Lead Defendant in Health Care Fraud and Rogue Internet Pharmacy Scheme Sentenced to 12 Years in Federal Prison and Ordered to Pay $68 Million in Restitution
Case Involved More Than $200 Million in Fraudulently Obtained Pharmaceuticals
|U.S. Attorney’s Office December 11, 2009|
DALLAS—Rakesh Jyoti Saran, 47, of Arlington, Texas, was sentenced late yesterday by U.S. District Judge Jorge A. Solis to 144 months (12 years) in federal prison and ordered to pay $68 million in restitution for his involvement in an elaborate rogue internet pharmacy scheme, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Saran, who is the last defendant to be sentenced in this case, pleaded guilty to one count of conspiracy to commit health care fraud and other federal offenses; two counts of mail fraud; and one count of conspiracy to distribute controlled substances. He has been in federal custody since May 2009.
Saran was arrested on September 21, 2005 on charges outlined in a 201-count federal indictment alleging that from November 1999 through September 20, 2005 he and co-defendants conspired with each other and others to commit health care fraud, wire fraud, mail fraud, and money laundering and to engage in the illegal distribution of controlled substances in a drug diversion scheme.
According to plea papers filed in court, Saran operated 23 Texas-incorporated pharmacies through two companies that he owned, Carrington Healthcare Systems, Inc. and Infinity Services Group, Inc., and purchased expensive pharmaceuticals at significant discounts from pharmaceutical wholesale suppliers, including AmerisourceBergen, located in Valley Forge, Pennsylvania; Anda, Inc., located in Florida; Cardinal Health, located in Dublin, Ohio; H.D. Smith, located in Fort Worth, Texas; and Morris & Dickson Co., L.L.C. in Shreveport, Louisiana. Saran’s pharmacies purchased controlled substances such as hydrocodone (an addictive painkiller), phentermine hydrochloride (an appetite suppressant), alprazolam (used to treat anxiety, depression, panic disorder and premenstrual syndrome), and promethazine cough syrup (containing codeine) and obtained significant price discounts by obtaining fraudulent memberships in Group Purchasing Organizations (GPOs).
To qualify for the significantly discounted “contract pricing” available to GPOs, Saran fraudulently represented to wholesale suppliers that his purchases were for “institutional distribution” and signed contracts containing “own use” or “closed door pharmacy” provisions restricting his distribution of the pharmaceuticals to institutions such as prisons, long-term care facilities and rehabilitation hospitals. However, Saran sold the significantly-discounted pharmaceuticals outside the scope of the provisions, making substantial profits from the diverted transactions. Saran did not disclose to the wholesalers that the pharmacies were alter ego businesses he had created and that he had obtained individual DEA registration numbers for each one to camouflage his identity as the actual purchaser.
Saran also used his pharmacies to operate a “store front” website designed to facilitate the distribution of controlled substances to internet customers. Using the website, drug users illegally acquired controlled substances and dangerous drugs without valid prescriptions and without doctor intervention, paying up to four times the cost if the substances had been acquired legally. Saran also used his pharmacies to fill pharmaceutical orders from other Internet Facilitation Centers (IFC) involved in the illegal distribution of dangerous drugs and controlled substances. Additionally, Saran also played an integral role in providing promethazine cough syrup with codeine, hydrocodone, and alprazolam to individuals who illegally sold these drugs “on the street,” acquiring approximately $20 million in proceeds for doing so.
Guilty pleas were also entered on behalf of twenty corporations Saran controlled and used in the criminal conspiracy, including Alliance Pharmacy Services, Inc.; AMS Pharmaceuticals Group, Inc.; Carrington Health Care System, Inc.; Dalamar Services, Inc.; East Pointe Pharmacy Services, Inc.; Everest Services, Inc.; Infiniti Services Group, Inc.; Med-Care Infusion Services, Inc.; National Executive Management, Inc.; Orion Pharmacy Services, Inc.; Precision Pharmacy Services, Inc.; Premium Pharmacy Services, Inc.; Quantum Infusion, Inc.; Reliance Pharmaceutical, Inc.; Southwest Infusion, Inc.; SWS Pharmacy Services, Inc.; Texas Home Infusion, L.L.C.; Tri-Phasic Pharmacy, Inc.; Trinity Infusion Services, Inc.; and Trinity Pharmacy Services, Inc.
As part of his plea agreement, Saran forfeited assets earned from his illegal activities, including more than $1,000,000 in cash seized at his residence; more than $375,000 found in bank accounts; approximately $390,000 in cashier’s checks and money orders; several vehicles; and a custom home under construction in Arlington, which was sold by the U.S. Marshals Service (USMS) for $1,200,000 through an Internet auction, www.bid4assets.com in May 2008.
All other defendants charged in the case, including managers and employees of Saran’s various pharmacies, have pleaded guilty to their roles in the scheme and have been sentenced. Notable sentences include:
Sherman Ted Solomon, 65, currently of Plano, Texas, who operated one of the IFC’s, was sentenced on Wednesday to 60 months (five years) in federal prison and ordered to forfeit nearly $5.7 million in funds, a vehicle and two pieces of real estate in Orange, County Florida. He must surrender to the Bureau of Prisons on March 3, 2010.
Steven Rosner, 56, was sentenced to 33 months in prison for his role in the scheme. He was also ordered to pay $400,000 in restitution and forfeit approximately $385,000. He also was arrested on September 21, 2005, at his home in Boca Raton, Florida, on charges outlined in the “Saran indictment.”
Leslie Wayne Davidoff, a pharmacist, is currently serving a 96-month (eight-year) sentence for his role in the scheme. He was arrested along with most of the other defendants on September 21, 2005. He is a Lewisville, Texas, resident.
David Kaiser is currently serving a 60-month (five-year) sentence. Kaiser was the president and part owner of Saran’s Alliance Pharmacy. In addition, Saran and Kaiser represented that Kaiser was Saran’s General Manager-Pharmaceutical Services for Saran’s companies.
Cherie Ann Word is currently serving a 34-month prison sentence for her role in the scheme. She was ordered to forfeit real estate in Mansfield, Texas, which was sold by the USMS in May 2008 for more than $540,000. U.S. Cherie Word was a director of National Executive Management, Inc., a Saran business whose chief operating officer was Word’s father-in-law, Stacy Fred Word. Word also owned a portion of Collective Services, Inc., Dalamar Services, Inc., and Precision Pharmacy Services, Inc. Word was also the president of Precision Pharmacy Services, Inc. And Quantum Infusion, Inc., and was a director of Texas Home Infusion, LLC. She admitted that these pharmacies were used to disguise from the manufacturers and wholesalers Saran’s identity as the actual purchaser of large quantities of pharmaceutical products.
U.S. Attorney Jacks recognized the investigative efforts and teamwork of the U.S. Food and Drug Administration - Office of Criminal Investigations; Federal Bureau of Investigation; Drug Enforcement Administration; Internal Revenue Service - Criminal Investigation; U.S. Department Social Security Administration - Office of the Inspector General; U.S. Department of Veteran Affairs - Office of the Inspector General; U.S. Office of Personnel Management; Texas Department of State Health Services; and the Texas State Board of Pharmacy.
Assistant United States Attorneys Chad Meacham, C.S. Heath, Sean McKenna, John de la Garza and Chris Stokes prosecuted the case.