February 27, 2018: Former President of Houston-Based Drug Company Convicted in $50 Million Drug Diversion Scheme
Jerrod Nichols Smith, 48, of Houston, Texas, the former president of Houston-based pharmaceutical company, Cumberland Distribution, Inc. (“Cumberland”), was convicted yesterday by a federal jury in Nashville of conspiracy, 15 counts of mail fraud and one count of making false statements to the U.S. Food and Drug Administration (FDA), announced Donald Q. Cochran, U.S. Attorney for the Middle District of Tennessee.
The charges stemmed from an indictment in January 2013, alleging a 32-month, $50-million-dollar drug diversion scheme. The convictions came after a five-day trial before visiting United States District Judge Billy Wilson. Smith’s co-defendants, Charles Jeffrey Edwards, 56, and Brenda Elise Edwards, 47, both of Houston, previously pleaded guilty to related charges and will be sentenced at a later date.
The evidence at trial established that, from December 2006 through August 2009, Smith and Jeff Edwards purchased millions of dollars of prescription drugs from unlicensed suppliers who had previously purchased the drugs from patients in and around New York and Miami. In most instances, Smith had these drugs shipped to Cumberland’s Nashville warehouse where they were cleaned, sorted, re-packaged, and shipped to independent pharmacies around the country. Generally, the diverted drugs included drugs used to combat HIV/AIDS; antipsychotic medications; anti-depressants; blood pressure medications; diabetes medications and others.
Smith and Jeff Edwards also had drugs shipped from their unlicensed suppliers to shell companies in Louisiana and Arkansas. Although these companies were licensed to sell drugs, Smith and Jeff Edwards used them as pass-through companies to create the appearance that Cumberland was purchasing drugs from licensed suppliers, when, in fact, Cumberland was purchasing diverted drugs from un-licensed suppliers in New York and Miami. The drugs arriving at Smith’s shell companies were forwarded to Cumberland’s Nashville warehouse and re-sold to independent pharmacies.
In order to conceal the drugs’ true origins, Smith and his co-conspirators provided false documentation to Cumberland’s pharmacy customers.
Numerous pharmacies reported problems with drugs they purchased from Cumberland, including prescription drug bottles containing the wrong medicine; the wrong dosage information; and foreign objects inside. At trial, several witnesses testified that at least one bottle of prescription drugs sold by Cumberland contained tic tacs instead of medicine.
On May 14, 2009, the FDA executed a federal search warrant at Cumberland’s Nashville warehouse. Thereafter, in order to evade authorities, Smith and his co-conspirators rented another warehouse, utilized freight forwarding companies to receive drug shipments, set up private email accounts, purchased burner phones and hired a private pilot to fly drugs to Nashville. Their scheme resulted in gross proceeds of over $50 million.
Smith faces up to 20 years in prison and a $250,000 fine for each count of mail fraud. He also faces up to five years in prison and a $250,000 fine for his conspiracy and false statements convictions when he is sentenced later this year.
This case was investigated by the United States Food and Drug Administration Office of Criminal Investigation. It is being prosecuted by Assistant United States Attorneys Henry C. Leventis and Stephanie N. Toussaint.
David Boling Public Information Officer 615-736-5956 David.Boling2@usdoj.gov