Opioid crisis: Case against NY drug firm could provide new way to fight epidemic

ROCHESTER, N.Y. – Over a five-year stretch, as opioid pharmaceuticals distributed by Rochester Drug Cooperative exploded sales numbers, the company's chief executive officer saw a commensurate salary jump.

In 2016, federal prosecutors say, Rochester Drug Cooperative CEO Laurence Doud III made more than $1.5 million – more than double what he made in 2012.

Doud, prosecutors allege, purposefully overlooked clearly suspicious orders of prescription opioids from problematic pharmacies, including some that other pharmaceutical distributors would no longer do business with. Even when concerns were raised by compliance officials at Rochester Drug Cooperative (RDC), Doud allegedly stepped in and made sure the meds were shipped.

CEO charged

On Tuesday, Doud, 75, was charged by federal authorities with a conspiracy to traffic narcotics and defrauding the federal government by failing to report suspicious pharmaceutical activities to the Drug Enforcement Administration as required by federal law. Opioid pills and patches flooded the illicit market because of Doud and RDC, prosecutors say.

Now, Doud presents a unique case for federal prosecutors: He could be the first pharmaceutical executive tried for trafficking narcotics because of his alleged willful role in the country's tragic opioid epidemic.

"It is a test case because it is not common for (corporate) executives to be charged," said Terrance Flynn, a Harris Beach PLLC lawyer who was previously U.S. Attorney for the Western District of New York.

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"This is being watched by many people nationally," Flynn said.

For prosecutors, the stakes are high: If they succeed, they will establish a template for future criminal cases against opioid distributors and company executives across the country.

For Doud, the stakes will determine his future – years in prison or freedom.

On Tuesday, as national news outlets swarmed the breaking news story of his indictment on narcotics trafficking and fraud charges, Doud became the face of the nation's epidemic, painted by prosecutors as the greedy businessman who lined his own pockets as opioid overdoses took the lives of tens of thousands.

For the day, at least, it did not matter that Rochester Drug Cooperative-distributed drugs were not directly linked by authorities to any deaths, or that, as a wholesale distributor, RDC is several steps along the drug pipeline away from the ultimate consumer.

Doud “cared more about profits than laws intended to protect human life," maintained Geoffrey Berman, the U.S. Attorney for the Southern District of New York, in a Tuesday news conference.

Doud's attorney, Robert Gottlieb, said Tuesday that Doud was being scapegoated by the government.

"Mr. Doud is being framed," said Gottlieb. "In this case, the government just got it wrong."

Instead, Gottlieb said, Doud is being used by others trying to cover up their own wrongdoing.

Scoundrel or scapegoat?

The contrasting images of Doud – an unprincipled and avaricious businessman or a target of others trying to cover criminal tracks – were first aired in a 2018 civil suit in which Doud sued RDC and its executives after he had been dismissed from the company.

Doud contended that others at RDC were trying to lay the blame of the Drug Enforcement Administration investigation on his shoulders. RDC executives portrayed him much as federal prosecutors did Tuesday, alleging in court papers that "Doud urged RDC compliance staff and others to disregard RDC’s policies and procedures concerning the sale of controlled substances."

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Rochester lawyer David Rothenberg, who is representing some RDC board members sued by Doud, said, "the indictment of Mr. Doud clearly casts doubts on the credibility of his civil lawsuit."

Doud was not the only RDC executive criminally charged. Former company compliance officer William Pietruszewski has pleaded guilty to a narcotics conspiracy, defrauding the government, and failure to report suspicious pharmacy orders.

"My client has accepted responsibility and is moving on with the rest of his life," Pietruszewski's attorney, William Hughes, said Wednesday. "He's accepted responsibility and he's ready to rectify the mistakes."

Pietruszewski, 53, has agreed to cooperate with federal prosecutors, and Berman said Tuesday that the former RDC executive is already doing so. Without cooperation, Pietruszewski could face a minimum of 10 years in prison, as Doud does if convicted of the current charges.

However, if Pietruszewski provides "substantial" cooperation, prosecutors could ask for a lesser sentence, and a federal judge would ultimately decide.

"It's solely in the discretion of the court to grant (a lesser sentence)," Hughes said.

RDC itself admitted to corporate crimes, agreeing to pay $20 million in fines and accepting three years of independent monitoring and the addition of independent board members on its board of directors.

Financial motivation

Between 2012 and early 2017, Doud allegedly brushed aside warnings from RDC compliance officers of dangerously voluminous opioid sales, even forcing the shipment of opioids to pharmacies that were known to be under DEA investigation.

Doud also pushed hard to add new pharmacies to RDC's customer base without adequate checks of the reliability of the operations, prosecutors say.

For instance, around July 2015, court papers allege, Doud directed RDC executives to open "multiple new accounts without conducting any due diligence." In one email, he allegedly wrote, "I know we have to do due diligence but we have the tail wagging the dog ... this HAS to stop ... Good or bad."

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During the past decade, RDC became the nation's sixth largest distributor of pharmaceuticals and health care products. It serves more than 1,300 pharmacies.

Doud's motivation for the boom in opioid sales was evident, prosecutors say: It was more money for him.

Court documents from the criminal case and the civil lawsuit detail how Doud's compensation was directly tied to company sales. "Doud received a substantial bonus based on RDC's earnings," court papers say.

Specifically, Doud's employment contract shows, Doud's bonus was 2.5% of the company's net earnings. RDC's business was handling close to $2 billion in gross sales annually, according to records.

While Doud still collected bonuses, he also unilaterally released "certain friends or other of his favored customers from significant charges or fees these customers owed to RDC," civil lawsuit papers allege.

"He didn’t care about their prescribing numbers, their customers, or the doctors they filled for," Berman, the U.S. Attorney, said. Instead, the desire for increased bonuses drove him, authorities said.

According to prosecutors, between 2012 and 2016 RDC executives internally flagged more than 8,000 orders as possibly "suspicious," indicating the sort of warning signs that could require a report filed with the DEA.

How many of those were ultimately reported to the DEA?

Four.

Follow Gary Craig on Twitter: @gcraig1

This article originally appeared on Rochester Democrat and Chronicle: Opioid crisis: Case against NY drug firm could provide new way to fight epidemic