Date: August 9, 2023Contact: newsroom@ci.irs.gov A federal grand jury returned an indictment charging Reginald Davis, of Baltimore, Maryland, for wire fraud and money laundering relating to the submission of fraudulent COVID-19 CARES Act loan applications. Davis is the former Chief Executive Officer of Strong City Baltimore (“SCB”), established in Maryland in 2015 as a non-profit organization serving individuals, community associations, institutions, and businesses in Baltimore. The indictment was returned on August 3, 2023, and unsealed today upon the arrest of the defendant. Reginald Davis is expected to have an initial appearance in U.S. District Court in Baltimore at 1:30 p.m. this afternoon. The indictment was announced by United States Attorney for the District of Maryland Erek L. Barron; Acting Special Agent in Charge Kareem A. Carter of the Internal Revenue Service - Criminal Investigation, Washington, D.C. Field Office; and Special Agent in Charge Thomas J. Sobocinski of the Federal Bureau of Investigation, Baltimore Field Office. “Davis allegedly stole well over one million taxpayer dollars intended to assist those suffering from the effects of the pandemic,” said United States Attorney Erek L. Barron. “It remains a top priority of my office to hold accountable those who took unfair advantage of the COVID-19 pandemic relief.” “Mr. Davis’s indictment demonstrates IRS Criminal Investigation and our law enforcement partners commitment to holding accountable those who exploited pandemic related programs,” Kareem A. Carter, Acting Special Agent in Charge of the Internal Revenue Service – Criminal Investigation Washington, D.C. Field Office. “We are committed to rooting out pandemic-related fraud and holding accountable anyone seeking to profit from the public health emergency.” “Organizations seeking to better the city of Baltimore entrusted Strong City Baltimore and Reginald Davis to help manage their money,” said Special Agent in Charge Thomas J. Sobocinski of the FBI's Baltimore field office. “Davis is accused of exploiting that trust by orchestrating this unscrupulous scheme and misusing federal CARES Act funds to cover up his criminal behavior. This indictment serves as a message that the FBI and our partners are working hard every day to protect taxpayers.” The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was a federal law enacted in March 2020 to provide emergency financial assistance to Americans suffering from the economic effects caused by the COVID-19 pandemic. Financial assistance offered through the CARES Act included forgivable loans to small businesses for job retention and certain other expenses, through the Paycheck Protection Program. PPP loan applications were processed and funded by participating lenders with a 100% guarantee by the Small Business Administration (“SBA”). According to the three-count indictment, in January 2018, Non-Profit 1 entered into a fiscal sponsorship arrangement with SCB under which SCB provided administrative support for Non-Profit 1, including fiduciary services, governance, and funds management. In return, SCB received a regular payment from Non-Profit 1 for services rendered. The parties signed a Memorandum of Agreement that required SCB to deposit funds received on behalf of Non-Profit 1 into a restricted set of funding sources in SCB’s fiscal management system. Non-Profit 3 and Non-Profit 5 entered into similar fiscal sponsorship arrangements with SCB, including an agreement with each non-profit to deposit its funds into a set of restricted funding sources. SCB also had a fiscal sponsorship arrangement with Non-Profit 4 which contained an agreement by SCB to provide services with integrity and responsibility and noted that “funds must be disbursed according to strict IRS [Internal Revenue Service] standards.” SCB’s Alleged Mismanagement of Non-Profit Client Funds The indictment further alleges that SCB did not set up restricted funding sources for funds related to Non-Profit 1, Non-Profit 3 or Non-Profit 5, instead depositing those funds into SCB’s general checking account (“the 4885 account”). From August 2016 through December 2019, SCB received funds and improperly used client assets with donor restrictions to fund SCB’s own operating expenses, contrary to its agreement with the clients to safeguard those funds on the clients’ behalf. For example, on January 24, 2018, Non-Profit 1 transferred approximately $451,866.19 to SCB for fiscal management. SCB entered the full amount of Non-Profit 1’s funds into the 4485 account and did not segregate the funds or make any attempt to ensure that the money was used only for Non-Profit 1. As detailed in the indictment, SCB used these funds to pay general expenses unrelated to Non-Profit 1. In April 2020, Non-Profit 1 merged with Non-Profit 2, a larger Maryland non-profit organization with a similar purpose. SCB provided regular statements of revenue and expenditures to Non-Profit 1 and, after its merger, to Non-Profit 2. These statements listed “ending fund balance” for Non-Profit 1 which were often far greater than SCB’s total assets. For example, on July 31, 2019, SCB reported to Non-Profit 1 that Non-Profit 1 had approximately $653,000 in an “ending fund balance.” But at that time, SCB’s total assets on hand were approximately $286,000. On January 31, 2020, SCB reported that Non-Profit 1 had approximately $827,000 in an “ending fund balance.” At that time, SCB’s total assets on hand was approximately $339,000, a shortfall of over $480,000. On August 28, 2020, a member of the leadership team of Non-Profit 2 spoke by phone with Davis about ending Non-Profit 2’s fiscal relationship with SCB and creating a payment schedule for SCB to transfer back to Non-Profit 2 its total outstanding funds, which equaled approximately $600,000. Davis agreed that SCB would provide the total outstanding balance to Non-Profit 2 with an initial 25% payment, to be followed by four equal payments that were to be made by January 2021. Davis assured Non-Profit 2’s representative that SCB was able to meet this obligation but needed to manage the disbursements over a longer period of time because of financial demands across SCB’s “portfolio of organizations.” Despite numerous promises by Davis and other SCB employees, by March 2021, SCB had made only one payment to Non-Profit 2 of approximately $319,000 and still owed approximately $610,207. March 13, 2021 PPP Loan From January 2021 to March 2021, Davis allegedly submitted six PPP loan applications on behalf of SCB to Bank 1, a participating PPP lender, in order to cover shortfalls in SCB’s accounts that were owed to the fiscally-sponsored organizations. According to the indictment, these shortfalls had arisen because SCB improperly used assets with donor restrictions to pay SCB operating expenses, including salaries to its own employees. Each PPP loan application contained false statements, including varying amounts of average monthly payroll for SCB and the intended use of the loan funds. Davis electronically signed all the applications, certifying that any funds received would be used for allowed purposes. In furtherance of the scheme, Davis also caused SCB to open a new bank account (“the 3365 account”), although no funds were placed in the account. On May 13, 2021, Davis was notified that SCB’s application had been approved. In anticipation of receiving the PPP loan funds, Davis sent an email to an SCB employee with a list of priorities. Davis allegedly stated, “…Among my list please it should include outstanding AP [accounts payable], outstanding rent and Non-Profit 1, and board member loans.” Payments for board member loans and debt settlement with Non-Profit 1 were not allowable uses of PPP funds. On March 16, 2021, Bank 1 deposited approximately $1,426,922 in PPP funds into the 4485 account and on March 23, 2021, Davis caused $800,000 to be transferred from the 4485 account to the 3365 account. Prior to the transfer, the 3365 account had a negative balance of approximately $20.00, after being charged a bank fee for not having funds in the account. On March 29, 2021, the full balance of $799,980.00 was transferred from the 3365 account back to 4485 account. That amount represented the $800,000 of PPP loan proceeds minus the $20.00 debit in the 3365 account. As detailed in the indictment, between March 26, 2021 and April 2, 2021, Davis and SCB used a total of approximately $625,405.64 in PPP loan funds to close out SCB’s fiscal sponsorship arrangement with Non-Profit 2, Non-Profit 3, and Non-Profit 4, all of which had terminated their fiscal sponsorship arrangements with SCB between June and September 2020. On April 9, 2021, $6252.39 was transferred from the 4485 account to Non-Profit 5. Neither Davis nor any other SCB employee informed their former non-profit clients that the funds they received were the proceeds of a PPP loan, or that there were any restrictions on the use of funds. If convicted, Davis faces a maximum sentence of 20 years in federal prison for wire fraud and a maximum of 10 years in federal prison for each of two counts of money laundering. 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. The District of Maryland Strike Force is one of three strike forces established throughout the United States by the U.S. Department of Justice to investigate and prosecute COVID-19 fraud, including fraud relating to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act was designed to provide emergency financial assistance to Americans suffering the economic effects caused by the COVID-19 pandemic. The strike forces focus on large-scale, multistate pandemic relief fraud perpetrated by criminal organizations and transnational actors. The strike forces are interagency law enforcement efforts, using prosecutor-led and data analyst-driven teams designed to identify and bring to justice those who stole pandemic relief funds. For more information on the Department’s response to the pandemic, please visit its website. Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline at 866-720-5721 or via the NCDF Web Complaint Form. United States Attorney Erek L. Barron commended IRS-CI and the FBI for its work in the investigation and thanked the Baltimore City Office of Inspector General for its assistance. Mr. Barron thanked Assistant U.S. Attorneys Aaron S. J. Zelinsky and Joseph L. Wenner, who are prosecuting the case. He also recognized the assistance of the Maryland COVID-19 Strike Force Paralegal Specialist Joanna B.N. Huber and Paralegal Specialist Jenna Lee.
