June 4, 2009: California Man Sentenced for Prescriptioin Drug Diversion
Food and Drug Administration
Office of Criminal Investigations
U.S. Department of Justice Press Release
For Immediate Release
June 4, 2009
United States Attorney
District of New Hampshire
Contact: Michael J. Gunnison
United States Attorney
Assistant U.S. Attorney
CONCORD, NEW HAMPSHIRE: Thomas Lavery, 63, of Irvine, CA, was sentenced to 52 months of incarceration to be followed by three years of supervised release for illegally distributing large quantities of Serostim, an HIV drug, which were illegally purchased from illegitimate sources and then illegally sold to wholesale distributors in various parts of the country, using falsified paperwork. Judge McAuliffe also entered an order of forfeiture against Lavery for the sum of $1,009,460.
Previously, on September 4, 2007, Lavery pleaded guilty to a forty-four count Indictment charging him with wire fraud conspiracy and wire fraud, money laundering, and conspiracy to engage in unlicensed wholesale distribution of prescription drugs, and false statements in a matter under the jurisdiction of the U.S. Food and Drug Administration.
The scheme, in which Lavery was found by Judge McAuliffe to be a leader and organizer, involved purchasing large quantities of Serostim from illegitimate sources in Palm Springs and Los Angeles, California at prices significantly below the price that the manufacturer charges pharmacies. Specifically, the Serostim was purchased from HIV infected patients and then reintroduced into the wholesale distribution chain by using false documentation to make it appear that the Serostim had come from legitimate licensed wholesalers when in fact it had been previously dispensed to HIV infected patients.
In furtherance of the scheme, Lavery purchased the Serostim from suppliers who had in turn purchased the Serostim directly from the HIV infected patients. Lavery worked with Beth Handy of Milford, NH who has also pleaded guilty to similar charges in U.S. District Court in Concord and is now awaiting sentencing. During the time frame of the scheme, Handy was licensed by the New Hampshire Board of Pharmacy as a wholesaler of prescription drugs doing business in the State of New Hampshire. Handy solicited licensed wholesalers of prescription drugs who purchased the Sersotim believing that the Serostim had been acquired through legitimate channels. In this regard, Lavery and Handy created false paperwork such as pedigrees which indicated that the Serostim had been acquired from authorized distributors and licensed wholesalers. Handy and Lavery also created false invoices, false packing slips, and false shipping labels which indicated that the Serostim sold was being shipped from New Hampshire when in fact it was being shipped from Palm Springs, CA. The false paperwork was submitted to both the customers of the Serostom as well as the New Hampshire Board of Pharmacy in order to hide the true source of the Serostim and to cover up the scheme from regulatory and law enforcement detection.
Lavery also conspired with Robert McFadden, a Palm Springs, CA attorney who used his client trust account to receive money from the purchasers of the prescription drugs. The client trust account was also used to pay the illegal suppliers of the Serostim by purchasing cashiers checks drawn at a branch of Washington Mutual Bank in Palm Springs, California. Over $2.1 millions dollars was funneled through McFadden's client trust account in furtherance of the scheme. The Serostim was in turn distributed by the purchasers to pharmacies and prescribed to HIV infected patients throughout the United States. On January 27, 2009, a federal jury sitting in Concord convicted McFadden for his role in the scheme. He was recently sentenced to 36 months of incarceration to be followed by three years of Supervised Release by the U.S. Department of Probation.
Serostim is an injectable drug manufactured by Serono, Inc., of Massachusetts, and is approved for the treatment of AIDS-wasting syndrome in HIV infected patients. Serostim is distributed in a secured distribution network whereby the manufacturer ships the drug directly to pharmacies who have contracts with Serono. These pharmacies then dispense the drug directly to patients.
The Prescription Drug Marketing Act ("PDMA") requires wholesale distributors of prescription drugs to be licensed by the states in which they operate. Pursuant to the PDMA, the FDA enacted minimum state guidelines for state licensing of wholesale distributors of prescription drugs. The PDMA generally requires wholesale distributors of prescription drugs to provide to the recipient of the drugs a statement indicating each prior sale of the drug including the names of all parties to the transactions. This statement is generally referred to as the "Drug Pedigree." The minimum state guidelines and the drug pedigree requirement are designed to eliminate potential risks to the public health by protecting the integrity of the drug distribution system.
The case was investigated by Special Agents of the Food and Drug Administration, Office of Criminal Investigations; Health and Human Services, Office of the Inspector General; and the Internal Revenue Service. The case was prosecuted by Special Assistant U.S. Attorney Sarah Hawkins and Assistant U.S. Attorneys Aixa Maldonado-Quinones and Mark Irish.