Preet Bharara, the United States Attorney for the Southern District of New York, and Diego Rodriguez, Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), and William J. Bratton, the Commissioner of the New York City Police Department (“NYPD”), announced today the unsealing of an indictment charging RANDY CROWELL, a/k/a “Roger,” with fraudulently distributing, through his Utah-based wholesale distribution company, more than $100 million worth of prescription drugs obtained through a nationwide black market—drugs that were then dispensed by pharmacies to unsuspecting customers. This scheme was not only profitable for CROWELL, but also dangerous to the thousands of patients who ultimately took these black market medications not knowing that they had been previously prescribed to others and then resold and trafficked, often in unsafe conditions. CROWELL was arrested at his home in Henderson, Nevada, and will be presented before U.S. Magistrate Judge Cam Ferenbach this afternoon in the U.S. District Court for the District of Nevada. The case has been assigned to Judge Edgardo Ramos in U.S. District Court for the Southern District of New York.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, Randy Crowell perverted the system designed to ensure patients receive safe and effective medication, making millions in the process. Crowell’s alleged crime victimized not only benefit programs like Medicaid, but also countless everyday people suffering from illnesses who had no idea their medicine had been diverted from the legitimate stream of commerce and could be dangerous to consume.”

FBI Assistant Director-in-Charge Diego Rodriguez said: “The crime alleged today details an insatiable desire to generate revenue at the expense of those in need of true medical care. Targeting the most vulnerable sources of supply, namely Medicaid patients and others with subsidized benefits, scheme participants encouraged sick people with serious illnesses to forego medical treatment in exchange for profit. This put others at risk of unknowingly purchasing mishandled medication. While many social benefit programs are subject to fraud, estimates of fraudulent billings to public health care programs are in the tens of billions. It’s essential that all levels of law enforcement work together as closely as possible in an effort to eradicate drug distribution on the black market and combat fraud to taxpayer-funded programs.”

Police Commissioner William J. Bratton said: “This investigation demonstrates the relentless efforts of the Healthcare Fraud Task Force to bring to justice those who would profit from the distribution of illegal medications. I commend the efforts of the investigators involved in this case whose work resulted in this arrest.”

According to the allegations contained in the indictment As the introductory phrase signifies, the entirety of the text of the Indictment and the description of the Indictment forth herein constitute only allegations, and every fact described should be treated as an allegation. unsealed today in Manhattan federal court:

From early 2010 until at least July 2012, CROWELL, who was the owner and operator of a licensed wholesale distributor of prescription medications based in St. George, Utah (“Wholesaler-1”), participated in a sophisticated scheme to defraud health insurance companies and Government programs such as Medicaid out of hundreds of millions of dollars by trafficking prescriptions through a nationwide black market. CROWELL, through Wholesaler-1, purchased, for more than $100 million, prescription medications from this black market at a fraction of the legitimate prices for these drugs, before selling the same as new, legitimate bottles of medication to pharmacies all over the country.

To maximize their profits, CROWELL and his co-conspirators focused on some of the most expensive medications on the market, including those used to treat HIV/AIDS. The scheme was not only profitable but potentially dangerous to the tens of thousands of patients ultimately receiving and taking these prescription drugs. As detailed below, many of the bottles purchased through the underground market and then distributed as safe, legitimate medications by CROWELL and Wholesaler-1 had in fact been previously dispensed to others, including individuals based in the Southern District of New York. To conceal the fact that they had been previously dispensed, the bottles were typically “cleaned” with hazardous chemicals such as lighter fluid before being transported and stored in conditions that were frequently unsanitary and insufficient to ensure the safety and efficacy of the medication.

In total, between 2010 and July 2012, CROWELL and Wholesaler-1 paid more than $100 million to buy medications from illegitimate sources of supply, with CROWELL personally earning, during that time period, nearly $16 million from his operation of Wholesaler-1.

THE SCHEME TO DEFRAUD

The fraudulent scheme charged in the Indictment operated by distorting the legitimate flow of medications from manufacturer to pharmacy. Rather than purchasing medications from manufacturers or legitimate authorized distributors at full price, scheme participants, including CROWELL, created and exploited an underground market for these same prescription drugs. Scheme participants targeted the cheapest possible source of supply for these drugs—Medicaid patients and other individuals who received these prescription drugs on a monthly basis for little or no cost, and who were then willing to sell their medicines rather than taking them as prescribed (the “Insurance Beneficiaries”).

Insurance Beneficiaries had prescriptions filled for medications each month at pharmacies across the country, including in Manhattan and the Bronx, and then sold their medications to low-level participants (“Collectors”) in the scheme who worked on street corners and bodegas and would pay cash—typically as little as $40 or $50 per bottle. Every major health care benefit program, including Medicaid, expressly prohibits a beneficiary from seeking care under such circumstances, and health care benefit programs would not have paid for the medications issued by pharmacies to the Insurance Beneficiaries had these health care benefit programs known that the Insurance Beneficiaries were selling their drugs to others, rather than taking them as prescribed.

Because the ultimate goal of the scheme was to resell these medications as new at full price, Collectors and other scheme participants used lighter fluid and other potentially hazardous chemicals to remove the patient labels affixed when the bottles were initially dispensed to the Insurance Beneficiaries. This process, referred to as “cleaning” the bottles, was dangerous, as these hazardous chemicals could infiltrate the bottles rendering the medication unfit for human consumption.

Collectors then sold these second-hand drugs to higher-level scheme participants (“Aggregators”) who bought dozens, and sometimes hundreds, of bottles at a time from multiple collectors before selling them to higher-level scheme participants with direct access to legitimate distribution channels, including corrupt wholesale companies like Wholesaler-1. The corrupt wholesale companies, including Wholesaler-1, then resold the bottles as new to pharmacies, including potentially the very same pharmacies that initially dispensed these medications, at full price. In so doing, and as described below, CROWELL and other corrupt wholesale companies intentionally misrepresented where these medications were coming from and, in particular, concealed the fact that these prescription drugs had been obtained from an illegal and illegitimate black market.

CROWELL AND WHOLESALER-1

Central to the scheme’s success was the participation of corrupt, licensed wholesale distributors willing to buy the “second hand” medications at a fraction of their legitimate price and then resell them as new to pharmacies that would in turn dispense these medications to unsuspecting patients. CROWELL and Wholesaler-1 were among the largest of these corrupt wholesalers.

Between 2010, when Wholesaler-1 was created by CROWELL, and July 2012, Wholesaler-1 had no legitimate sources of supply. Instead, CROWELL caused Wholesaler-1 to purchase exclusively from illegitimate sources—including the so-called “Aggregators”—who sold to CROWELL at substantially reduced rates, sometimes as much as 50 percent less than the price of acquiring these medications from legitimate sources. Consistent with their illegitimate origins, inbound shipments of prescription drugs frequently arrived at Wholesaler-1 improperly packaged in unsealed, unsecure cardboard boxes. On some occasions, bottles of medication arrived at Wholesaler-1 with the initial patient labels still affixed to them. On other occasions, bottles arrived having already been opened, or containing what appeared to be the wrong medication. At the direction of CROWELL, employees of Wholesaler-1 then inventoried these bottles, attempted to remove any bottles that still had patient labels affixed to them or were otherwise visibly used or damaged, and then arranged for the medications to be shipped out to Wholesaler-1’s customers—i.e., pharmacies all over the country, including pharmacies in Manhattan and the Bronx.

To effectuate the scheme—and, in particular, to convince pharmacies to buy these medications, and health care benefit programs to pay for them, CROWELL and others made false and fraudulent representations about the origins of these medications. Specifically, CROWELL and others acting at his direction created false and fraudulent documents known as “pedigrees” for these medications, which purported to document the legitimate movement of these medications bought and sold by Wholesaler-1 from a manufacturer to the pharmacy. In truth, and as CROWELL well knew, none of the medications purchased or distributed by Wholesaler-1 had come from legitimate sources of supply, and the pedigrees created by Wholesaler-1 and signed by CROWELL were intentionally fabricated so that the medications could be sold, as new, to pharmacies and so that health care benefit programs would be duped into paying for these illegitimate second-hand drugs.

In order to evade detection, CROWELL took additional steps to conceal the unlawful nature of his activities, including using the name “Roger,” frequently changing or “dropping” the phones he used to communicate with co-conspirators, and paying co-conspirators through front or “sham” companies.

CROWELL is charged with one count of conspiracy to commit health care fraud, which carries a maximum sentence of 10 years in prison, one count of conspiracy to commit mail and wire fraud, which carries a maximum sentence of 20 years in prison, one count of conspiracy to violate the Food, Drug and Cosmetics Act, which carries a maximum sentence of five years in prison, and one count of conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Bharara praised the investigative work of the New York FBI’s Health Care Fraud Task Force, which comprises agents, officers and investigators from the FBI, the NYPD, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management’s Inspector General, U.S. Food and Drug Administration, U.S. Health and Human Services Office of Inspector General, New York State Office of Medicaid Inspector General, New York Health and Hospitals Corporation Inspector General, and the National Insurance Crime Bureau.

The prosecution of this case is being overseen by the Office’s Money Laundering and Asset Forfeiture Unit. Assistant U.S. Attorneys Edward B. Diskant and Matthew Podolsky are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.