugh seemed uninterested in Brown’s crime, and kept him on staff.

“We kicked around the significance of a legislative aide pleading guilty to illegal campaign contributions, because right off the bat he was someone who appeared not to have a lot of money, at least from afar,” Clarke said. “It raised questions of who funded it, and did he do it at anybody’s direction.”

Clarke said they were keen on noting any potential kickback or quid pro quo scheme involving business before the city or state. They started looking at Brown’s bank accounts and those of people connected with him, including Pugh. If there was bribery involved, she could have a connection.

“We noticed the first of two cashing out schemes,” Clarke said. “We have her account writing checks to Gary Brown, but the checks go nowhere. They don’t go into any of his accounts, they don’t go to his businesses. He was cashing them out, creating untraceable cash, using it as walk around money to support the campaign contributions. ... Now the question was, who was the source?”

“We obviously noticed this Healthy Holly account,” he said.

They were unsure how the children’s books could be accounting for so much income in Pugh’s account — there was $345,000 from the books. Investigators made undercover inquiries to booksellers, both online and brick-and-mortar, and visited libraries. They found only one copy, which they purchased.

Former Baltimore Baltimore Mayor Catherine Pugh's Healthy Holly books served as a front to line Pugh's pockets and were often never delivered to the purchasers, records show.
Former Baltimore Baltimore Mayor Catherine Pugh's Healthy Holly books served as a front to line Pugh's pockets and were often never delivered to the purchasers, records show. (Amy Davis / Baltimore Sun)

At some point, Wise, one of the prosecutors, realized he actually owned a copy: Pugh had gone to his daughter’s school to speak and gave out copies of the book.

With the book not “retail viable,” they had serious concerns about why institutions like UMMS, Kaiser Permanente, Associated Black Charities and others were spending so much on it. They scoured city contracts and projects that could be related, but ultimately found nothing of a direct kickback nature. Instead, it appeared Pugh was defrauding those institutions of the books they had purchased. They reached out to the Canadian printer of the book and tried to account for the copies, and eventually learned she was not printing the amount of books purchased, and was double-selling other copies.

While that was taking place, investigators realized a second scheme involving Brown — he was receiving money from the Maryland Center for Adult Training and funneling it to the director, who was cashing the money out to avoid creditors and the IRS. Pugh ultimately was not involved in that scheme.

Though all of that work was painstaking, the prosecutors say a major factor that caused a delay in the investigation was that Pugh did not file her 2016 taxes on time.

“We were waiting with bated breath to see what she was going to say about tax year 2016,” Wise said.

But Pugh didn’t file in April 2017, and didn’t file for an extension, which could have given her until October 2017. She didn’t file then, either. It wasn’t until early 2018 that the taxes finally showed up.

The money they already had seen passing through her bank accounts wasn’t reflected.

“We saw that return and it was like, ‘Oh my God,’” Wise recalled.

In February 2019, the feds prepared to take more aggressive steps in the investigation, preparing search warrants and submitting them for review at the Department of Justice, investigators said this week.

The Sun’s first article appeared March 13, and coverage continued for months. Search warrant applications and affidavits unsealed Wednesday show that the FBI first started issuing the warrants and searching homes — as well as City Hall — about a month later.

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Clarke said he was “not happy” about the articles unearthing the issue they had been quietly investigating, but eventually found the public dialogue useful to observe. Pugh’s comments to The Sun are quoted throughout search warrants.

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“I’ve never been in an investigation where parallel to what we were doing we knew the answers to the questions the press was asking,” Clarke said. “We could see the question and say, that’s a good question, these guys know what they’re doing — and we know where they’re heading.”

Still, why did it take more than two years?

“First of all, if you’re going to raid City Hall, you better have the evidence,” Clarke said. “And we were dealing with, in essence, four investigations at the same time.”

While other UMMS board members received questionable contracts, the investigation did not find financial deceit and evidence of a quid pro quo. There was “subtle” pressure to buy the books because of who Pugh was, but that’s “not indictable,” Clarke said.

“UMMS officials said they continued to place orders with Pugh for all five of her books because they believed the books they ordered were successfully published and distributed to BCPS students,” FBI Agent Christine Parr wrote in an August 2019 search warrant. “Further, UMMS officials told investigators that if they were aware that the books were being diverted and not placed in the hands of BCPS students, it would have changed their decision to continue purchasing books from Pugh.”

Supreme Court rulings have found that paying for access is not bribery, Wise said.

UMMS officials “threw around UMMS’s money in ways other people decided was irresponsible — that’s why they’re not on the board, that’s why the CEO stepped down,” Wise said.

Pugh’s deceit, the prosecutors said, was her downfall.

“If she delivered the books and paid her taxes, we wouldn’t be here,” Wise said.

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