Former New York City Comptroller Candidate Pleads Guilty in Manhattan Federal Court to Illegally Distributing Prescription Pills

Preet Bharara, the United States Attorney for the Southern District of New York, announced that Kristin Davis, a former candidate for New York City comptroller, pled guilty today in Manhattan federal court to illegally distributing prescription pills. Davis, who was arrested in August 2013, entered her plea today before U.S. District Judge Edgardo Ramos.
Manhattan U.S. Attorney Preet Bharara said, “Kristin Davis now stands convicted of illegally selling hundreds of highly addictive and dangerous prescription pills in exchange for cash. Abuse of illegally distributed prescription pills is the fastest-growing drug problem in the country, and this office will do everything in its power to help combat this public health epidemic.”
According to the complaint, superseding information, other information in the public record, and today’s plea proceeding:
On multiple occasions from January 2013 to March 2013, Davis sold hundreds of prescription pills containing amphetamine, alprazolam, zolpidem, and carisoprodol to a person she knew from prior purchases and sales to be a drug dealer. Unbeknownst to Davis, the person was a cooperating witness (the CW) with the Federal Bureau of Investigation (FBI) and was equipped with a recording device. During these sales, Davis was recorded saying that the pills she was selling were “Ambien,” “Soma,” and “Xanax.” On a fourth occasion, in April 2013, Davis arranged for another individual to sell approximately 180 oxycodone pills to the CW.
There is an illegal market for all of the drugs Davis sold and assisted another to sell. Oxycodone is a powerful painkiller with a high potential for addiction and abuse, and it is often used as a substitute for, or adjunct to, other illegal drugs, such as heroin. Amphetamine is a psycho-stimulant, often referred to as “speed,” and it is often used as a substitute for, or adjunct to, other illegal drugs, including methamphetamine and cocaine. Alprazolam is a psychoactive drug often used as a substitute for, or adjunct to, other illegal drugs, such as LSD, heroin, or opiates. Zolpidem is a sedative/hypnotic drug often used as a substitute for, or adjunct to, other illegal drugs, including amphetamine, methamphetamine, cocaine, and MDMA (commonly known as ecstasy). Carisoprodol is a skeletal muscle relaxant often used in conjunction with painkillers and so-called “date rape” drugs.
Davis, 38, of New York City, pled guilty to one count of distributing and possessing with intent to distribute controlled substances, specifically alprazolam, zolpidem, and carisoprodol. She faces a maximum sentence of five years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. Davis is scheduled to be sentenced by Judge Ramos on July 25, 2014.
Davis was one of several people arrested as part of an ongoing joint investigation conducted by the FBI, the New York City Police Department (NYPD), and the U.S. Attorney’s Office into the unlawful distribution of prescription drugs containing controlled substances in and around New York City:

• Thomas Rock was arrested on July 10, 2013, for distributing and conspiring to distribute oxycodone and alprazolam. He pled guilty on February 24, 2014, before U.S. District Judge Paul A. Engelmayer to distributing oxycodone and alprazolam and is scheduled to be sentenced by Judge Engelmayer on June 6, 2014.
• Eugene Kurochkin was arrested on July 11, 2013, for distribution of oxycodone, alprazolam, amphetamine, and zolpidem. He pled guilty on November 1, 2013, to distributing oxycodone, alprazolam, amphetamine, and zolpidem and was sentenced by U.S. District Judge Robert W. Sweet on February 10, 2014, to 12 months in prison.
• Raoul Goldberger and Rebecca Teman were arrested on July 29, 2013, for distributing and conspiring to distribute amphetamine, oxycodone, and vicodin. Goldberger pleaded guilty on August 21, 2013, to distributing amphetamine and oxycodone, and is scheduled to be sentenced by U.S. District Judge Colleen McMahon on March 12, 2014. Teman pleaded guilty on November 12, 2013, before U.S. Magistrate Judge Henry B. Pitman to misbranding a prescription drug and is scheduled to be sentenced by Judge Pitman on March 11, 2014.
• Erik Pichardo, who was referred to as Individual-1 in the complaint against Davis, was arrested in August 2013 for distributing oxycodone. He pled guilty on December 12, 2013, before U.S. District Judge Harold Baer to conspiracy to distribute oxycodone and is scheduled to be sentenced by Judge Baer on April 10, 2014.
• David J. Wright was arrested on October 3, 2013, in connection with this investigation on charges of distributing oxycodone, amphetamine, and carisoprodol, which charges are pending. The charges against Wright are merely accusations, and he is presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the FBI. He also thanked the United States Department of Health and Human Services-Office of Inspector General and the NYPD for their assistance in the ongoing investigation.
The cases are being handled by the Office’s Narcotics Unit. Assistant United States Attorneys Daniel C. Richenthal, Kristy J. Greenberg, and Edward A. Imperatore are in charge of the prosecutions.

Charges Filed Against Former Warehouse Manager of a Prescription Drug Wholesale Distribution Company for Role in False Prescription Drug Pedigree Scheme Involving More Than $49 Million in Diverted Prescription Drugs

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI), announced today the unsealing of a criminal complaint (the complaint) against Stephen Cox, the former warehouse manager of a prescription drug wholesale distribution company (the wholesaler), for his alleged participation in a scheme to falsify pedigrees for prescription drugs sold to pharmacies all over the country, including at least six pharmacies in New York City. The prescription drugs were diverted from illegal sources and made to appear, through pedigrees falsely documenting their transaction histories, as though they were obtained legitimately from authorized distributors through licensed wholesalers. The defendant allegedly, through the wholesaler, based in St. George, Utah, conspired with others to sell to pharmacies more than $49 million worth of illegally obtained prescription drugs through several wholesale distribution companies controlled by co-conspirators, some of whom have pled guilty pursuant to cooperation agreements with the government. Cox surrendered to the FBI this morning in New York City in connection with the charges announced today and was presented in Manhattan federal court before U.S. Magistrate Judge Ronald L. Ellis this afternoon.
The complaint is a result of the continuing investigation into a scheme that defrauded Medicaid out of more than $500 million through the diversion of prescription drugs. On July 17, 2012, 48 defendants were charged in connection with United States v. Viera, et al., 11 Cr. 1072 (DLC); all but five of whom have been arrested and have pled guilty.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, in his position as a warehouse manager for a prescription drug wholesaler, defendant Stephen Cox played an integral role in a multi-million-dollar prescription drug diversion scheme by helping his employer to falsify the pedigrees of second-hand prescription drugs and dispense them to pharmacies across the country. People in need of medicine walk into a pharmacy to untainted, safe prescription drugs; they should not walk out with black market pills, a risk the alleged conduct makes very real.”
FBI Assistant Director in Charge George Venizelos said, “Every operation has a conductor whose job it is to ensure all players work together and all parts are delivered on time. As alleged, Stephen Cox acted as a conductor in this massive Medicaid fraud, working with his co-conspirators to manage the shipment and delivery of illegally obtained prescription drugs to the tune of more than $49 million. By providing advice on how to falsify required FDA documents, he continued to defraud the Medicaid system, which is funded by tax dollars to provide healthcare to lower income individuals, and put at risk those unwitting customers who would eventually purchase these secondhand pills. The FBI remains committed to working with our law enforcement partners on our Health Care Fraud Task Force to ensure the public’s safety and investigate those who seek to defraud government program.”
The following allegations are based on the complaint and other publicly filed documents in the Viera case:
For years, a large network of individuals operated a nation-wide scheme to illegally launder and resell second-hand prescription drugs (typically HIV/AIDs drugs) purchased from Medicaid beneficiaries on street corners and out of bodegas in and around New York City. The drugs had been dispensed in manufacturers’ bottles with pharmacy patient labels affixed to them. Once they purchased the second-hand drugs, the conspirators, who often held the drugs in uncontrolled and unsanitary conditions, used solvents to dissolve the adhesive on the patient labels to remove them and make the bottles look like new bottles, straight from the manufacturer. Once enough bottles were collected, the New York-based conspirators sold them, through Florida-based groups, to individuals in Texas, who operated several corrupt wholesale companies, such as those identified in the complaint.
The wholesaler, through Cox and others, purchased more than $49 million worth of prescription drugs that they knew had been purchased illegally by the corrupt wholesale companies run from Texas. Cox and others then sold them to unsuspecting pharmacies all over the United States, including to some pharmacies in New York City, which, in turn, sold and dispensed the second-hand drugs to unsuspecting patients who were unaware that their medications had previously been dispensed and may have had diminished efficacy or contained contaminants.
Federal law requires prescription drug wholesalers to create and maintain transaction histories, or “pedigrees,” that correctly document each transaction involving prescription drugs. Cox and an uncharged co-conspirator who owned the wholesaler (CC-1) instructed co-conspirators affiliated with the corrupt wholesale companies how to falsify these pedigrees to create paperwork that concealed from FDA inspectors and pharmacies purchasing the drugs that the drugs were illegally obtained and previously had been dispensed. Backed by these false pedigrees, the wholesaler sold illegally obtained prescription drugs to pharmacies all over the country, including to the six in Manhattan and the Bronx referred to in the complaint.
From at least 2009 through November 4, 2011, Stephen Cox, the defendant, worked for CC-1 at the wholesaler as its warehouse manager. At the wholesaler, Cox received by fax from co-conspirators lists of prescription drugs available from unlicensed sources. Cox communicated with co-conspirators concerning orders and shipments of prescription drugs from unlicensed sources and passed along instructions to co-conspirators concerning how to construct false pedigrees. At the wholesaler and at two subsequent corrupt wholesale distribution companies, Cox received and inspected shipments of prescription drugs from unlicensed sources and facilitated the sale of those drugs to pharmacies all around the country, ultimately to be dispensed to unsuspecting patients. Cox is the first individual associated with a wholesale distribution company that sold directly to pharmacies to be charged as part of this ongoing investigation.

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Cox, 34, of Sugarland, Texas, is charged with one count of conspiracy to defraud the United States, falsify pedigrees, and commit misbranding offenses, which carries a maximum sentence of five years in prison. He is also charged with six counts of pedigree falsification relating to prescription drugs the wholesaler sold to six pharmacies in Manhattan and the Bronx, each of which carries a maximum sentence of three years in prison.
Mr. Bharara praised the efforts of the FBI’s Health Care Fraud Task Force. The New York FBI Health Care Fraud Task Force was formed in 2007 in an effort to combat health care fraud in the greater New York City area. The task force is composed of agents, officers, and investigators from the FBI, New York City Police Department, the New York State Insurance Fraud Bureau, U.S. Department of Labor, U.S. Office of Personnel Management Inspector General, U.S. Food and Drug Administration, New York State Attorney General’s Office, New York State Office of Medicaid Inspector General, New York State Health and Hospitals Inspector General, and the National Insurance Crime Bureau.
The case is being prosecuted by the Office’s Organized Crime Unit. Assistant U.S. Attorneys Jason A. Masimore, Russell Capone, and Edward B. Diskant are in charge of the prosecution. Assistant U.S. Attorney Alexander Wilson of the Office’s Asset Forfeiture Unit is responsible for the forfeiture of assets.
The charges contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

Kmart Corporation to Pay U.S. More Than $2.5 Million to Settle False Claims Act Allegations for Partially Filled Prescriptions

Kmart Corporation has agreed to pay the United States and 32 participating states a total of $2,550,000 to settle allegations of false prescription claims by its national pharmacy centers to government health insurance programs, U.S. Attorney Barbara L. McQuade announced today.
Joining in the announcement were Special Agent in Charge Paul Abbate, Federal Bureau of Investigation, and Special Agent in Charge Lamont Pugh, Health and Human Services, Office of Inspector General (HHS-OIG).
Kmart is alleged to have violated the False Claims Act by billing government health care programs (Medicaid, Tricare, and the Federal Employee Health Benefits Program) for all drugs included in a prescription when, for many prescriptions, it dispensed only a portion of the prescribed drugs. Although billed in full to the government health care programs, the remaining portion of the prescriptions were never dispensed to beneficiaries and were later returned to stock.
In addition to the state of Michigan, the participating states and territories that will receive funds attributable to their Medicaid Programs are Alabama, California, Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Puerto Rico, and the Virgin Islands. The settlement covers the time period from January 1, 2004 to October 17, 2005, before Kmart was purchased by Sears Holding Corporation in November 2005.
“Cases like this one help ensure that health care program funds are used for the benefit of patients and not instead lost in the bureaucracy of large pharmacies,” McQuade said.
A portion of the settlement amount will go to Mark Kirsch, to settle the qui tam or “whistleblower” complaint against Kmart Corporation. Kirsch, a former Kmart traveling pharmacist who filed the action in Detroit in the Eastern District of Michigan, will receive $309,687.
Under the False Claims Act, private individuals who bring suits against companies can receive a portion of the recovery in a case that the government joins.
This case was investigated by special agents of the Federal Bureau of Investigation and special agents of Health and Human Services-Office of Inspector General with the assistance of the Department of Defense-Office of Inspector General, Defense Criminal Investigative Service, and the U.S. Office of Personnel Management, Office of the Inspector General.