Utah-Based Pharmaceutical Wholesale Distributor Sentenced- $100M Black Market Medication Scheme

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https://www.justice.gov/usao-sdny/pr/owner-utah-based-pharmaceutical-wholesale-distributor-sentenced-60-months-prison-role

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Thursday, May 11, 2017

Owner Of Utah-Based Pharmaceutical Wholesale Distributor Sentenced To 60 Months In Prison For Role In $100 Million Black Market Medication Scheme

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that RANDY CROWELL, a/k/a “Roger,” was sentenced today to 60 months in prison for fraudulently distributing, through his Utah-based wholesale distribution company, more than $100 million worth of prescription drugs obtained through a nationwide black market. The defendant distributed the drugs in question, which were predominantly used to treat HIV/AIDS, to pharmacies, where they were dispensed to unsuspecting patients. As part of his sentence, CROWELL also agreed to forfeit more than $13 million in personal profits from the scheme and was ordered to pay an additional $65 million in restitution to Medicaid. CROWELL pled guilty on January 6, 2017, to one count of conspiracy to commit healthcare fraud before United States District Judge Edgardo Ramos, who also imposed today’s sentence.
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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 more than $100 million worth of 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 profitable scheme was potentially dangerous to the tens of thousands of patients ultimately receiving and taking these prescription drugs. 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.

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 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. 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.

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, at full price, to pharmacies, including potentially the very same pharmacies that initially dispensed these medications. In so doing, 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.

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 – 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.
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