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Monday, December 21, 2020

Two Owners of New York Pharmacies Charged in a $30 Million COVID-19 Health Care Fraud and Money Laundering Case

The owners of over a dozen New York-area pharmacies were charged in an indictment unsealed today for their roles in a $30 million health care fraud and money laundering scheme, in which they exploited emergency codes and edits in the Medicare system that went into effect due to the COVID-19 pandemic in order to submit fraudulent claims for expensive cancer drugs that were never provided, ordered, or authorized by medical professionals. 

Peter Khaim, 40, and Arkadiy Khaimov, 37, both of Forest Hills, New York, each were charged with one count of conspiracy to commit health care fraud and wire fraud, and one count of conspiracy to commit money laundering.  Khaim was separately charged with two counts of concealment money laundering and one count of aggravated identity theft.  Khaimov was separately charged with two counts of concealment money laundering.

“These defendants allegedly lined their own pockets by exploiting Medicare flexibilities that were designed to ensure that patients obtained access to needed medications during the COVID-19 crisis,” said Acting Assistant Attorney General Brian C. Rabbitt of the Justice Department’s Criminal Division.  “Together with our law enforcement partners, the Criminal Division is working to aggressively identify, investigate, and prosecute scammers who seek to take advantage of the COVID-19 crisis to defraud our public health care programs.”

“As alleged in the indictment, the defendants manipulated information in over a dozen pharmacies to defraud the Medicare program, including by taking advantage of systems that were intended to assist patients during the COVID-19 pandemic, and then went to great lengths to hide their ill-gotten gains through a network of sham companies,” said Acting U.S. Attorney Set D. DuCharme of the Eastern District of New York.  “This office and our law enforcement partners are committed to holding accountable those who seek to enrich themselves at the expense of vital taxpayer-funded health care programs upon which so many rely.”

“We allege Mr. Khaim and Khaimov used the COVID-19 pandemic as cover to exploit changes in the Medicare system,” said Acting Director in Charge William F. Sweeney Jr of the FBI’s New York Field Office.  “The changes to this program, funded by taxpayers, were put in place to help fellow citizens obtain needed medications during the pandemic, not line the pockets of fraudsters.  Those who attempt to illegally profit from our public funded healthcare programs should remember taxpayers also fund courts and jails, and behavior like the type announced today will be met with swift action from the FBI and our law enforcement partners.  If you are aware of frauds like the one announced today, please contact us at 1-800-CALL-FBI.”

“Fraudsters who target the Federal health care system attempt to undermine the integrity of programs that serve millions of individuals.  When they leverage a public health emergency to perpetrate schemes, their wanton disregard for the programs and beneficiaries is glaringly clear,” said Special Agent in Charge Scott J. Lampert of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).  “We are responding aggressively with our law enforcement partners to pursue bad actors and to warn the public about these ongoing scams.”

“The defendants allegedly carried out a $30 million health care fraud and money laundering scheme, siphoning funds meant for patients during the COVID-19 pandemic,” said Special Agent in Charge Jonathan D. Larsen of IRS-Criminal Investigation (IRS-CI). “While Americans across the country are in dire need of medical and financial assistance, the defendants allegedly used the stolen proceeds to purchase real estate and luxury items. IRS-CI and our law enforcement partners will continue to work tirelessly to expose COVID-19 schemes and bring those responsible to justice.”

“This indictment describes allegations of crimes that are especially egregious and caused significant harm to the programs designed to protect the most medically vulnerable, jeopardizing the health of our Medicare system and then using our nation’s financial system to launder proceeds of the fraud,” said Special Agent in Charge Patricia Tarasca of the Federal Deposit Insurance Corporation, Office of Inspector General (FDIC-OIG).  “We appreciate the cooperation of our fellow law enforcement partners as we work to identify and investigate fraud of this type.”

According to the indictment, the defendants used COVID-19 emergency override billing codes in order to submit fraudulent claims to Medicare, for which they were allegedly paid over $30 million for expensive cancer medication Targretin Gel 1% that, in fact, never was purchased by the pharmacies, prescribed by physicians, or dispensed to patients, often during periods when pharmacies were non-operational, and using doctors’ names on prescriptions without their permission. 

The indictment alleges that the defendants acquired control over dozens of New York pharmacies by paying others to pose as the owners of the pharmacies and hiring pharmacists to pretend to be supervising pharmacists at the pharmacies, for the purpose of obtaining pharmacy licenses and insurance plan credentialing.  As the effects of the COVID-19 pandemic began to be felt in the United States, the defendants used the COVID-19 pandemic as an opportunity to capitalize on a national emergency for their own financial gain by using the COVID-19 “emergency override” billing codes to submit fraudulent claims for Targretin Gel 1%, which has an average wholesale price of approximately $34,000 for each 60 gram tube. 

The indictment also alleges that, with the proceeds of the fraud, the defendants engaged in a complex money laundering conspiracy where they created sham pharmacy wholesale companies, which they named after pre-existing pharmacy wholesalers, and fabricated invoices to make it appear that funds transferred from the pharmacies to the sham pharmacy wholesale companies  were for legitimate pharmaceutical drug purchases. 

In the first phase of the money laundering conspiracy, the defendants conspired with an international money launderer who arranged for funds to be wired from the sham pharmacy wholesale companies to companies in China for distribution to individuals in Uzbekistan.  In exchange, the defendants received cash provided by members of the Uzbekistani immigrant community to an unlicensed money transfer business for remittance to their relatives in Uzbekistan, minus a commission that was deducted by the money launderer. 

In the second phase of the money laundering conspiracy, when the amount of fraudulent proceeds exceeded the amount of cash available in the Uzbekistani immigrant community, the defendants directed the international money launderer to transfer funds back from the sham wholesale companies to the defendants, their relatives, or their designess, in the form of certified cashier’s checks and bags of cash that were dropped at their house in the middle of the night.  The defendants used the proceeds of the scheme to purchase real estate and other luxury items.

A federal criminal indictment is merely an accusation.  Defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

HHS-OIG’s New York Field Office; the FBI’s New York Field Office; the IRS-CI’s New York Field Office; and the FDIC-OIG investigated the case.  Assistant Chief Jacob Foster of the Criminal Division’s Fraud Section’s National Rapid Response Strike Force and Trial Attorney Andrew Estes and Assistant Chief Brendan Stewart of the Fraud Section’s Brooklyn Strike Force are prosecuting the case.  Former Fraud Section Trial Attorney Patrick Mott previously worked on the investigation. 

The Fraud Section leads the Health Care Fraud Strike Force. Since its inception in March 2007, the Health Care Fraud Strike Force, which maintains 15 strike forces operating in 24 districts, has charged more than 4,200 defendants who have collectively billed the Medicare program for nearly $19 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

The year 2020 marks the 150th anniversary of the Department of Justice. Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.

Topic(s): 
Coronavirus
Disaster Fraud
Financial Fraud
Press Release Number: 
20-1382
Updated December 21, 2020