Former CEO of Strong City Baltimore facing federal indictment related to CARES Act fraud

Published 8/9/2023 12:31 p.m. EDT, Updated 8/9/2023 6:44 p.m. EDT

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In mid-2020 it became clear Strong City Baltimore, an organization entrusted to manage funds for smaller nonprofits, was grappling with its own financial problems. Frustrated leaders of grassroots organizations called for accountability.

But it’s what an indictment alleges the CEO did in an attempt to fix those problems that brought him into a federal courthouse Wednesday afternoon in handcuffs.

The former CEO, Reginald Davis, was indicted by a federal grand jury on charges of wire fraud and money laundering, accused of misusing more than $1.4 million in COVID-19 CARES Act loans in 2021 to pay back grassroots programs after it was unable to account for their funds.

Davis, 40, made an initial appearance in U.S. District Court, pleading not guilty. His defense attorney declined to comment.

The charges come three years after a slew of Strong City’s clients began speaking out, saying their finances were hopelessly in disarray and leaving them unable to carry out their missions.

Strong City’s current state of operations is unclear — they no longer have space in the A. Hoen & Co. Lithograph Building, the renovated historic building in East Baltimore where the group set up shop in 2020. According to the building’s property manager, the company vacated last week leaving behind empty rooms and some unfolded moving boxes. The company only operated its Adult Learning Center from Biddle Street, occupying a handful of classrooms. The rest of the staff has worked remotely since the start of the pandemic.

Strong City’s website has not been updated to reflect Davis’ departure eight months ago; its social media accounts have gone dark.

Strong City’s board chair Anwar Young declined to comment, referring The Baltimore Banner to an attorney who did not respond to a request for comment.

The indictment says that in 2021, Davis submitted PPP loans to cover shortfalls in Strong City’s accounts that were owed to its fiscal sponsor organizations, without telling them the funds were proceeds of a PPP loan or that there were restrictions on how the funds could be used.

U.S. Attorney Erek Barron said Davis “allegedly stole well over one million taxpayer dollars intended to assist those suffering form the effects of the pandemic.”

“Organizations seeking to better the city of Baltimore entrusted Strong City Baltimore and Reginald Davis to help manage their money,” Thomas J. Sobocinski, the special agent in charge of the FBI’s Baltimore field office, said in a statement. “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.”

Strong City began in 1969 as the Greater Homewood Community Corp. and for decades worked as a “fiscal sponsor,” managing funds for a handful of community groups. Around 2015, the organization rebranded and began to take on more fiscal sponsorship work, eventually managing more than $14 million in funds and administrative work for more than 150 smaller organizations.

Fiscal sponsorship appeals to smaller organizations that may lack bandwidth to handle administrative tasks. Also, many grant providers are more likely to provide funds to a small group through an established fiscal sponsor. In exchange, the sponsor takes a percentage of the funds, typically 10% to 15%.

Davis worked as chief of staff for Strong City starting in 2019, and became its chief executive officer the following year, after the departure of its longtime CEO Karen Stokes, who ran the organization for 14 years. Davis left the organization in December 2022, though he is still listed on its website as the CEO. His attorney told U.S. District Judge Matthew Maddox that Davis is unemployed.

Davis is the only employee charged, though the indictment accuses him of devising a scheme to defraud with “others known and unknown to the grand jury.”

Complaints about Strong City were first reported in 2020 by the Baltimore Brew, though some groups said they had been experiencing problems for years. Baltimore Corps told The Baltimore Sun that as far back as 2017, Strong City was missing payrolls, providing weak accounting and generally mismanaging its funds.

The indictment maps out how Strong City dug itself into a hole. One nonprofit transferred more than $450,000 for Strong City to manage. But authorities say Strong City put the money into a general fund, instead of segregating it, and did not make any attempt to ensure that the money was used only for that nonprofit.

Over time, it provided financial statements to the client that showed a higher balance than actually existed. In 2019, Strong City told the client that their account had an end balance of $653,000, while Strong City’s total assets on hand were $286,000.

When the nonprofit sought to terminate its relationship with Strong City and receive its funds, Strong City repeatedly asserted they were working on it, but didn’t have the money.

In March 2021, an unnamed Strong City employee emailed board members and copied Davis and said the organization’s “deficit of $1.7 million is due to overextension in project expenditures,” according to the indictment.

“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,” the employee wrote.

Seeking to find a way out, Davis sought PPP loans beginning in January 2021, prosecutors say. The funds were to be used to retain workers and maintain payroll, as well as make payments for mortgage interest, rent, utilities and certain operations expenditures. After being notified that Strong City had received a loan, Davis wrote to an employee that his priorities for the funds were outstanding accounts payable and rent, and board member loans.

Neither payments for board member loans nor debt settlement with its clients were allowable uses, prosecutors say.

As questions arose about Strong City, current and former employees said the organization had grown too quickly, and also blamed the 2019 ransomware attack on the city and delays in disbursements from the city’s Children and Youth Fund in part because of the fallout of the Healthy Holly scandal.

Stokes, the former CEO, told The Sun in 2020 that Strong City also was not charging programs as much as it should have, and advanced money to clients before grants were in hand. Davis said at the time that some clients owed Strong City money.

A group of former clients filed a lawsuit against Strong City, Davis, Stokes and others affiliated with the group, alleging that Stokes and other top officials at Strong City diverted funds to cover the expensive renovation of the Hoen building. “As CEO, Stokes masterminded the purchase and renovation of the Hoen building, intending it to be her legacy,” the lawsuit claims. That lawsuit is pending in Baltimore Circuit Court.

The plaintiffs’ attorney, Roberto Alejandro, declined to comment.

Reporter Hugo Kugiya contributed to this article.

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