Three Individuals Indicted for Prescription Drug Diversion Conspiracy
Over $58 Million in Pharmaceuticals Diverted
Charles Jeffrey Edwards, 51, and Brenda Elise Edwards, 42, both of Houston, Texas, and Jerrod Nichols Smith, 43, of Sugar Land, Texas, were indicted by a federal grand jury on January 17, 2013, on charges that they conspired to obtain prescription pharmaceuticals from “street collectors” in New York and Miami, and to sell those prescription drugs to independent pharmacies as though the drugs had been obtained from legitimate wholesale distribution companies, announced Jerry E. Martin, U.S. Attorney for the Middle District of Tennessee.
All three defendants were indicted on charges of conspiracy and mail fraud related to the scheme. Additionally, Charles and Brenda Edwards were indicted on money laundering charges and Charles Edwards and Jerrod Smith were indicted for obstruction of justice. The indictment alleges that the scheme resulted in gross proceeds of over $58 million and that the defendants gained over $14 million in profits.
“The diversion of pharmaceuticals and the resulting risks of adulteration poses a grave threat to the public,” said U.S. Attorney Martin. “The U.S. Attorney’s Office and our regulatory and enforcement partners will aggressively pursue those who would seek to profit from such illegal activity and display such a total disregard for the safety of our citizens.”
According to the indictment, between December 2006 and August 2009, Charles Edwards and Jerrod Smith owned and operated Cumberland Distribution, Inc., (“Cumberland”) a wholesale prescription drug distribution business licensed in Tennessee. Brenda Edwards was an employee of Cumberland. Cumberland maintained a corporate office in Houston, Texas, and drug distribution warehouses in Nashville, Tennessee that were used to receive, sort, organize, package and ship pharmaceuticals to pharmacies throughout the United States.
The defendants allegedly purchased pharmaceuticals from a network of street collectors who obtained the drugs on the streets of New York and Miami from individuals who had legitimate prescriptions. The defendants then diverted the pharmaceuticals by repackaging and distributing them to independent pharmacies, making it appear as though the diverted pharmaceuticals had been obtained from a licensed wholesale distributor.
As a part of this conspiracy, the defendants directed warehouse employees to cleanse the packaging of the pharmaceuticals to conceal the true origin of the drugs and to create false pedigrees and false entries in Cumberland’s books and records that made it appear as though the drugs had been legitimately obtained. Also, the defendants created a layer of distribution between the diverted pharmaceuticals and Cumberland by incorporating or causing others to incorporate various, separate businesses throughout the conspiracy and by causing the pharmaceuticals to be shipped to Cumberland through intermediaries. One such intermediary company was Tristate Management, in Texarkana, Arkansas. Charles and Brenda Edwards also directed wire transfers to pay for the pharmaceuticals obtained from the street collectors and to make payments to themselves.
The indictment also alleges that on July 15, 2009, Charles Edwards and Jerrod Smith submitted to a federal grand jury, 21false pedigree documents that each stated that Tristate Management had acquired the pharmaceuticals listed on the pedigrees from a licensed wholesaler, Ocean Pharmed in Irmo, SC. The pedigree documents were false because the pharmaceuticals had not been acquired from Ocean Pharmed, but had been acquired through a network of street collectors on the streets of South Florida, or New York City and surrounding areas.
"The FDA Office of Criminal Investigations, along with our law enforcement and regulatory partners work diligently to preserve the integrity of the pharmaceutical supply chain and will vigorously pursue those that threaten the safety of the American public," said David W. Bourne, Special Agent in Charge, U.S. Food and Drug Administration, Office of Criminal Investigations- Miami Field Office.
The wholesale distribution of prescription drugs in the United States is subject to regulation. Regulating the wholesale market ensures that drugs dispensed to patients are authentic and not counterfeit, properly labeled, and have been handled and maintained according to industry standards and Food and Drug Administration (FDA) requirements. Regulations also require that the prescription drugs be in the possession of state-licensed entities, and have a verifiable chain of custody, also known as a pedigree.
Congress enacted the Prescription Drug Marketing Act in 1987 to combat a practice known as prescription drug diversion. In essence, diverted pharmaceuticals are those that have been removed from the regulated distribution channels but then reintroduced into the wholesale marketplace through various means, including the falsification of the accompanying pedigrees. Once a pharmaceutical is diverted outside of the regulated distribution channels, it becomes difficult, if not impossible, for the regulators or the end-users to know whether the pharmaceutical was altered, stored in improper conditions, or its potency adversely affected.
In a practice known as street diversion, diverters repurchase medications that have already been dispensed, remove the patient labels, and reintroduce them into the wholesale market. The aim of prescription drug diversion is to acquire drugs at steep discount and reintroduce them into the wholesale market in a manner that obscures the fact that the drugs were ever diverted. When done effectively, neither the pharmacist nor the consumer know that the diverted drugs are handled, packaged, and labeled by parties not authorized or qualified to do so.
In addition, federal law generally requires wholesale distributors to provide pedigrees with each wholesale distribution of a prescription drug, and prohibits any alteration or modification of the same. The pedigree lists all previous sales of that drug back to the last authorized distributor of record. Requiring such disclosure discourages the introduction of drugs that come from illegitimate sources like unlicensed wholesalers, closed-door pharmacies, street diverters, and drug counterfeiters. Separate and apart from the federal requirement, many states also require that wholesalers provide pedigrees with each wholesale distribution.
If convicted, the defendants face up to 20 years in prison on each count of mail fraud, 10 years on each count of money laundering, five years on the count of conspiracy, and five years on the count of obstruction of justice. They face fines of $250,000 on each count.
This investigation was conducted by the FDA- Office of Criminal Investigations. Assistant U.S. Attorneys Kathryn B. Ward and Sandra G. Moses represent the government.
An indictment is merely an accusation and is not evidence of guilt. All defendants are presumed innocent unless and until proven guilty in a court of law.
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