Feds Accuse 'Rogue' NY Drug Firm Over Opioid Distribution

ROCHESTER NY — In an unprecedented prosecution, one of the largest pharmaceutical distributors in the country faces federal charges, accused of filling thousands of suspicious orders for fentanyl and oxydocone. Rochester Drug Co-Operative, Inc. also will pay a $20 million penalty for its "knowing failure" to comply with its legal obligation to report those red-flagged orders to the DEA.

Prosecutors said the activity went on for years despite the fact that RDC’s employees characterized particular pharmacies as a “DEA investigation in the making” or “like a stick of dynamite waiting for [the] DEA to light the fuse" in conversations wth management.

“Today’s charges should send shock waves throughout the pharmaceutical industry reminding them of their role as gatekeepers of prescription medication," DEA Special Agent in Charge Ray Donovan said in the announcement. "The distribution of life-saving medication is paramount to public health; similarly, so is identifying rogue members of the pharmaceutical and medical fields whose diversion contributes to the record-breaking drug overdoses in America."

Laurence F. Doud III, the company’s former chief executive officer, has been charged with one count of conspiracy to distribute controlled substances, which carries a maximum sentence of life in prison and a mandatory minimum sentence of 10 years, and one count of conspiracy to defraud the United States, which carries a maximum prison term of five years. Doud, 75, lives in New Smyrna, Florida.

William Pietruszewski, the company’s former chief compliance officer, pleaded guilty April 19 in a plea deal. The 53-year-old from Oak Ridge, New Jersey, was charged with one count of conspiracy to distribute controlled substances, which carries a maximum sentence of life in prison and a mandatory minimum prison term of 10 years; one count of conspiracy to defraud the United States, which carries a maximum sentence of five years in prison; and one count of willfully failing to file suspicious order reports with the DEA, which carries a maximum sentence of one year in prison.

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, also announced an agreement and consent decree under which RDC agreed to accept responsibility for its conduct by making admissions and stipulating to the accuracy of an extensive Statement of Facts, pay a $20 million penalty, reform and enhance its Controlled Substances Act compliance program, and submit to supervision by an independent monitor.

“This prosecution is the first of its kind: executives of a pharmaceutical distributor and the distributor itself have been charged with drug trafficking, trafficking the same drugs that are fueling the opioid epidemic that is ravaging this country," Berman said. "Our Office will do everything in its power to combat this epidemic, from street-level dealers to the executives who illegally distribute drugs from their boardrooms.”

According to the documents filed Tuesday in Manhattan federal court:

From 2012 through March 2017, RDC intentionally violated the federal narcotics laws by distributing dangerous, highly addictive opioids to pharmacy customers that it knew were being sold and used illicitly.

At the direction of its senior management, including Doud and Pietruszewski, RDC supplied large quantities of oxycodone, fentanyl, and other dangerous opioids to pharmacy customers that its own compliance personnel determined were dispensing those drugs to individuals who had no legitimate medical need for them.

RDC distributed controlled substances to those pharmacies even after identifying “red flags” such as dispensing highly abused controlled substances in large quantities; dispensing primarily controlled substances; dispensing quantities of controlled substances in amounts consistently higher than accepted medical standards; accepting a high percentage of cash for controlled substance prescriptions; dispensing to out-of-state patients; and filling controlled substances prescriptions issued by practitioners acting outside the scope of their medical practice, under investigation by law enforcement, or on RDC’s “watch list.”

In addition, and at Doud’s direction, RDC frequently brought on pharmacy customers that had been terminated by other distributors.

RDC, at the direction of Doud, increased its sales of oxycodone and fentanyl exponentially, according to prosecutors.

From 2012 to 2016, RDC’s sales of oxycodone tablets grew from 4.7 million to 42.2 million – an increase of about 800 percent – and during the same period RDC’s fentanyl sales grew from approximately 63,000 dosages in 2012 to over 1.3 million in 2016 – an increase of about 2,000 percent. During that same time period, Doud’s compensation increased by over 125 percent, growing to over $1.5 million in 2016.

From 2012 through March 2017, as alleged, RDC took steps to conceal its illicit distribution of controlled substances from the DEA and other law enforcement authorities.

Among other things, RDC made the deliberate decision not to investigate, monitor, or report to the DEA pharmacy customers that it knew were diverting controlled substances for illegitimate use. Because it knew that reporting these pharmacies would likely result in the DEA investigating and shutting down its customers, RDC’s senior management, including Doud, directed the company’s compliance department – and in particular Pietruszewski – not to report them, and instead to continue supplying those customers with dangerous controlled substances that the company knew were being dispensed and used for illicit purposes.

Among other things, prosecutors said Doud instructed employees to open new customer accounts hidden from the DEA and supplied those customers – some of whom had been terminated by other distributors – with controlled substances.

Additionally, RDC avoided filing suspicious order reports with the DEA as required by law. Between 2012 through 2016, the company identified about 8,300 potentially suspicious “orders of interest,” including thousands of oxycodone orders, but the company reported only four suspicious orders to the DEA, prosecutors alleged.

The company is a wholesale distributor of pharmaceutical products, including controlled substances, headquartered in Rochester, New York. It is one of the nation’s 10 largest distributors of pharmaceutical products – and the fourth largest in the New York area – with over 1,300 pharmacy customers and over $1 billion in revenue per year. RDC has been charged in an Information with conspiracy to violate the narcotics laws, conspiracy to defraud the United States, and willfully failing to file suspicious order reports. RDC has also been sued in a civil complaint for its failure to file suspicious order reports.

Berman praised the investigative work of the DEA’s Westchester Tactical Diversion Team, comprising Special Agents, Diversion Investigators, and Task Force Officers from the DEA, Westchester County Police Department, Town of Orangetown Police Department, Rockland County Sheriff’s Office, Woodbury Police Department, Yonkers Police Department, New Windsor Police Department, and Putnam County Sheriff’s Office.

The criminal cases are being handled by the Narcotics Unit of the Office’s Criminal Division. Assistant U.S. Attorneys Stephanie Lake, Louis Pellegrino, Nicolas Roos, and Alexandra Rothman are in charge of the prosecutions. The civil case against RDC is being handled by the Office’s Civil Division. Assistant U.S. Attorneys Jacob M. Bergman and Jeffrey K. Powell are in charge of the case.

Assuming RDC’s continued compliance with the agreement, the government has agreed to defer prosecution for a period of five years, after which it will seek to dismiss the charges. The consent decree is subject to final approval by the court.