NEW YORK – Federal authorities announced the unsealing of charges against 48 defendants for their participation in a massive fraud scheme involving the unlawful diversion and trafficking of hundreds of millions of dollars’ worth of prescription drugs that had previously been dispensed to Medicaid recipients in the New York City area (“second-hand” drugs), in a national, underground market. As a result of the fraud, Medicaid lost more than an estimated $500 million in reimbursements for pills that were diverted into this second-hand, black market. Forty-two of the defendants were charged in a Superseding Indictment, and six more were charged in a Complaint.

Thirty-four of the defendants were arrested Tuesday in connection with today’s charges. Fifteen defendants were taken into custody in New York and New Jersey, and an additional defendant from the area will surrender today.  Nineteen other defendants were arrested in Pennsylvania, Massachusetts, Florida, and Texas. The remaining defendants charged are at large.

The prescription drugs involved in this alleged scheme were drugs designed to treat various illnesses, including HIV, schizophrenia, and asthma, among others, and were non-controlled substances that did not lend themselves to abuse. These second-hand drugs were originally dispensed to Medicaid recipients in the New York City area who then sold them into collection and distribution channels that ultimately ended at pharmacies, for resale to unsuspecting consumers. The defendants and their co-conspirators profited by exploiting the difference between the cost to the patient of obtaining the prescription drugs through Medicaid, which was usually nothing, and the hundreds of dollars per bottle that pharmacies paid to purchase those drugs to sell to their customers. In order to maximize their profits, the defendants and their co-conspirators targeted the most expensive drugs, which often cost more than $1000 per bottle.

Manhattan U.S. Attorney Preet Bharara said: “As alleged, these defendants ran a black market in prescription pills involving a double-dip fraud of gigantic proportions. It worked a fraud on Medicaid – in some cases, two times over – a fraud on pharmaceutical companies, a fraud on legitimate pharmacies, a fraud on patients who unwittingly bought second-hand drugs, and ultimately, a fraud on the entire health care system. With the dozens of arrests we made today, we have taken a significant step toward exposing and shutting down the black market for second-hand drugs, and our investigation is very much ongoing.”

NYPD Commissioner Raymond W. Kelly said: “It’s one thing when people sell their blood for money; it’s another when they sell their drugs, especially when the diversion compromises the pharmaceutical supply with tainted and outdated drugs.”