Indictment — United States v. Reginald Davis (D. Md.)

Summary

A grand jury indictment in United States of America v. Reginald Davis, filed August 3, 2023 as Document 1 in No. 1:23-cr-00269-SAG in the U.S. District Court for the District of Maryland. It charges wire fraud under 18 U.S.C. § 1343 and money laundering under 18 U.S.C. § 1957, with forfeiture allegations covering Counts One through Three. The indictment alleges that Strong City Baltimore, a non-profit where Davis served as Interim Chief Executive Officer and then CEO, used fiscally sponsored clients' restricted funds for operating expenses and owed one client about $610,207.00. It alleges that from about January 2021 Davis submitted PPP loan applications to Bank 1 with false statements about the intended use of the funds, and that Bank 1 approved a loan on or about March 13, 2021 that has not been forgiven. The signature block names United States Attorney Erek L. Barron.

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Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 1 of15

ASJZ/JW: USAO#2023R00515 S = | L E

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

(Wire Fraud, 18 U.S.C. § 1343; Money
Laundering, 18 U.S.C. § 1957; Forfeiture,
18 U.S.C. §§ 981 and 982, 21 U.S.C.

§ 853(p), and 28 U.S.C. § 2461(c))

UNITED STATES OF AMERICA

REGINALD DAVIS,

Defendant

INDICTMENT

COUNT ONE
(Wire Fraud)

The Grand Jury for the District of Maryland charges that:
At all times relevant to this Indictment:

Relevant Individuals and Entities

1. Defendant REGINALD DAVIS (“DAVIS”) was a resident of Maryland.

2. In or about June 2015, Strong City Baltimore (“SCB”) was established in the State
of Maryland as a non-profit organization serving individuals, community associations, institutions,
and businesses in Baltimore.

3. From at least on or about September 14, 2015, to at least on or about May 1, 2021,
SCB operated a general checking account at Bank | with account number ending in x4485 (the
“4485 account”). This bank account was used as SCB’s general operating account for the next
seven years, including for funds that were given to SCB by its fiscal clients for restricted purposes.
As outlined further below, beginning no later than August 2016, SCB improperly used client assets

with donor restrictions to fund operating expenses.
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 2 of 15

4. Beginning in or about November 2019, DAVIS began working at SCB as Chief of
Staff, and in or about April 2020, DAVIS became the Interim Chief Executive Officer
(“CEO”) of SCB. In or about April 2021, DAVIS became the CEO of SCB. DAVIS resigned
from SCB in or about December 2022.

a. Non-Profit 1 was a Baltimore-based non-profit organization dedicated to fostering
research, encouraging education, and providing support for individuals with a particular medical
condition. In the years prior to 2018, Non-Profit 1 existed as an independent non-profit
organization. In or about January 2018, Non-Profit 1 entered into a fiscal sponsorship
arrangement with SCB. Under the arrangement, SCB would provide administrative ‘backbone’
support for Non-Profit 1, including fiduciary services, governance, and funds management. In
return, SCB would receive a regular payment from Non-Profit | for services rendered.

6. In or about October 2019, Non-Profit 1 signed a Memorandum of Agreement with
SCB that stated, among other things, “Strong City (the Fiscal Sponsor) agrees to . . . [dJeposit
funds received on behalf of the Sponsored Project into a restricted set of funding sources in Strong
City’s fiscal management system.” After this agreement was signed, Non-Profit | continued to
send and direct funds to SCB, including donations. These funds were placed in the 4485 account
and were not restricted in any way. SCB used these funds to pay general expenses unrelated to
Non-Profit 1.

7. From in or around April 2020, to in or around July 2020, Non-Profit 1 merged with
Non-Profit 2, a larger Maryland non-profit organization with a similar purpose.

8. Non-Profit 3 was a Baltimore-based non-profit organization dedicated to providing
programs that educate, empower, and uplift diverse communities. On or about October 30, 2018,
Non-Profit 3 entered into a fiscal sponsorship arrangement with SCB, which contained a similar

agreement, as described above in paragraph 6, in which SCB agreed to deposit Non-Profit 3’s
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 3 of 15

funds into a restricted set of funding sources. SCB, however, did not set up a restricted set of
funding sources for funds related to Non-Profit 3.

9. Non-Profit 4 was a Baltimore-based non-profit organization focused on assisting
individual home renovators and small community developers. On or about July 22, 2016, Non-
Profit 4 entered into a fiscal sponsorship arrangement with SCB, 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 did not set up a
restricted set of funding sources for funds related to Non-Profit 4.

10... Non-Profit 5 was a Baltimore-based non-profit organization that worked on
providing a safe space for youth that promoted positive thinking skills. Prior to August 2020,
Non-Profit 5 entered into a fiscal sponsorship arrangement with SCB similar to those described
above in paragraph 6. SCB did not set up a restricted set of funding sources for funds related to
Non-profit 5.

11. Beginning no later than in or about August 2016, and continuing through at least
December 2019, SCB received funds and improperly used client assets with donor restrictions to
fund its own operating expenses contrary to its agreements with the clients to safeguard those funds
on the clients’ behalf.

The Paycheck Protection Program

12. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was a federal
law enacted in or around March 2020, which was designed to provide emergency financial
assistance to the millions of Americans who were suffering the economic effects caused by the
COVID-19 pandemic. One source of relief provided by the CARES Act was the authorization of
up to $349 billion in forgivable loans to small businesses for job retention and certain other

expenses, through a program referred to as the Paycheck Protection Program (“PPP”). In or
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 4 of 15

around April 2020, Congress authorized over $300 billion in additional PPP funding.

13. _In order to obtain a PPP loan, a qualifying business was required to submit a PPP
loan application, which was signed by an authorized representative of the business. The PPP loan
application required the business (through its authorized representative) to acknowledge the
program rules and make certain affirmative certifications in order to be eligible to obtain the PPP
loan. In the PPP loan application, the small business (through its authorized representative) was
required to state, among other things, its: (a) average monthly payroll expenses; and (b) number
of employees. These figures were used to calculate the amount of money the small business is
eligible to receive under the PPP.

14. | A PPP loan application was required to be processed by a participating lender, such
as a financial institution. Ifa PPP loan application was approved, the participating lender funded
the PPP loan using its own monies, which were 100% guaranteed by the Small Business
Administration (“SBA”). Data from the application, including information about the borrower,
the total amount of the loan, and the listed number of employees, was transmitted by the lender to
the SBA in the course of processing the loan.

15. PPP loan proceeds were required to be used by the business on certain permissible
expenses—payroll costs, interest on mortgages, rent, and utilities. The PPP allowed the interest
and principal on the PPP loan to be entirely forgiven if the business spent the loan proceeds on
these expense items within a designated period of time and used a certain percentage of the PPP
loan proceeds on payroll expenses.

16. | The SBA servers that process PPP loans are located outside of the District of
Maryland.

Relevant Financial Institution

17. Bank 1 was an FDIC-insured SBA-authorized PPP lender headquartered in
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 5 of 15

Pittsburgh, Pennsylvania. At all times relevant to this indictment, Bank | participated as a lender
in the PPP.

18. Borrowers applied for PPP loans online through Bank 1’s website by creating an
account. Borrowers were then able to enter information pertinent to the PPP loan application,
including but not limited to payroll costs and number of employees. Borrowers also uploaded
supporting documentation and signed loan documents electronically through the account. Once
a loan was approved, it would be funded by Bank 1.

SCB’s Mismanagement of Non-Profit Client Funds

19. Onor about January 24, 2018, Non-Profit | 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 ensure that the money was used only
for Non-Profit 1.

20. SCB provided regular statements of revenue and expenditures to Non-Profit | and,
after its merger, to Non-Profit 2. These statements listed “ENDING FUND BALANCE” for Non-
Profit 1. SCB’s total assets were often significantly less than what SCB represented belonged to
Non-Profit 1. For example, on or about July 31, 2019, SCB reported to Non-Profit 1 that Non-
Profit 1 had approximately $653,000 in an “ENDING FUND BALANCE.” In truth and in fact,
at that time, SCB’s total assets on hand were approximately $286,000. On or about January 31,
2020, SCB reported to Non-Profit | that Non-Profit 1 had approximately $827,000 in an
“ENDING FUND BALANCE.” In truth and in fact, at that time, SCB’s total assets on hand was
approximately $339,000, a shortfall of over $480,000.

21. On or about 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,
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 6 of 15

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.”

22. Onor about August 31, 2020, DAVIS emailed two members of the leadership team
associated with Non-Profit 2. DAVIS wrote that he was “looking forward” to working to help
“close out” the relationship between Non-Profit 2 and SCB.

23. On or about November 1, 2020, a member of the leadership team associated with
Non-Profit 2 emailed an SCB employee and copied DAVIS regarding next steps. The email
stated, “Tomorrow afternoon I will be meeting with the law firms which represent [Non-Profit 2].
I am truly sorry we were not able to work this out, even when we agreed to your proposed terms.
It is a horrible story, if not worse, in the making!”

24. On or about December 4, 2020, a member of the leadership team associated with
Non-Profit 2 emailed an SCB employee stating that:

We have now received $319K of an estimated $929K due to [Non-Profit 1]. That leaves a
balance of approximately $610K. The last payment was received on November 7. We
communicated a number of times during November regarding determining the next
payment date . . . and unfortunately there has been no positive movement that I am aware
of at this time. I can only do so much on my end and need something that will show there
is reason for us to continue to pursue this outstanding balance in good faith.

25. On December 4, 2021, the SCB employee responded that he was “working
diligently on my end to develop a clear and practical distribution of [Non-Profit 1] funds with our
finance team . . . and hope to have a clear and practical written plan for you on or before December

11 [2020] .. . 1am requesting ‘grace’ to develop this plan and ensure you that I am working on

‘good faith’ with you to ensure all your funds are received.” In truth and in fact, Strong City’s
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 7 of 15

total assets at that time was approximately $248,000.

26. On or about December 4, 2020, an individual associated with Non-Profit 1
responded:

Like many of your fiscally sponsored organizations, $600K to [Non-Profit 1] is like $6M
to a larger organization. In addition, much of this money was given to [Non-Profit 1] with
restrictions and entrusted to Strong City to protect on their behalf. To me, there is really no
higher calling than protecting donor dollars and ensuring we ultimately carry out their
wishes. Strong City continues to hold the vast majority of all of [Non-Profit 1’s] resources
and without them, ultimately children will go undiagnosed and some may well lose their
lives.

27. | Onor about March 10, 2021, approximately eight months after initiating the fiscal
sponsorship close-out process with SCB, an employee of SCB stated in response to questions from
Non-Profit 1’s representatives, that “we anticipate liquidating the totality of funds within a two
week period.” At that point, the totality of funds owed by SCB to Non-Profit 1 was approximately
$610,207.00. SCB’s total assets on hand were approximately $261,000.

28. | Onor about March 12, 2021, an SCB employee emailed SCB Board members and
copied DAVIS, stating, “[SCB]’s deficit of $1.7 million is due to overextension in project
expenditures. We financed the over spending by using [an earlier 2020 PPP loan] ($1.2 million),
and project funds (which should have been held in trust) — hence the liability to [Non-Profit 1] and

others of over $600k.”

March 2021 PPP Loan

29. Onor about March 13, 2021, Bank 1 approved SCB’s PPP loan.
30. As of the date of this indictment, the March PPP loan has not been forgiven, nor
have any payments been made toward the outstanding balance.

The Scheme to Defraud

31. | Between in or around January 2021, and continuing until in or around May 2021,

DAVIS and others known and unknown to the Grand Jury devised and intended to devise a scheme
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 8 of 15

to defraud Bank | and to obtain money and property from Bank | by means of materially false and
fraudulent pretenses, representations, promises, and material omissions, with intent to defraud and
with knowledge of the scheme’s fraudulent nature (“the scheme to defraud”).

Purpose of the Scheme to Defraud

32: It was the purpose of the scheme to defraud for DAVIS to fraudulently obtain or
attempt to obtain a PPP loan on behalf of SCB, in order to cover shortfalls in SCB’s accounts that
were owed to the fiscally-sponsored organizations. These shortfalls had arisen because SCB
improperly used assets with donor restrictions to pay SCB operating expenses, including salaries
to its own employees.

Manner and Means of the Scheme to Defraud

It was part of the scheme to defraud that:

33. From in and around January 2021, to in and around March 2021, DAVIS submitted
and caused to be submitted to Bank 1 multiple PPP loan applications on behalf of SCB, which
eventually resulted in one loan being granted.

34. In the PPP loan applications, DAVIS made and caused to be made false and
fraudulent statements, under penalty of perjury, including false statements regarding the intended
use of the PPP funds.

35. | DAVIS caused Bank | to issue a PPP loan.

36. | DAVIS and others known and unknown to the Grand Jury caused PPP funds to be
deposited into SCB controlled bank accounts.

37. DAVIS sent emails to SCB staff, which resulted in interstate wire communications,
regarding PPP applications, including describing uses for the PPP funds that were not permitted

by the terms of the PPP loans that DAVIS signed.
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 9 of 15

38. 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 to fiscally-sponsored
organizations that had arisen because of SCB’s previous improper use of restricted assets to pay
operating expenses.

2021 PPP Applications

39. In furtherance of the scheme to defraud, on or about January 19, 2021, DAVIS
caused SCB to open a new bank account ending in x3365 (the “3365 account’) at Bank 1.
DAVIS was the signatory on the account on behalf of SCB. No funds were placed in the account.

40. From on or about January 20, 2021, through on or about March 1, 2021, DAVIS
submitted and caused to be submitted six (6) separate PPP applications on behalf of SCB reporting

varying amounts of average monthly payroll:

Date Number of Average Monthly Total Loan Amount
Employees Payroll Sought
1/20/2021 100 $700,803 $1,752,006
2/12/2021 100 $700,803 $1,752,006
2/19/2021 100 $677,677 $1,694,192
2/25/2021 100 $677,188 $1,692,970
2/28/2021 100 $677,188 $1,692,970
3/1/2021 100 $570,769 $1,426,922

41. DAVIS digitally signed all applications, including the final March 1, 2021
application. The application contained the following statement:

The funds will be used to retain workers and maintain payroll; or make payments for
mortgage interest, rent, utilities, covered operations expenditures, covered property
damages costs, covered supplier costs, and covered worker protected expenditures as
specified under the Paycheck Protection Program Rules; I understand that if the funds are
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 10 of 15

knowingly used to unauthorized purposes, the federal government may hold me legally
liable, such as for charges of fraud.

42. DAVIS initialed next to this acknowledgement statement, signifying that he
understood these terms.
43. On or about March 13, 2021, DAVIS forwarded to an employee of SCB an e-mail

that he had received from Bank | notifying him that SCB’s application for a PPP loan had been

44. Onor about March 15, 2021, at approximately 1:23 a.m. DAVIS wrote to an SCB
employee: “In anticipation of the funds, let’s plan to discuss the expenses proposed to be paid and
the timeline. Please put together a priority list. Among my list please it should include outstanding
AP [accounts payable], outstanding rent and CAM, [Non-Profit 1], and board member loans.”
Neither payments for board member loans nor debt settlement with Non-Profit | were allowable
uses of PPP funds.

45. | On or about March 15, 2021, at 2:18 p.m., DAVIS electronically signed the PPP
note with the bank, agreeing to the disbursement of funds.

46. On the same day, DAVIS sent an email to the leadership of Non-Profit | stating
“We are preparing to process the full liquidation payout for [Non-Profit 1]. [SCB Employee]
will follow up with you on next steps.”

47. On or about March 16, 2021, Bank | deposited approximately $1,426,922 in PPP
funds into the 4485 account.

SCB’s Misuse of the PPP Funds to Pay Pre-Existing Liabilities

48. On or about March 23, 2021, DAVIS caused $800,000 to be transferred from the
4485 account to the 3365 account. Immediately prior to the transfer, the 4485 account had a

balance of approximately $1,487,991, of which at least $1,100,000 represented PPP loan proceeds.

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Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 11 of 15

An official at Bank 1 encouraged DAVIS to transfer the funds because there had been ongoing
fraudulent activity in the 4485 account. Prior to the transfer, the 3365 account had a negative
balance of approximately $20.00. No money had ever been deposited, and the account had been
assessed a twenty-dollar Corporate Account Analysis Charge.

49. On or about March 26, 2021, DAVIS caused approximately $4,861.55 to be wired
from the 4485 account to Non-Profit 3 to close out Non-Profit 3’s fiscal sponsor arrangement.
Although Non-Profit 3 had previously terminated its fiscal sponsorship arrangement with SCB in
September 2020, SCB provided no reason for the delay in payment to Non-Profit 3. Neither
DAVIS nor any other SCB employee informed Non-Profit 3 that these funds were the proceeds of
a PPP loan, or that there were any restrictions on the use of funds.

50. On or about 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.

51. On that same day, an SCB Employee signed an agreement with Non-Profit 1,
stating that “both parties agree to a final balance amount of $609,633.38 due from Strong City
Baltimore. Strong City Baltimore and [Non-Profit 1] also agree that this balance corresponds to
the final amount entrusted to Strong City Baltimore in its role as fiscal sponsor.”

52. On or about April 1, 2021, $609,633.38 in funds was transferred from the 4485
account to Non-Profit 2. Neither DAVIS nor any other SCB employee informed Non-Profit 2
that these funds were the proceeds of a PPP loan, or that there were any restrictions on the use of
funds.

53. On or about April 2, 2021, $10,910.71 was transferred from the 4485 account to
Non-Profit 4 to close out its fiscal sponsorship arrangement. Non-Profit 4 had previously

terminated its fiscal sponsorship arrangement with SCB in June 2020. SCB provided no reason for

11
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 12 of 15

the delay in payment to Non-Profit 4. Neither DAVIS nor any other SCB employee informed
Non-Profit 4 that these funds were the proceeds of a PPP loan, or that there were any restrictions
on the use of funds.

54. On or about April 9, 2021, $6,252.39 was transferred from the 4485 account to
Non-Profit 5. Neither DAVIS nor any other SCB employee informed Non-Profit 5 that these funds
were the proceeds of a PPP loan, or that there were any restrictions on the use of funds.

The Charge

55. On or about March 16, 2021, in the District of Maryland and elsewhere, the

defendant,

REGINALD DAVIS,
for the purpose of executing and attempting to execute the scheme to defraud, did knowingly
transmit and cause to be transmitted by means of wire communication, in interstate and foreign
commerce, writings, signs, signals, pictures, and sounds, to wit: a wire of transfer of $1,426,922
from Bank 1, located outside Maryland, to the 4485 account, located within Maryland.

18 U.S.C. § 1343
18 U.S.C. §2

12
Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 13 of 15

COUNTS TWO AND THREE
(Money Laundering)

The Grand Jury for the District of Maryland further charges that:
Introduction
l. The allegations in Paragraphs | through 30, and 31-54 of Count One are
incorporated here.
The Charges
2. On or about the dates listed below, in the District of Maryland and elsewhere, the
defendant,

REGINALD DAVIS,

did knowingly engage and attempt to engage in the following monetary transactions by, through,
and to a financial institution, affecting interstate and foreign commerce, in criminally derived
property of a value greater than $10,000, that is, the transfer and withdrawal of funds, as set forth
below, such property being derived from a specified unlawful activity, that is, wire fraud, in

violation of 18 U.S.C. § 1343:

DESCRIPTION OF MONETARY
TRANSACTION

Transfer of more than $500,000 from the 4485
account to the 3365 account.

COUNT | APPROXIMATE DATE

a March 23, 2021

Transfer of more than $500,000 from the 3365

3 March 29, 2021 account to the 4485 account.

18 U.S.C. § 1957

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Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 14 of 15

FORFEITURE ALLEGATION

The Grand Jury for the District of Maryland further finds that:

1. Pursuant to Fed. R. Crim. P. 32.2, notice is hereby given to the defendant that the
United States will seek forfeiture as a part of any sentence in accordance with 18 U.S.C. §§
981(a)(1)(C) and 982, 21 U.S.C. § 853(p), and 28 U.S.C. § 2461(c), in the event of the defendant’s
conviction on any of the offenses alleged in Counts One through Three of this Indictment.

Wire Fraud Forfeiture

2. Upon conviction of the offense alleged in Count One in this Indictment, the
defendant,

REGINALD DAVIS,

shall forfeit to the United States, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c),
any property, real or personal, which constitutes or is derived from proceeds traceable to the
scheme to defraud.

Money Laundering Forfeiture

3. Upon conviction of an offense alleged in Counts Two and Three in this Indictment,
the defendant,

REGINALD DAVIS,

shall forfeit to the United States, pursuant to 18 U.S.C. § 982(a)(1), any property, real or
personal, involved in such offenses, or any property traceable to such property.

Substitute Assets

5, If any of the property described above, as a result of any act or omission of the
defendant:
a. cannot be located upon the exercise of due diligence;

b. _ has been transferred or sold to, or deposited with, a third

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Case 1:23-cr-00269-SAG Document1 Filed 08/03/23 Page 15 of 15

c. has been placed beyond the jurisdiction of the Court;
d. has been substantially diminished in value; or
e. has been commingled with other property that cannot be divided without
difficulty;
the United States shall be entitled to forfeiture of substitute property up to the value of the
forfeitable property described above pursuant to 21 U.S.C. § 853(p), as incorporated by
18 U.S.C. § 982(b)(1) and 28 U.S.C. § 2461(c).
18 U.S.C. § 981 (a)(1)(C)
18 U.S.C. § 982(a)(1) and (b)(1)

21 U.S.C. § 853(p)
28 U.S.C. § 2461(c)

Erek L. Barron
United States Attorney

A TRUE BILL:

SIGNATURE REDACTED ate: 9/3123

Foreperson

15


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