Former Rochester Drug Co-Operative CEO Laurence Doud III stands outside US. District Court in Manhattan, Tuesday, April 23, 2019, in New York. (AP Photo/Kathy Willens)
NEW YORK (AP) — The pharmaceutical industry executive hit Tuesday with criminal charges stemming from the opioid crisis doesnt have his name on a museum wing, and his company isnt within earshot of Apple or anyone else on the Fortune 500. Even his $1.5 million paycheck was a paltry sum compared to his peers.
The charges stem from a two-year Drug Enforcement Administration investigation that began after the company violated the terms of a civil settlement. The company had admitted in the civil case that it had for years failed to report thousands of suspicious opioid orders from pharmacies, many of which flouted order limits and catered to doctors who ran pill mills.
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Laurence Doud III, the retired CEO of the Rochester Drug Co-Operative, operated in the fringes of the drug business, obliterating red flags to turn his small New York firm into a supplier of last resort for independent pharmacies whose dubious practices got them cut off by other distributors, an indictment unsealed Tuesday alleges.
Mr. Douds lawyer, Robert C. Gottlieb, said other executives at the company were scapegoating his client for their misdeeds. Mr. Doud is being framed by others to cover up their wrongdoing, Mr. Gottlieb said in a statement. The government has it all wrong. He will fight these charges to his last breath and he will be vindicated.
When Rochesters largest customer went from buying 70,000 units of oxycodone per month in October 2012 to more than 200,000 units per month a year later, Doud had its back — overruling his own compliance officers and ordering that the pills keep flowing because it was a “big account,” the indictment said.
Doud, 75, surrendered to authorities in New York City and is awaiting arraignment on two counts of conspiracy related to drug trafficking. His lawyer said he would fight the charges. Doud, who retired in 2017, alleged in a lawsuit last year that Rochester Drug Co-Operative tried using him as a scapegoat for its legal and regulatory troubles.
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If convicted, Doud faces a mandatory minimum sentence of 10 years in prison, U.S. Attorney Geoffrey Berman said.
Rochester Drug Co-Operative and another former executive were also charged. The company entered into a deferred prosecution agreement, and former compliance chief William Pietruszewski reached a cooperation agreement.
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“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 at a news conference announcing the charges.
Douds criminal charges added a new twist to efforts to hold companies and people responsible for the opioid crisis. Other companies and executives have faced lawsuits from a growing list of state and local governments looking to hold them accountable for an epidemic that led to more than 70,000 deaths in 2017.
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Last month, New York sued a number of industry players, including the billionaire family behind the company that created OxyContin. The Sacklers have given tens of millions of dollars to cultural institutions, but museums in London and New York have taken their name down as controversy grew over their company, Purdue Pharma.
The state lawsuit also named Rochester as a defendant, along with its Fortune 500 competitors Cardinal Health, AmerisourceBergen and McKesson — which gave its CEO an $18.1 million compensation package in 2017.
"Doud and other members of senior management instructed RDC employees to contravene its policies and DEA regulations so that the Company could continue doing business with customers Doud knew were likely diverting controlled substances, and to increase Doud's compensation," prosecutors said in the indictment.
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According to the indictment unsealed Tuesday, Doud and other top Rochester executives “made the deliberate decision” not to investigate, monitor or alert federal regulators about pharmacy customers they knew were providing opioids to people who wanted them for non-medical uses.
When Doud was questioned by a fellow company executive about ending a relationship with a pharmacy who was allegedly becoming one of the nation's largest dispensers of the highly addictive opioid spray Subsys, he told the executive: "Kill it and Die!"
From 2012 to 2016, Rochesters sales of oxycodone tablets skyrocketed from 4.7 million to 42.2 million — an increase of about 800% — and its fentanyl sales soared from approximately 63,000 dosages in 2012 to more than 1.3 million in 2016 — an increase of about 2,000%. During the same period, the companys internal compliance office flagged 8,300 orders but reported just four to the U.S. Drug Enforcement Administration.
An internal alert system flagged about 7,800 orders that exceeded a monthly purchase threshold, but the company still filled most of them without contacting the pharmacy or reporting the activity to the DEA, according to court papers filed with Douds indictment. Instead, the company raised purchase limits for certain high-volume customers so they could continue purchasing without triggering another alert.
The state filed a civil suit last month against eight family members, accusing them of personally contributing to the opioid epidemic by aggressively pushing to expand the market for their drug OxyContin after the company had admitted that it had misrepresented the drugs potential for abuse.
At the same time, Douds compensation — fueled by performance-related bonuses — increased by over 125%, to more than $1.5 million in 2016, Berman said.
While there has been criticism of Mayor de Blasio for focusing more on a possible presidential candidacy than on city matters, remember that the city also has many unofficial mayors — regular people who become such fixtures in their neighborhoods that it is hard to imagine life without them.
Under Douds leadership, Rochester was one of the nations 10 largest distributors of pharmaceutical products, with over 1,300 pharmacy customers — the vast majority of them small, independent shops — and over $1 billion in revenue per year.
The Rochester, New York-based company will pay a $20 million fine to resolve a civil complaint and consented to three years of independent compliance monitoring as part of its agreement with prosecutors. If even one red flag is detected, such as a pharmacy handling lots of cash pill transactions or catering to lots of out-of-state customers, Rochester Drug Co-Operative must cease sales and investigate.
We made mistakes, company spokesman Jeff Eller said in a statement. RDC understands that these mistakes, directed by former management, have serious consequences. We accept responsibility for those mistakes. We can do better, we are doing better, and we will do better.
Rochester Drug Co-Operative, one of the top 10 largest drug distributors in the United States, was charged Tuesday with conspiracy to violate narcotics laws, conspiracy to defraud the U.S., and willfully failing to file suspicious order reports.
Laurence Doud III, the companys former chief executive, and William Pietruszewski, the companys former chief compliance officer, are individually charged with conspiracy to distribute controlled substances and conspiracy to defraud the U.S. Pietruszewski is also charged with willfully failing to file suspicious order reports with the Drug Enforcement Administration, or DEA.
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Both Doud, 75, and Pietruszewski, 53, face life in prison. Doud will appear in court Tuesday, and Pietruszewski pleaded guilty last Friday, Geoffrey S. Berman, U.S. attorney for the Southern District of New York, said.
The U.S. attorneys office also filed a lawsuit against Rochester Drug Co-Operative on Tuesday seeking “penalties and injunctive relief.”
“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.
Between 2012 and 2016, Rochester Drug Co-Operative is accused of distributing tens of millions of doses of oxycodone, fentanyl and other opioids to pharmacies that its own compliance department found had no legitimate need for them.
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Prosecutors said Rochester Drug Co-Operative went against the DEA and its own policies and distributed drugs to pharmacies that were “filling controlled substances prescriptions issued by practitioners acting outside the scope of their medical practice, under investigation by law enforcement, or on RDCs watch list.”
Rochester Drug Co-Operative “distributed controlled substances to those pharmacies even after identifying red flags,” a statement from the U.S. attorney said. And at Douds direction, the company took on pharmacies that had been terminated by other distributors.
Rochester Drug Co-Operatives own employees “described some of the companys customers as very suspicious, and even characterized particular pharmacies as a DEA investigation in the making or like a stick of dynamite waiting for [the] DEA to light the fuse,” the statement said.
And executives at Rochester Drug Co-Operative purposefully kept suspicions of pharmacies illegal activity from the DEA, fearing investigations into the pharmacies and potentially losing customers, according to a criminal complaint.
The company identified about 8,300 “potentially suspicious orders of interest, including thousands of oxycodone orders,” between 2012 and 2016, but only reported four, the U.S. attorney said.
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In that time, Rochester Drug Co-Operatives sales of oxycodone tablets grew almost nine-fold, from 4.7 million to 42.2 million, prosecutors said. Their fentanyl sales grew from approximately 63,000 dosages in 2012 to more than 1.3 million in 2016.
We made mistakes … and RDC understands that these mistakes, directed by former management, have serious consequences,” Jeff Eller, a spokesperson for Rochester Drug Co-Operative, said in a statement. “We accept responsibility for those mistakes. We can do better, we are doing better, and we will do better.
“One element of the opioid epidemic is a dramatic increase in the volume of prescriptions for opioids and all narcotics,” Eller said. “From 2012 to 2017, we did not have adequate systems in place nor were our compliance team and practices rigorous enough to provide adequate controls and oversight over the increased demand for narcotic drug products from pharmacies.
A new management team was put in place at Rochester Drug Co-Operative in 2017, and “began making significant changes with a focus on implementing a world-class compliance program,” the companys statement said.
Tom Winter is a producer and reporter for the NBC News Investigative Unit based in New York, covering crime, courts, terrorism, and financial fraud on the East Coast.