The once high-profile federal investigation into Strong City Baltimore, a nonprofit accused of stealing from small, Black-led organizations and pouring money into a vanity venture with a prominent city developer, has fizzled into a single low-level plea by the group’s former interim CEO.

Reginald L. Davis, 42, pleaded guilty on Friday to “misdemeanor bank theft” related to $1.4 million in Payroll Protection Program (PPP) loans that were awarded to Strong City in 2021.

Davis said he and unnamed “others” diverted some of the PPP funds to pay off Strong City’s back debts “contrary to representations to Bank 1, thus causing a larceny from Bank 1 by false pretenses,” according to a half-page Stipulation of Facts included in court documents.

The offense is punishable by a maximum one-year jail sentence and a maximum fine of $100,000, although such penalties are rarely imposed. Davis’ sentencing is set for late September.

Davis was indicted on August 9, 2023 on three federal counts of wire fraud and money laundering, punishable by up to 20 years in prison and a $250,000 fine.

Then-U.S. Attorney for Maryland Erek L. Barron alleged that the former CEO “stole well over one million taxpayer dollars” and made clear that the indictment was part of an ongoing investigation of Strong City’s current and former officers.

Three years earlier, in August 2020, The Brew detailed how many small groups who had entrusted their grant money to Strong City  were unable to access their funds (here and here).

One victim called it “a nonprofit Ponzi scheme,” saying Strong City was “robbing Peter to pay Paul.”

Fiscal Sponsor

Strong City emerged as the go-to nonprofit in the wake of the 2015 Freddie Gray uprising, when millions of dollars of public and private money poured into Baltimore aimed at correcting historic racial and social inequities.

Groups that acted as “fiscal sponsors” – lending grassroots organizations their 501(c)(3) nonprofit status and managing their grants and other administrative needs in return for a fee – became so popular that some turned down new clients.

But projects always got the green light from Strong City, the former Greater Homewood Community Corp.

Under CEO Karen D. Stokes, the group’s portfolio grew to more than 120 fiscally-sponsored projects, reaping sponsor fees that ballooned to $600,000 in 2017, according to the group’s 990 filings with the IRS.

• Full Coverage of Strong City by The Brew.

As overall grants and city contracts climbed to nearly $15 million in 2018, Stokes embarked on a speculative real estate deal with Carl W. “Bill” Struever to renovate the A. Hoen & Co. Lithography Building, a long-abandoned factory in the deeply depressed Collington Square neighborhood in East Baltimore.

Using Strong City’s nonprofit status, Struever won both a $500,000 grant from the city and a two-thirds reduction in the building’s sales price.

Hailed by city officials and the media as a rejuvenating force in a poor community, the project secured $15 million in tax credits, $6 million in leveraged debt and $7 million from private fundraising.

Money Diverted

Not long after the refurbished factory opened in 2020 with Strong City as its major tenant, The Brew wrote several stories detailing how grassroots groups could not gain access to grant money held by the nonprofit.

Davis, who had taken over from Stokes as CEO, publicly pledged to take steps to “course correct” and “address the deficiencies in our fiscal sponsorship programs.”

Instead, according to the federal indictment, he paid off some of the group’s back debts, but otherwise earmarked the PPP funds for employee salaries, rent on the new headquarters and “board member loans.”

Such uses were not allowed under the PPP program, the indictment continued, without disclosing which board members may have received the loans.

• Even after Strong City’s mismanagement is exposed, there’s been no help for the victims (5/29/21)

Meanwhile, the broader federal investigation against the organization had been slowed by Strong City’s suspected failure to turn over subpoenaed documents to prosecutors, informed sources told The Brew.

On January 26, 2024, the FBI received court permission to search 2108, 2110 and 2112 Mura Street, three alley houses owned by Strong City and used as an unofficial business office.

The feds seized about 1,000 files at the address – including the “contents of dozens of boxes heaped upon each other, numerous file cabinets and electronic devices” – as part of an investigation of alleged criminal activity by the nonprofit, according to subsequent court filings.

Investigation Unravels

But for reasons not explained in court documents, the U.S. attorney’s office failed to notify Gerald C. Ruter, Davis’ defense counsel, of the material seized until January of this year.

Rutter filed a motion to suppress the search evidence, and U.S. District Judge Stephanie Gallagher signed an order expressing displeasure with the U.S. attorney’s office.

“The Government is forewarned that the pace of discovery described in the defendant’s motion is not acceptable to this Court given that this case has been pending since 2023,” she wrote on January 14, 2025.

Disarray in the Maryland U.S. attorney’s office – both before and after the start the Trump administration – led to the resignation of the chief prosecutor in the case and Barron’s replacement by Kelly O. Hayes.

With a jury trial scheduled to start on July 14, Assistant U.S. Attorneys Joseph Wenner and Ariel Evans entered into negotiations with Rutter. The result was the plea bargain signed by Davis on Friday.

In the meantime, Strong City Baltimore has disappeared from view.

In December 2022, Davis left as CEO, telling supporters in an email that he was proud of fulfilling the organization’s mission to “do good in the communities we serve.”

He said he had no immediate plans other than to take a “much-needed break” and “focus on self-care, a healing journey and my family.”

Under the leadership of board chair Anwar L. Young, the nonprofit vacated its headquarters at the Hoen Building and forfeited its corporate status with the state. Last month, its Mura Street rowhouses were auctioned off in a sheriff’s sale.

Strong City has been sued by the IRS for back payroll and Social Security taxes, and was the subject of a lawsuit filed by seven former sponsored organizations – Aziza Pe&ce, The Be. Organization, Maryland Justice Project, Step Up Maryland, Fearlessly Loving Yourself, Helping Oppressed People Excel, and the William Tipper Thomas Foundation.

Strong City’s intent was “to use our privilege as a white-led organization to support Black-led initiatives”  – Former CEO Karen Stokes.

The lawsuit accused Davis, Stokes and two other former officers of “intentionally and knowingly” diverting funds intended for community projects to help Struever renovate the Hoen Building.

“Defendant Stokes masterminded the purchase and renovation of the Hoen Building, intending it to be her legacy,” the lawsuit alleged. “When costs started to mount, Stokes began using funds SCB was holding to cover the rising coasts.”

In a statement to The Brew, Stokes denied that she ever misappropriated funds and said that Strong City moved into fiscal sponsorships “in an effort to use our privilege as a white-led organization to support Black-led initiatives.”

She stated, “The work we engaged in was done with the best of intentions and the highest integrity to support community-led initiatives that had few or no access to traditional funding support.”

“Fundraising and capital support for the Hoen Building,” she added, “were completely separate from the day-to-day operations of the organization and unrelated to its fiscal sponsorship program.”

• To reach a reporter: reuttermark@yahoo.com.