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Jax Daily Record Thursday, May 31, 201801:49 PM EST

City Council members Katrina Brown, Reginald Brown indicted

Charges include conspiracy to commit mail and wire fraud related to failed barbecue sauce venture.
by: David Cawton Associate Editor

A federal grand jury handed down a 38-count indictment of City Council members Katrina Brown and Reginald Brown on charges that include conspiracy to commit mail and wire fraud, the Department of Justice announced Thursday.

The 60-page indictment, filed May 23 and unsealed Thursday, centers on several Katrina Brown-owned businesses – Basic Products LLC, CoWealth LLC, A Plus Training and Consulting LLC and RB Packaging LLC – as well as a failed barbecue sauce venture funded with city-backed and private loans and grants. 

Reginald Brown is listed as a principal for A Plus Training and RB Packaging, which were formed in 2013 and 2014. 

U.S. Attorney for the Middle District of Florida Maria Chapa Lopez said in a news release that both are being charged with one count of conspiracy to commit mail and wire fraud, 26 counts of aiding and abetting mail and wire fraud and six counts of aiding and abetting money laundering. 

According to a news release, each faces up to 20 years in federal prison for the conspiracy count and for each count of aiding and abetting mail and wire fraud, and up to 10 years for each count of aiding and abetting money laundering. 

Katrina Brown also faces two counts of attempted bank fraud and two counts of making false statements to a federally insured financial institution. Each count carries a maximum 30-year sentence, according to Lopez.

Reginald Brown also is charged with failure to file a tax return, which could result in up to a year in federal prison. 

The government is seeking forfeiture of $754,613.10. 

Katrina Brown and Reginald Brown made their first appearance in front of a judge Thursday at the Bryan Simpson U.S. Courthouse in Downtown Jacksonville.

They each were released on a $50,000 unsecured bond. They can’t travel outside of the continental U.S. and must surrender their passports. 

Katrina Brown had a diluted urine test and is required to take another one Friday.

“It is a disappointing day for the city of Jacksonville,” Mayor Lenny Curry said in a statement.

“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,” he said.

City Council members Katrina Brown and Reginald Brown.

The background

Katrina Brown has represented council District 8 since 2015 and Reginald Brown has served District 10 since 2008. 

Both currently serve on the council Finance committee. 

In 2011, before her election to council, Katrina Brown, through CoWealth and Basic Products, was approved for a $2.652 million Small Business Association-backed loan through BIDCO I LLC, also known as BizCapital. 

Concurrently, council approved a bill that year providing the barbecue sauce company, KJB Specialties Inc., a $380,000 loan and a $260,000 grant from the city’s Northwest Jacksonville Economic Development Fund. 

Per the terms of the agreement, KJB was required to create 56 jobs at an average annual wage of $24,800 within 36 months. 

The company was supposed to produce the Jerome Brown BBQ line of products. 

Reginald Brown supported the legislation. 

CoWealth was incorporated to receive the loan funds, and Basic Products was to operate a manufacturing facility at 5638 Commonwealth Ave. to produce the barbecue sauce. 

The city-backed loan also was used to help purchase the warehouse. 

While KJB Specialties was authorized to use up to $260,000 in grant funds, it received $210,549 in December 2014. 

Terms of the SBA loan with BizCapital required the Basic Products company to submit invoices to document purchases and uses. 

According to the indictment, by the time Katrina Brown approached Reginald Brown about going into business around 2013, the barbecue sauce plant was not meeting expectations. 

Attorneys for the federal government claim that A Plus Training and RB Packaging “never performed legitimate business” and were “incorporated and used solely to perpetrate the scheme to defraud.” 

Reginald Brown opened BBVA Compass accounts for A Plus Training and RB Packaging.

Lopez states in the news release that Katrina Brown and Reginald Brown submitted fake invoices from A Plus Training and RB Packaging to BizCapital, claiming the businesses performed work for Basic Products when they had not, triggering reimbursements from BizCapital. 

Curtis Fallgatter, the attorney for council member Katrina Brown, talks to reporters outside the Bryan Simpson U.S. Courthouse on Thursday.

In 2013, the federal government asserts A Plus Training was used to siphon $12,500 in SBA loan funds. In 2014, $251,919 was funneled through the account. 

The money, according to prosecutors, was sent to homes owned by Reginald Brown and his mother. 

The government says Katrina Brown received more than $166,000, with Reginald Brown keeping the difference in the RB Packaging account “and used the majority of the money for personal expenses.” 

Reginald Brown allegedly did not file a tax return in 2014, and in doing so failed to report the income from the SBA loan. 

By January 2015, BizCapital informed Katrina Brown that the SBA loan was in default status. The government claims she then submitted doctored and fake bank statements to other loan brokers “seeking loans to infuse cash into her and her family’s businesses.” 

“She falsified the statements in an attempt to make it appear that the businesses were creditworthy, when in fact they were not,” Lopez said. 

Some of the fraudulent invoices included $6,083 for furniture; $8,500 to reimburse A Plus Training for “employee orientation and on-boarding”; and $9,580 to reimburse RB Packaging for “sauce labels, boxes for sauce, caps for bottles.” 

Another disbursement included $14,873 for RB Packaging expenses described in an email from Katrina Brown to BizCapital as “equipment purchase.” 

One of the larger requests included $60,130 to reimburse RB Packaging for equipment Katrina Brown described as a “portable sugar conveyor, portable salt conveyor, and bag dump station.” The government claims the company never sold or provided the equipment. 

A statement from attorneys representing the defendants, Curtis Fallgatter and M. Alan Ceballos, said in part that their clients “have fully cooperated with the federal investigation for the last two years and provided key evidence to the government that no fraud was committed.”

The statement continues: “Unlike cases where true fraud exists, no one took any money they were not entitled to. All funders were properly  invested in the business.”

Fallgatter, with Fallgatter & Catlin P.A., is counsel for Katrina Brown. 

Ceballos, with M. Alan Ceballos P.A., is representing Reginald Brown. 

Other Issues

The city has for years tried to get its money back. 

The city sued Katrina Brown and her companies in February 2017 over the $210,000 grant. 

In December, agents from the FBI, IRS, the Department of Housing and Urban Development and the SBA raided the manufacturing facility 

The city also sued Brown’s companies in May to retrieve some of the $380,000 loan funds. 

City Council President Anna Lopez Brosche said she is removing both Katrina Brown and Reginald Brown from all council assignme and is considering further actions with the Office of General Counsel. 

Gov. Rick Scott’s office said Thursday afternoon he is “currently reviewing” the situation and has not made a decision about suspending them from public office.

   The next hearing for Katrina Brown and Reginald Brown is 10 a.m. June 14 for a “status hearing” so they can finalize their legal teams. If the attorneys file a notice of appearance, that hearing will change to an arraignment. 

A tentative trial date has been set for Aug. 6.

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