Reginald L. Davis, former CEO of the one-time nonprofit powerhouse Strong City Baltimore, was arrested and charged today on three counts of wire fraud and money laundering.
Davis, 40, was accused of fraudulently obtaining more than $1.4 million in Payroll Protection Program (PPP) loans during the Covid-19 pandemic, which he used to replenish money that Strong City had previously misappropriated from local grassroots nonprofits who had entrusted their funds to the organization.
“Davis allegedly stole well over one million taxpayer dollars intended to assist those suffering from the effects of the pandemic,” said U.S. Attorney Erek L. Barron, in a statement following his indictment by a federal grand jury, which was unsealed today.
The defendant, who entered the courtroom this afternoon at the Edward A. Garmatz District Courthouse in handcuffs, pleaded “not guilty” to charges that each carry a prison sentence of up to 20 years and a $250,000 fine.
He was released without bail by Magistrate Judge Matthew Maddox. After reviewing a financial affidavit submitted by Davis, Maddox authorized Gerald C. Ruter as his court-appointed lawyer. Davis agreed to a set of pre-trial conditions including surrendering his passport and remaining in Maryland.
Neither party responded to questions from reporters when they left the courthouse.
Covering Up Past Misdeeds
Today’s indictment encompasses a small part of a saga featuring an ambitious nonprofit that ran into financial difficulties after pairing with a local developer to turn a long-abandoned factory in East Baltimore into a sprawling nonprofit resource center.
Davis was charged with misusing the PPP loans to cover up the hole that his predecessor, Karen D. Stokes, had dug after The Brew reported in 2020 (here and here) that many grassroots groups were unable to access money they had entrusted to Strong City as their “fiscal sponsor” or money manager.
One fiscal sponsor described the situation as “a nonprofit Ponzi scheme,” alleging that Strong City was “robbing Peter to pay Paul.”
As the newly installed CEO, Davis promised to take steps to “course correct” and “address the deficiencies in our fiscal sponsorship programs.”
Instead, according to the indictment, “Davis and others known and unknown to the grand jury devised and intended to devise a scheme to defraud Bank 1 [which dispensed the PPP loans] by means of materially false and fraudulent pretenses, representations, promises and material omissions.”
The indictment does not name the other parties “known to the grand jury.”
Hired as Stokes’ chief of staff in 2019 before succeeding her in April 2020, Davis earmarked PPP funds for employee salaries, rent on the new headquarters building and “board member loans,” the indictment said.
Payments for board member loans were not allowable uses of PPP funds, the indictment continued, without disclosing which board members may have received the loans.
Trading on the 2015 Uprising
Originally known as the Greater Homewood Community Corporation, Strong City Baltimore actively entered the fiscal sponsorship business in 2015.
Its goal – in the wake of the Uprising following the in-custody death of Freddie Gray – was “to use our privilege as a white-led organization to support Back-led initiatives,” Stokes said at the time.
One key “privilege” possessed by Strong City was its 501(c)(3) tax-exempt status, which could be used by mostly Black-led nonprofits to raise tax-free dollars from government sources and private donors.
Today’s indictment notes that in September 2015, or just six months after the Uprising, Strong City started improperly placing funds raised by its fiscal sponsors into its own general operating bank account, rather than in separate restricted donor accounts as required by the law.
Around the same time, Stokes began laying the groundwork to establish a new center for its activities at the long-vacant A. Hoen & Co. Lithograph Building on East Biddle Street, working with developer Carl W. “Bill” Struever.
Stokes and Struever set up various LLCs that won historic tax credits and other city and state subsidies to pay for the bulk of the $34 million conversion cost, with Strong City also directly investing in the project.
The building – opened to considerable media hoopla in January 2020 – was reportedly dedicated to serving the depressed Collington Square neighborhood with job-training and education programs.
“We are a place-based organization, so where we are physically located matters to us. We needed to show we had skin in the game,” Stokes told Baltimore magazine.
(Remarkably, Strong City did not get any ownership interest in the building. Instead, it was required to pay rent to Struever’s Cross Street Partners for seven years, at which time it could buy the building with many of the tax credits expired or winding down.)
Four months after the Hoen building was opened, Stokes abruptly left her longtime position as CEO.
Davis took over, and when confronted with charges of misused money and a preliminary investigation by Baltimore Inspector General Isabel Mercedes Cumming (later turned over to the U.S. Attorney’s Office), he promised that Strong City would honor all of its fiscal commitments.
Casting the organization’s challenge as an outgrowth of the Covid-19 pandemic and the 2019 ransomware attack on city government, Davis issued a “call to action,” noting:
“As we fight to endure through this pandemic, we must consider relief and reform initiatives that strengthen fiscal and operational resiliency in the future. We must be bold in our policies and politics to build social equity and create more connected support ecosystems. We must consider how and why our social safety nets are so vulnerable today.”
Between January 20 and March 1, 2021, Davis submitted six separate PPP applications to an unnamed bank totaling $1,426,922, initialing a pledge that “if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable.”
At the end of March, he allegedly commingled the approved PPP loans with other Strong City money and began making wire transfers to five nonprofits to cover the shortfalls in their accounts.
“Davis and others known and unknown to the grand jury caused at least $650,000 of the PPP funds to be used to cover previously existing liabilities because of Strong City Baltimore’s previous improper use of restricted assets to pay operating expenses,” the indictment said.
At no point did Davis tell the nonprofits that they were receiving illegal proceeds, prosecutors said.
Strong City has since exited from fiscal sponsorship and shed nearly all of its employees.
The Brew reported in January that the organization faced an IRS tax lien due to its failure to pay $88,309 in payroll and Social Security taxes, a lawsuit by seven local nonprofits and a $167,027 court-ordered judgment.
The story also cited sources saying that the FBI was looking at the $1.4 million PPP loan that figured prominently in today’s indictment.
In the wake of Davis’ resignation last December, Strong City is under the caretaker control of Washington attorney Anwar Young, and its space in the cavernous Hoen building lies mostly vacant and devoid of staff.
Prior Brew Coverage of Strong City
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