Jacksonville City Council members Reginald Brown and Katrina Brown have been indicted by a federal grand jury on 38 counts of conspiracy, mail and wire fraud on Thursday.
Governor Rick Scott suspended both Katrina and Reginald Brown following the indictment on Friday.
The indictment, unsealed Thursday morning, stems from a $2.65 million U.S. Small Business Administration loan, obtained by Katrina Brown's family for a barbecue sauce plant on Commonwealth Avenue.
The family-owned business also obtained a $380,000 loan and a $210,000 grant from the City of Jacksonville in exchange for the promise of 56 permanent manufacturing jobs in Northwest Jacksonville. No jobs ever materialized.
Katrina Brown was elected to City Council in 2015, citing her work with the family business as one of her chief qualifications. Reggie Brown is serving his final year on council, and is a candidate for state Senate. The two lawmakers, who are not related, were both members of the City Council Finance Committee, but have been suspended from their committee assignments as of this morning.
The indictment focuses on the SBA loan, but the city is simultaneously suing Katrina Brown to recoup its lost investment.
According to the indictment, in 2013, when the barbecue business failed to meet financial projections, Katrina Brown and Regina Brown incorporated A Plus Training Consultants and RB Packaging. The two allegedly conspired to submit fake invoices from A Plus Training and RB Packaging to the SBA-approved lender BizCapital, claiming that A Plus Training and RB Packaging had performed work that required reimbursements.
Prosecutors claim Reginald Brown deposited the reimbursement checks into bank accounts for the businesses, then withdrew much of it and gave it to Katrina Brown.
The indictment also alleges Reginald Brown and RB Packaging served as a shell company, accepting $251,919 in SBA loan proceeds from BizCapital, and depositing at least $166,500 to Basic Products, while Reginald Brown kept the difference. The indictment says he used some $85,419 mostly for personal expenses. It further says he failed to file his tax return for 2014 and he did not disclose to the IRS that he had received tens of thousands of dollars from the SBA.
According to the indictment, in December of 2014, BizCapital sent all of the loan information to the City of Jacksonville which included "numerous fraudulent A Plus Training and RB Packaging invoices."
Katrina Brown and Reginald Brown did not tell BizCapital that Basic Products fraudulently obtained at least $251,000 in loan payments made to Reginald Brown's shell companies.
After BizCapital told Katrina Brown that the SBA loan was in default, she attempted to obtain two bank loans by submitting doctored and false bank statements to obtain money from loan brokers. Prosecutors allege she falsified statements in an attempt to make it seem that they businesses were creditworthy, when they were not.
Katrina Brown is being indicted on 37 counts:
- Count 1 - attempt and conspiracy to commit mail fraud
- Count 2-14 - fraud and swindles
- Count 15-27 - fraud by wire, radio, or television
- Count 28-33 - engaging in monetary transactions
- Count 34-35 - attempt and conspiracy to commit mail fraud
- Count 36-37 - loan and credit applications generally
Reginald Brown has been indicted on 34 counts:
- Count 1 - attempt and conspiracy to commit mail fraud
- Count 2-14 - frauds and swindles
- Count 15-27 - fraud by wire, radio or television
- Count 28-33 - engaging in monetary transactions
- Count 38 - willful failure to file return/information etc.
Both councilmembers could face up to 20 years in prison for the conspiracy count and each aiding and abetting mail and wire fraud count. Katrina Brown could face up to 30 years for each count of attempted bank fraud and making false statements to a federally insured bank.
After the councilmembers' first appearance in court, Reginald Brown spoke to the media, saying he is innocent and surprised at the indictment.
"I am innocent right now and I will make those decisions at another date," Brown said when asked if he is still running for state Senate.
Reginald Brown's lawyer Alan Ceballos maintained Brown was innocent. "The business failed, businesses fail unfortunately," he said, adding that no crime occurred.
Lawyers for both council members released a joint statement which read, in part, "Katrina Brown and Reginald Brown, both of whom are respected elected public officials, have fully cooperated with the federal investigation, for the last two years, and provided key evidence to the government that no fraud was committed."
First Coast News Legal analyst Eric Roper predicts today's hearing this is just "the first part of what promises to be a lengthy proceeding."
City Council President Anna Brosche released a statement on the indictments:
"It is a sad day in Jacksonville. Since learning the news regarding Councilmembers Katrina Brown and Reggie Brown this morning, I have been in regular communication with the General Counsel to understand next steps. In the meantime and in light of the circumstances, effective immediately, I am removing Councilmembers Katrina Brown and Reggie Brown from their committee assignments. Councilmember Greg Anderson and Councilmember Joyce Morgan will serve on the Finance Committee, Councilmember Jim Love will serve on the Land Use and Zoning Committee, and Councilmember Garrett Dennis will serve on the Rules Committee for the remainder of this Council year, which ends June 30, 2018.
"Councilmembers Katrina Brown and Reggie Brown have served their districts with passion, and now it is time for them to focus on the legal process which they are not entering. I am praying for the community, for the people of District 8 and District 1, for the Jacksonville City Council, and for the children and families of Councilmembers Katrina Brown and Reggie Brown.
This is a developing story. Stay with First Coast News throughout the day for updates.
Mayor Lenny Curry said in a statement:
“It is a disappointing day for the city of Jacksonville. Any time public servants are accused of violating public trust, we are all impacted. While these allegations are concerning, I have complete confidence in our judicial system and respect the process all citizens are afforded.” - Mayor Lenny Curry
FBI Special Agent in Charge Charles P. Spencer gave a statement:
"Public corruption undermines the strength of our democracy, and the FBI Jacksonville Division investigates allegations of misconduct by public officials as a top priority. The public should know that we are tireless in our efforts to preserve their trust in the government that serves them."
FBI Jacksonville Special Agent in Charge Charles P. Spencer
This is an ongoing story, stay with First Coast News as we work through the lengthy documents that give the details of these indictments.