JON COHEN
Jeffrey Stevens knew in an instant that he had died and gone to heaven. How else could he explain his good fortune? After struggling for years to earn an income that could feed his seemingly insatiable appetite for the finer things in life, Stevens had just stumbled upon what he could describe only as a goldmine of financial opportunity. The native Canadian had recently immigrated to the United States, but not to just anywhere. He moved to the land of a narcissist's dreams — Southern California — the home of the eternally optimistic, the place that invented sculptured bodies, where nearly everyone was on a perpetual diet. Where better to fulfill his fantasy of striking it rich in the world of weight-loss clinics and body-care elixirs?
Stevens was the oldest child in a home of four boys and three girls, just another mouth to feed for his middle-class parents. His father eked out a meager income selling linen supplies to hotels and restaurants, often stretching his workday into nights and weekends. His mother was left to raise the seven children as best as she knew how, constantly wondering where the next dollar was coming from. Jeff decided at an early age that he wanted a way out and scrounged around for opportunities to build a getaway nest egg. Although he struggled to graduate from high school, Jeff was blessed with a wealth of common sense, street smarts and a golden tongue. He used these attributes, along with his muscular physique, to convince people to buy what he happened to be selling at the time and gradually amassed a tidy sum. One day he felt confident enough to take his earnings and embark on a new venture, one that he believed was destined to bring him untold wealth. After months of developing and refining it, he eventually hatched a business plan, resulting in an enterprise that grossed more than $51 million in 18 months.
In a small town more than 300 miles from Stevens's native Montreal suburb, a tall, gawky man with jet-black spiked hair shared a similar dream.
David Crane, the son of a domineering father and an introverted mother, had been a recluse throughout his time at Peterson Senior High School. While lacking the social graces to compete with the "popular" kids in his class, Crane was a bright student whose talent for preparing undiscovered cheat sheets brought him considerable acclaim. Crane excelled in math and computer science classes, and was rewarded with a full scholarship to McGoughan University, in the heart of Toronto. He soon warmed to the academic and social environment of the large campus and transformed his appearance, trading heavy black-framed eyeglasses for contact lenses and committing to a daily regimen of weight training. As he grew physically and intellectually, a sense of inner confidence took hold and his demeanor underwent a dramatic change.
Following graduation, Crane began the first of a series of jobs in the information technology (IT) field and over time built an impressive resume with successful performances at several IT startup firms. Restless for greater challenges and a higher standard of living, David put out feelers to acquaintances in California's Silicon Valley. He soon found work in the exciting and competitive e-commerce field, creating software templates for a variety of businesses. With a new girlfriend and a rosy employment outlook, Crane was at a happy place in life. Only a few years later would he look back on this time from his prison cell and wonder how it had fallen apart.
Standing before the Stanford Medical Society's elite membership at their annual symposium, Samuel Melendez was thrilled to be presenting yet another announcement of a research breakthrough in the treatment of obesity. As an alumnus of a prestigious university, he felt honored to grace their presence and deliver a speech he was certain would be well received. Melendez lived to hear the heartfelt congratulations of his colleagues for his achievements and basked in their compliments. He was a shy man who desperately needed the praise they so readily bestowed upon him. It was a different environment from the one he was accustomed to as a child growing up in a Mexican town near the border of Texas. His father was an illiterate man who toiled in the migrant farms of South Texas, picking fruit and vegetables for meager pay. His mother worked part-time as a neighborhood seamstress and devoted equal energy to raising their three children.
Samuel was the middle son of three mischievous boys; he managed to distinguish and separate himself from his two brothers and school friends in elementary school. His mother often remarked that Samuel was a special gift from above because he was bright, handsome and possessed a resolute quality — none of which were in abundance in the Melendez family. As Samuel developed a sharp intellect, his parents convinced Hector and Maria Arguelo to take him into their home and raise him as a son. The Arguelos were distant relatives who worked in the lush orchards of Orange County, California, and lived in a rented three-bedroom apartment. The purpose of Samuel's move was twofold. First, it enabled him to attend the highly regarded Orange County school system, which placed him on track for greater academic success than he could achieve in Mexico; and second, it gave the Arguelo family — desperate for money to feed their growing family of twelve children — a steady stream of undeclared income from Samuel's parents.
In due course, Samuel proved himself to be the boy his family expected. He garnered one award after another for his high marks in school and excelled in nearly every course he took. Taking a special interest in the natural sciences, particularly chemistry, Samuel became a model student. Upon graduation from high school, he was offered a full scholarship to Vilpaso University. Racing through his college coursework, Melendez graduated summa cum laude in three years and enrolled in the university's highly ranked medical school. After graduation, he embarked on a career path that was filled with increasingly frequent accomplishments, awards and financial wealth far beyond his childhood dreams. By the time he met Jeff Stevens, Melendez had done much more than he ever imagined but still felt somehow professionally unfulfilled. But he recently suffered from a series of poor financial investments, and a sense of panic had begun to set in, combined with a deteriorating lack of self-confidence.
Two more players would join this band of unlikely accomplices that would later be charged with committing a massive Internet prescription drug fraud. Mansour Jibril, a rather naïve yet brilliant physician who traveled to the United States from his native India; and Stefan Gorbonich, a shrewd businessman cloaked in the white coat of a respectable neighborhood pharmacist, rounded out the group.
Located in Southern California, The Physician Group (TPG) was founded in 2001 by Jeffrey Stevens, although Samuel Melendez was also listed in corporate documents as a cofounder and the chief medical officer. Stevens envisioned TPG as a multilayered business venture that marketed a diverse product line capable of yielding huge profits — all through e-commerce. Beginning with printer inkjet cartridges, contact lenses and diabetic testing kits, the firm broadened its offerings to include so-called lifestyle products, such as pills developed for the treatment of male erectile dysfunction and weight loss. Although prescriptions were technically required for some of TPG's products, Stevens counted on his long-term relationship with Dr. Samuel Melendez to overcome this hurdle.
Melendez and Stevens met each other in the early 1990s when diet clinics were springing up almost daily throughout Los Angeles, and a miracle weight-loss product called Fen-Phen was all the rage. This trend shaped their business idea, and the two men established a one-stop diet shop. With Stevens assuming the role of chief administrator, Melendez served as medical director and the outward face of their first clinic on Sunset Boulevard near Hollywood Beach. Until the bubble burst and Fen-Phen became discredited as a dangerous drug, their little enterprise had grown to six outpatient clinics and achieved considerable financial success and public acclaim.
The TPG business model was designed to deliver a variety of products directly to the consumer, bypassing more expensive distribution networks and parasitic middlemen. Through direct shipping, storage and handling costs were significantly reduced and the term speedy delivery became both the goal and mantra of the company.
Customers were willing to pay for this convenience with price markups usually exceeding five times what they would pay for a prescription at the corner brick-and-mortar pharmacy. The hitch with the latter was the need for a valid written prescription from a licensed physician, which usually meant a trip to a doctor's office and frequently a physical examination. For the typical street junkie, that was neither financially feasible nor desirable. Often lacking health insurance and unable to convince physicians to prescribe whatever drugs they wanted, many drug abusers opted for the Internet choice. Even if it meant scrounging around for the extra money, the ability to order exactly what they asked for was highly preferable to playing by the rules.
Molly Williams was a 27-year-old high school dropout who spent time on the cruel urban streets. Molly learned at an early age to fend for herself; she fell into a pattern of skipping school to hang out with a rough crowd and quickly slid into a life dominated by drugs. To her friends, Molly seemed to be in a race to sample as many different street drugs as possible. She rotated through various stages of criminal behavior, incarceration and/or drug rehabilitation, and then she went back on the streets to begin another cycle.
During one of her many stints in rehab, a friend told Williams about procuring drugs online. Williams learned how to log into an available computer (for free at the local library) and order whatever prescription drug she wanted. Initially, Molly used stolen credit cards and arranged to meet the delivery service in front of abandoned houses in her neighborhood, but she soon graduated to paying cash-on-delivery (COD) at the shippers' local outlet. No one checked Molly's identification, but just in case, she carried a driver's license belonging to her friend Janine, whom she closely resembled.
After more than 14 months of this practice, Molly was arrested for passing a forged check at the local mall. As a repeat offender, she was incarcerated and agreed to cooperate with the local police — which meant being admitted to yet another drug rehabilitation program. However, in her fuzzy-minded state, Williams forgot that she had a wealth of illicit loot in her apartment. She was stunned to later learn that police, upon executing a search warrant, had discovered a variety of documents and physical evidence indicating a conspiracy to defraud area pharmacies and to facilitate drug trafficking. From these meager beginnings, a complex international investigation was eventually launched by the Drug Enforcement Administration, the Internal Revenue Service and the U.S. Postal Inspection Service that culminated in the dismantling of the largest Internet-based prescription drug fraud in U.S. history at the time.
Stevens had been searching for a new way to exploit the rising e-commerce marketplace after his stores collapsed because of the Fen-Phen scandal. He finally stumbled onto the Internet prescription drug trade and was impressed with the unusually high profit potential. After meeting with some industry insiders, Stevens developed a business model that he confidently predicted would provide an unending revenue stream. Recalling his street-hustler days, the Internet venture seemed like an easy plan to put in action. He enlisted a group of Internet-based "affiliates" — a loose network of people who would do most of his grunt work. Stevens and David Crane then furnished them with product templates and insisted they link only to the TPG Web site. The templates listed TPG's product menu, which was made up of controlled drugs like diet pills and loosely regulated, noncon-trolled substances. The menu also included a line of unregulated merchandise, such as diabetic testing kits and contact lenses.
Stevens quickly recognized that the highest profits were made on controlled substances, like weight-loss drugs and mood adjusters (depressants, stimulants or pain relievers). For example, one pill of Phentermine could be sold online for as much as five to six times its unit cost. Patients were willing to pay the premium to avoid visiting the doctor, where a suspicious prescription request might be rejected. And Stevens, ever the savvy marketer, allowed his affiliates to adjust the retail price of each item to stimulate demand.
Because the affiliates' Web sites were linked to the TPG Web site, they actually did little work. The entire backroom process — taking customer orders and payments, routing orders to physicians and pharmacies and ensuring prompt processing and shipping — were handled through the TPG server. Like most well-oiled machines, the business depended on a lubrication substance; for TPG, it was either credit card numbers or cash, processed upfront or via COD transactions with commercial shipping vendors. Once the money began rolling in, TPG electronically transferred payments to the affiliates, physicians and pharmacies in a seamless, fluid operation.
For the perpetrators, the scheme placed the risk squarely on the independent contractors. As the first link in the chain, the affiliates tempted potential customers with imaginative Web sites, competitive prices and attractive specials. They became the online public face of the business. The next link in the chain, physicians, operated without any patient interaction — a highly desirable post for a busy practitioner — thus the competition for slots was initially fierce. Only when they were fully involved and had become dependent on the income stream did both the physicians and pharmacists recognize the legal jeopardy in which they had placed themselves. Participating in an Internet prescription fraud scheme exposed them to significant risk, not the least of which was the loss of their hard-earned professional licenses. Any finding of criminal misconduct or professional negligence could subject them to a variety of sanctions, including an end to their careers, public ridicule and scorn.
However, doctors are just as susceptible to greed as the rest of us, and Stevens had no trouble finding professionals to join his enterprise. Plus, the doctors were assured payment for their services because the patients could not complete the medical questionnaire until their credit card information had been verified or a COD order was processed. Only later — when stories leaked out about doctors under investigation for fraud, malpractice and financial irregularities — did the pool of applicants dry up. However, once on board, the desire to make a lot of money overcame many physicians. In fact, Dr. Mansour Jibril later told my partner and me that he had become obsessed with increasing his earnings. On one occasion he actually suffered a seizure while sitting in front of his computer. The good doctor surmised that he had been reviewing questionnaires online for 20 consecutive hours and his brain temporarily short-circuited. When he awoke, Jibril took a full day to recover, but he was more concerned about lost income than potential damage to his health.
The pharmacists assumed the upfront expenses for inventory, order processing and shipping. By contrast, TPG had little overhead, few staff members and a small physical footprint. Its main function was to ensure a smooth transition among the affiliates, doctors, pharmacists and their customers. This was where David Crane and his IT staff of two came into play.
The only potential legal hazard foreseen by Stevens, Crane and Melen-dez was with the medical questionnaire. Stevens convinced Melendez to list as few questions as possible on the form and place only two items in the software templates that could trigger a red flag. These items were the patient's age and body-mass index (BMI). Without conducting a physical exam or a face-to-face consultation, the physician would approve the prescription order online if no red flags were triggered. If a patient didn't appreciate the deliberate ordering flaw and entered a lower age or higher BMI than the program allowed, a pop-up window would prompt the patient to change the numbers to conform to the program limits. And with the affiliates, physicians and pharmacists focused on making a profit, their moral and legal concerns were quickly cast aside. We calculated that on the day Dr. Jibril suffered his seizure, he had reviewed as many as 2,200 applications for prescriptions. Jibril earned more than $15,000 that day alone.
During the execution of their search warrant at Molly Williams's apartment, Winterboro police officers found prescription receipts that had been filled at various local pharmacies, blank prescription pads from two local physicians and more than a dozen empty prescription bottles from local and out-of-state pharmacies. Officers and federal investigators didn't realize at the time that the empty pill bottles would be the most crucial items they uncovered. Finally, several fraudulent identification cards were found, including Pennsylvania driver's licenses, commercial check cashing cards and county library cards.
Within weeks of the search at Molly's apartment, federal agencies around the country began receiving reports of drug overdoses by individuals who bought prescription drugs online. But it took the death of 14-year-old Joshua Tendler for the media to take notice. Network news reports soon relayed the details of Tendler's death to a nation awash in prescription drugs. The further reporters dug, the more troubling circumstances they uncovered. Hundreds of tales describing similar incidents began to emerge as a pill-obsessed populace grappled with the magnitude of the problem and attempted to gauge its effect. Industry experts were contacted to provide additional insight into the scope of prescription-drug abuse within the population; however, one voice remained silent. The law enforcement community, as was its custom, refrained from public comment while agents waded through volumes of evidence. We were able to link similar transactions to various Web sites that used the same payment processing center as Tendler, which was based in Canada. Further inquiries yielded hits on the most frequently accessed Web site for ordering prescription drugs at the time, one that was tied to more than 6,000 affiliate partners. That Web site was owned and operated by TPG.
I was detailed to the Drug Enforcement Administration (DEA) and from the beginning my partner and I suspected a much greater scheme was at play than the simple identity theft and prescription drug fraud indicated by the evidence in Molly Williams's apartment. I contacted Assistant U.S. Attorney (AUSA) William Grimley, an experienced cybercrimes prosecutor, and asked for his assistance with the investigation. Initially, Grimley expressed reluctance to prosecute the case because no obvious specific federal statute existed to outlaw the sale of prescription drugs over the Internet. And although we could cite several drug distribution laws that we believed were applicable, Grimley and many of his colleagues in the Justice Department were hesitant to proceed without a uniquely crafted regulation to address the offense. However, my partner and I, along with many other investigators around the country, persisted until this — and several similar investigations — were green-lighted for aggressive prosecution. The prime arguments we used to convince federal prosecutors were the existence of similar laws on the books in several states, and an enlightened view of existing federal drug statutes pertaining to street drug dealers and international drug-trafficking organizations.
We began our inquiry with a thorough review of the Molly Williams case file. Looking for potential leads and evidence, we quickly decided to focus on two issues: the empty prescription bottle labels, and the money trail emanating from the in-state and Internet purchases evidenced by some of the prescription bottles. What followed was a whirlwind of activity, including the issuance of dozens of subpoenas and search warrants. This was accompanied by information uncovered during interviews of more than 85 employees and other witnesses and reviews of tens of thousands of e-mail transcripts.
The most valuable information came from TPG employees. During these interviews, we learned the identities of numerous contractor employees, including 9 pharmacists and 14 physicians. Because of their fear of incarceration should they be found criminally culpable, a number of employees eagerly furnished us with valuable information. For example, IT administrators at TPG used backdoor passwords to alter system software and hide or change various data. They purchased a standard software program but then tweaked the package to fit their specific needs and resold the modified version to other start-up Internet marketers without revealing the backdoor-access capabilities that had been added. This enabled TPG to monitor its competitors' transactions and alter its product pricing to gain a competitive advantage.
Following the coordinated execution of 14 search warrants in eight states on a sunny spring day, the U.S. Attorney's Office in the Eastern District of Pennsylvania issued letters to a number of TPG principals and critical staff members advising that they were targets of the investigation. In short order, several high-level employees agreed to cooperate with us and we were able to corroborate various aspects of the case. We amassed documents, e-mail transcripts and assorted evidentiary items that illuminated TPG's organizational structure and business model. We lawfully accessed customer records at financial institutions and investment firms. We married financial leads obtained from e-mails with credit card records and other transactions to assess the extent of TPG's revenues. At the end of the process, we estimated that TPG received more than $51 million in gross revenue.
This was not a typical fraud scheme. Although a number of institutions and firms had been defrauded (for example, credit card processors and bank-issued credit card entities), others benefitted financially from the run-up in manufacturing, distribution and financial activity generated by TPG's scheme. Drug manufacturers and wholesalers in particular realized double-digit sales growth on an annual basis in certain product lines. Failing to question customer activity, disregarding warning signs of unusually rapid growth in product ordering and abandoning due diligence policies enabled firms to boost their own bottom lines and revenue projections.
At the final phase of the investigation we seized more than $7.2 million in currency, real estate and other assets from TPG executives, physicians and pharmacies. This resulted from a comprehensive analysis of the records at more than 40 U.S. financial institutions and investment houses. At any given time, tens of millions of dollars flowed among the conspirators, and it was only through good fortune and timing that we were able to seize the funds we did. We also froze and recovered almost $9 million in accounts held by the culprits in Canada, Europe and several Caribbean countries.
The further we delved into the activities of TPG, the more it became apparent there were two categories of victims/offenders. The first group included victims in the classic sense — adults and juveniles who obtained controlled substances without following the usual lawful path to obtaining a prescription drug. After interviewing a number of patients, family members and health care professionals, we compiled a list of subjects who had already received prescription drugs lawfully while under the care of a physician but had also made Internet purchases. The second group consisted of subjects who fit the pattern of drug abusers but had found an alternative source online. Members of both groups had experienced drug overdoses from the products they purchased from TPG. Clearly, these were cases where the costs incurred were incalculable.
More than two years after our investigation began, a federal grand jury issued an 82-count indictment charging Jeffrey Stevens, David Crane, Samuel Melendez, Mansour Jibril, Stefan Gorbonich and five other co-defendants with violations of federal drug and money laundering statutes. Jeffrey Stevens rejected a plea deal and opted for a trial. David Crane, however, pleaded guilty and provided significant testimony at Stevens's trial. In return for helping the government, Crane was sentenced to 18 months in jail, less time served — far below the 10-year sentence he had been facing. Crane also agreed to pay a fine and forfeit the remaining proceeds from his illegal activity.
Mansour Jibril suffered considerable anguish following his indictment and was hospitalized on several occasions for stress and depression-related symptoms. Although financially strapped, Jibril had the wherewithal to hire two former federal prosecutors to negotiate a plea arrangement. At sentencing, Jibril expressed deep and apparently sincere regret for his conduct, which moved the court to hand down a sentence of 37 months of incarceration along with the forfeiture of nearly $1.2 million to the government. The judge commented that Jibril originally faced a 10-year term, but the overwhelming correspondence received by the court attesting to Jibril's otherwise fine character, along with the defendant's extensive cooperation with the investigation, warranted a sentence reduction. This mountain of community support, however, did not sway the state medical board — it rescinded Jibril's license to practice medicine, effectively ending his medical career.
Samuel Melendez was a broken man. His family members turned their backs on him, a once-promising medical career was over, and he was left impoverished. None of these facts gave the court any pause. The judge invoked the full measure of the law and sentenced Melendez to 10 years in prison and the forfeiture of any remaining assets.
Stefan Gorbonich, relying upon the advice of his attorney, delayed his hearing until the other defendants had been adjudicated. Thinking he could diminish his role in the eyes of the court, Gorbonich enlisted a vast network of supporters to provide glowing character testimonials. The judge was unmoved by this contrived strategy and sentenced Gorbonich to 45 months of incarceration and the forfeiture of more than $620,000.
Of the remaining defendants, the judge reserved the harshest penalty for the most egregious party, Jeffrey Stevens. He was found guilty of drug trafficking and money laundering; at sentencing he offered little in the way of remorse or explanation for his conduct. In fact, he was openly disdainful of the government's efforts to portray him in a negative light. The judge sentenced Stevens to 12 years' of incarceration and the forfeiture of $3.1 million in assets, including his newly built Southern California home.
Jon Cohen, CFE, retired in 2007 following a 27-year career in law enforcement, with assignments at several federal, state and local agencies. He is a graduate of Temple University and earned a master's degree from Fairleigh Dickinson University. Mr. Cohen earned his CFE in 2008 and is an active member of the Philadelphia Area Chapter of the ACFE, serving on its Board of Directors and as Chapter Secretary.