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Two Jacksonville City Council members indicted on fraud charges
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Jacksonville City Council members Katrina Brown and Reggie Brown — political allies at City Hall — stood together Thursday in a federal courtroom where they listened grimly while prosecutors outlined a 38-count indictment that accuses them of fraudulently getting “tens of thousands of dollars” from a U.S. Small Business Administration loan.
The 60-page indictment is the latest blow for Katrina Brown stemming from her role in a Jerome Brown BBQ Sauce manufacturing plant that went belly-up after receiving a $2.65 million loan backed by the Small Business Administration, along with a $380,000 city loan and a $210,000 city grant.
The criminal case swept up Reggie Brown as well due to his involvement in two businesses — A Plus Training and RB Packaging — that the indictment contends he and Katrina Brown formed in order to file fake invoices so a Louisiana bank would continue to release money from the SBA loan.
Reggie Brown declared as he left the U.S Courthouse, “I’m innocent, and the end of the story will definitely justify the outcome.”
Katrina Brown did not say anything on her way out of the courthouse.
Her attorney, Curtis Fallgatter, said the federal government’s fraud case fails to show she gained any personal benefit.
“She’s not out buying yachts, fancy cars, fancy trips, jewelry,” Fallgatter said.
Comparing her case to that of Bernie Madoff, who was convicted of an elaborate scheme to defraud investors, Fallgatter said, “Bernie Madoff bought a lot of toys for himself. She’s still living with her parents.”
He said that from 2011 to 2016, Brown drew about $3,000 in income from the sauce business. “If that’s a crime for her to work five years and make $600 a year, I’ve never seen it in my 40 years of practicing law,” Fallgatter said.
Fallgatter said “every penny” of the $2.65 million Small Business Administration loan went into the barbecue sauce manufacturing business, which ultimately failed.
“Every time a business fails does not mean a crime occurred,” said Alan Ceballos, attorney for Reggie Brown.
Katrina Brown and Reggie Brown were quiet and reserved when they addressed U.S. Magistrate James Klindt at a first appearance hearing where the charges were summarized and attorneys talked about their plans for the case.
Neither Fallgatter nor Ceballos were ready Thursday to guarantee their firms would represent the council members through a trial or plea agreement.
Klindt scheduled a June 14 hearing to settle that, and said the hearing might become an arraignment, where defendants formally plead their innocence or guilt.
Assistant U.S. Attorney A. Tysen Duva summarized the charges, which carry a purely theoretical potential for sentences as long as 720 years for Katrina Brown and 601 years for Reggie Brown.
Those charges basically center around lying so lenders would believe enough work had been completed and would release portions of the 2.65 million federally backed loan that financed the sauce plant.
The indictment describes Katrina Brown and an unnamed Person A signing a November 2011 loan agreement with BizCapital, which seems to be a loan the council member and her mother, JoAnn Brown, signed that same day. The agreement required Basic Products, the sauce business’s operating company, to file detailed invoices of its expenses for BizCapital to release money in installments to covers costs as they arose for turning a large Commonwealth Avenue building into a sauce manufacturing operation.
The charges claim that some invoices were false, and that a lot of money paid to RB Packaging and A Plus Training ended up back in Basic Products’ bank account.
In July 2014, the indictment says, Katrina Brown emailed the lender a note in all capital letters saying money was needed to pay for equipment including sauce bottles.
“WE NEED THOSE BOTTLES ASAP WE HAVE ORDERS TO FILL,” the email read, according to the indictment. The document says an $18,661 check was sent from the lender to a supposed vendor, RB Packaging, but then that company wrote a $16,500 check back to Basic Products.
State records list Reggie Brown as the manager and registered agent of RB Packaging LLC, but the indictment says Katrina Brown actually incorporated that business and another, A Plus Training.
The indictment claims the companies “performed no legitimate business,” and were created only after Basic Products struggled to meet the big business forecasts it had when the loan was first approved.
The U.S. Small Business Administration had guaranteed 75 percent of the BizCapital loan, and the city had separately agreed to a $380,000 loan and a grant that ended up being $210,000. Katrina Brown conspired with Reggie Brown to use the two companies to submit fraudulent invoices in order to keep getting money for the sauce business instead of admitting that the venture was struggling, the indictment said.
About $252,000 in SBA loan money ended up reaching RB Packaging, the indictment said, adding that at least $165,000 of that was later sent to Basic Products and Katrina Brown. On a smaller scale, A Plus Training “was used as a conduit to improperly receive approximately $12,500 in SBA loan funds, only to funnel funds back to Basic Products and Katrina Brown,” the indictment said.
The invoices and other information sent to BizCapital were also used later by the city when it approved releasing $210,000 in grant money for Basic Products’ use, the U.S. Attorney’s Office said in a release Thursday.
The indictment says the federal government will seek to obtain the forfeiture of property in amount of at least $754,613, an amount that represents proceeds the conspiracy obtained “directly or indirectly.”
Katrina Brown is charged with 37 separate counts involving conspiracy, aiding and abetting mail and wire fraud, attempted bank fraud, illegal monetary transactions and making false statements to a federally insured institution. Reggie Brown faces 34 counts involving conspiracy, aiding and abetting mail and wire fraud, illegal transactions and failure to file a 2014 income tax return.
When Katrina Brown was elected to City Council in 2015, her campaign touted her ability to win the loans and grants in support of the venture to manufacture the Jerome Brown BBQ brand of sauce.
The sauce, which her father concocted and used at the family’s drive-in barbecue restaurant, won backing from the city’s Northwest Jacksonville Economic Development Fund, which aims to help businesses in struggling parts of the city.
In 2011, City Council approved the city’s share of the financing package. In exchange, the sauce business was supposed to create 56 jobs, but it failed to show the city that even a single new job was created.
The city sued Cowealth LLC and Basic Products LLC — both businesses owned by Katrina Brown and her mother — and won a judgment demanding repayment of the $210,000 grant. Earlier this month, the city sued Katrina Brown to compel her to make good on the largely unpaid city loan.
A grand jury returned the indictment on May 23. The indictment was sealed that day and unsealed Thursday.
Reggie Brown’s annual financial disclosure statements, which are on file with the Florida Commission on Ethics, do not make any mention of either A Plus Training or RB Packaging where elected officials must disclose sources of income.
david.bauerlein (904) 359-4581
steve.patterson (904) 359-4263
Charges in the indictment:
- Conspiracy to commit mail and wire fraud
- Aiding and abetting mail and wire fraud (26 counts)
- Illegal monetary transactions (six counts)
- Attempted bank fraud (two counts)
- False statements to a federally insured institution (two counts)
- Failure to file Form 1040 Return
Related stories:
Oct. 14, 2017: Up in smoke: How lofty goals and spotty oversight doomed city’s investment in Jerome Brown BBQ Sauce venture
March 21, 2017: Chapter 11 bankruptcy filed for Jerome Brown Barbecue & Wings
Dec. 27, 2016: Attorney representing Councilwoman Katrina Brown plans to meet with U.S. Attorney’s office
Dec. 20, 2016: Federal agents haul boxes from business co-owned by City Council member Katrina Brown
Dec. 6, 2016: City gives business co-owned by City Council member a Dec. 31 deadline to avoid lawsuit
Sept. 16, 2016: Company that defaulted on city agreement for barbecue sauce plant is trying to sell the building
Aug. 11, 2016: Restaurant planned for building where business linked to City Council member defaulted on city agreement
June 29, 2016: City demands $210,550 from councilwoman’s business
May 4, 2016: Business co-owned by council member gets letter from city about overdue loan and tax payments
April 2, 2016: City wants jobs in Northwest Jacksonville, but taxpayer investment is slow to bring them
April 24, 2015: Business connected to City Council candidate pays up $27,000 in overdue city and state taxes
April 19, 2015: Council candidate, family owe almost $22,000 in property taxes
Feb. 17, 2013: Jacksonville barbecue sauce plant is cooking, but slowly
June 26, 2011: Florida barbecue flavor spreads with Jerome Brown’s sauce
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