mailing list01/01/2001 "Bad Medicine," Vanity Fair
Aboard a cruise ship to Cozumel, a vodka-and-soda in hand, Marty Bradley glared at the Gulf of Mexico from inside a locked suite. He had brought 60 employees on the gleaming white ship for his company’s annual blowout, a reward for meeting their sales targets. But all Bradley could think of now was which of the employees on board had sold himout and gotten away with the score of their lives.
Just 24 hours earlier, on January 16, 2002, a white van had backed into an alleyway behind his Miami warehouse. Some men climbed from the van and managed to twist the dead bolt, tear off the rear metal door, and enter the warehouse. Once inside, they knew exactly what to look for.
Bradley’s company, BioMed Plus, is one of the nation’s largest private wholesale distributors of blood products. The thieves had headed directly for a freezer that contained plasma derivatives destined for patients with compromised immune systems, hemophilia, and other disorders. All told, they had taken 344 vials of the clear liquids that for many patients mean the difference between life and death. Some of the vials cost almost $4,000 apiece. The heist was worth about $335,000. The break-in occurred just hours after the delivery of a shipment that included a rare drug called Novo Seven, which helps form blood clots in hemophiliacs. The thieves had taken all of it.
Bradley reported the theft to Florida’s Bureau of Statewide Pharmaceutical Services, a regulatory requirement he expected to solve nothing. The inspector he knew there, Cesar Arias, a tousled Cuban-American whose heart was certainly in his job, had no juice whatsoever. One glance at the man’s car, a dilapidated blue Buick, told the storyof his agency’s budget woes.
The local cops took a report, but they were too busy chasing dealers of street drugs to care much about a theft of clotting factor. But Bradley knew the stolen vials posed a serious danger. The medicine inside had to remain motionless at a constant temperature and could be transported only with careful planning. At best, it had become useless to a patient; at worst, it could do harm.
Bradley was in the ship’s cocktail lounge waiting to disembark when his cell phone rang. His purchasing manager, Marlene Caceres, was calling to report that a small pharmaceutical wholesale company, the Stone Group, was offering to sell some plasma derivatives, which it had never offered before. Bradley had done business with thefledgling company in the past.
The pharmaceutical wholesale market operates as an all-hours auction, with deals and discounts materializing suddenly and medicine passing through many hands. And while few patients know that these middlemen exist, much of the nation’s medicine passes through companies like BioMed Plus and the Stone Group.
As Caceres read off the details of the offer, Bradley said, “I don’t believe it.” Everything she mentioned—including 51 vials of NovoSeven and specific amounts of Gamimune, Gammagard, and Iveegam, all for the steeply discounted price of $229,241— was identical to his list of stolen goods. Bradley knew the medicine was his.
He sought advice from the one person whose number he had with him: Cesar Arias. “Stand by,” Arias said excitedly. The drug inspector called one of his few contacts in law enforcement, a state cop named Gary Venema, and then called Bradley back to relay Venema’s advice at top volume: “Buy it back! Buy it back!”
Gary Venema was impossible not to notice. A big, sandy-haired man of 50 who had a wiseass grin and wore Hawaiian shirts and a gold sailboat charm around his neck,he had a magnetic, even manic presence that drew every eye in a room. A former cop with 24 years’ experience, 15 as a homicide-and-narcotics detective in Hialeah, a grittysuburb of Miami, Venema had seen it all, but his days of adrenaline-pumping shoot-outs were long gone. In 1991, after a political clash, the Hialeah police chief demoted him to road sergeant.
In 1997, he had jumped at the chance to join the Florida Department of LawEnforcement (F.D.L.E.), a statewide police agency with power and panache butnotoriously low pay. Despite all his experience, his starting salary was $42,000. Many ofhis new colleagues were just a few years older than his three sons. But he enjoyed thetraining, and almost immediately he embarked on a case that involved the organized theftof over-the-counter goods from drugstore chains. Even though the merchandise crossedstate lines, the feds, who would be needed to pursue it, didn’t seem interested. Venemabecame discouraged. And then, almost by accident, the case for which he’d been waitinghis entire life came along.
It had started inauspiciously enough. On November 13, 2001, he was summonedto a meeting with Assistant Statewide Prosecutor Stephanie Feldman, a petite 28-year-oldwith five years’ trial experience who stood about five feet one inch in heels. Feldman sentVenema and Arias on a one-day sting operation involving a few vials of stolen cancermedicine.
Before he met Arias, Venema had never thought about the safety of his medicine. Heassumed that it traveled directly from the drugmaker to the pharmacy. But Arias worriedabout the medicine’s transport, its temperature, where it originated, the path it took, andthe documentation of all this. Venema began to think of himself as a student andapprenticed himself to Arias.
On January 21, 2002, a young Stone Group salesman, Sean Dana, arrived at Bradley’swarehouse in a souped-up Trans Am. He was wearing shorts and a T-shirt and carried acooler full of the medicine stolen from Bradley five days earlier.After Dana dropped off the medicine in the receiving bay, Bradley took him to theconference room, where five people were waiting: Arias, Bradley’s lawyer, and threeMiami–Dade County detectives.
When asked if he knew that the medicine had been stolen, Dana stammered, “Idon’t know anything about that.” Struggling through a few more questions, Dana thenoffered that he would like to help but wanted to consult a lawyer first. At that word,“lawyer,” the questions had to end.
The next day, the president of the Stone Group contacted the authorities and toldthem that the drugs had been purchased from a company in Kissimmee called BTCWholesale. His contact there was a man named Michael Carlow, whom he believed to bethe owner.
As much as anyone, Carlow personified what was wrong with Florida’s medicinebusiness. In the distant past, he had served time in prison for armed robbery and gottenprobation for grand theft. In 1998 the state gave his wife, Candace, a prescription-drugwholesale license for a company that Carlow ran as president. In June 2000 he wasarrested for buying $83,000 of stolen Neupogen, a cancer and aids drug, in the parking lotof a Miami restaurant. He pleaded no contest, paid a nominal fine, and was sentenced to18 months probation, and he and his wife surrendered their state license—what passed forharsh justice under Florida’s weak health law.
Carlow’s alleged involvement with BTC—which on paper belonged to hisbrother-in-law, a former mattress salesman named Thomas Atkins Jr.—suggested that hemight be making a comeback. Stephanie Feldman directed Venema and Arias to be atBTC first thing the next morning.
Pharmaceutical middlemen buy, sell, sort, repackage, and distribute 98 percent of thenation’s medicine. The companies, about 6,500 in all, range from publicly traded giantswith pristine warehouses to small, obscure firms that operate from back rooms.The largest middlemen, McKesson, AmerisourceBergen, and Cardinal Health multi-billion-dollar publicly traded entities known as the Big Three—control 90 percentof this market. Below them sit some 15 regional wholesalers that do billions in business.And below them sit the smaller, secondary wholesalers, a group that included numerouscompanies set up by Michael Carlow. All of these companies buy from, and sell to, oneanother. They thrive by speculating on price increases. The Big Three have tradingdivisions that scout the secondary wholesale market for discounted medicine.
Whereas governments in Europe and Canada largely regulate pharmaceuticalprices, drugmakers in the United States fought off price controls, choosing instead tooffer targeted discounts that allow them to increase their market shares. The drugmakerscharge pharmacies “direct” prices and give wholesalers a small reduction. Hospitals andso-called closed-door pharmacies, which solely supply facilities such as nursing homes,sometimes pay less than half the direct price.
The secondary wholesalers contend that aggressive trading helps them reduceprices for mom-and-pop pharmacies and local hospitals that lack the buying power of thebig chains. But the bargains also drive a parallel and illegal practice called “diversion,” inwhich some middlemen resort to fraud to obtain discounted medicine. Corruptwholesalers often solicit those who qualify for discounts to buy more medicine than theyneed and sell the rest for kickbacks. In 2000, a task force for the National Association ofBoards of Pharmacy estimated that up to four-fifths of the closed-door pharmacies thatreceived discounted medicine exploited loopholes to resell at least a portion to outsidebuyers.
By 2002 the F.D.A.’s criminal investigators faced a problem that they could notclearly measure or solve: a huge volume of the nation’s medicine no longer floweddirectly from drugmakers to one of the Big Three to a pharmacy or hospital. Instead, themedicine passed through numerous middlemen, with each company taking a wedge ofthe profit. These sales often went unrecorded or were accompanied by phony pedigreepapers that obscured the origin of the medicine and left no way to ensure its safety.
This illicit diversion has become a multi-billion-dollar industry, Terrell L.Vermillion, director of the F.D.A.’s Office of Criminal Investigations, estimates. Yet thepractice closely resembles the legal trading of pharmaceuticals, and the laws governing itare murky at best. Michael Carlow and many others allegedly used this confusion to theiradvantage. They had state licenses, lawyers, accountants, and all the trappings oflegitimacy. Their businesses embodied the spirit of “pure capitalism,” as one of Carlow’slawyers described it. “Buy low, sell high, make money.”
At 10 a.m. on January 23, 2002, Venema’s red truck rattled up to the fading little officebuilding in Kissimmee where BTC had its headquarters. Thomas Atkins Jr., who hadbeen instructed to be there, declined to answer most of Arias’s and Venema’s questions,including queries about Carlow, whom he acknowledged was his brother-in-law. Atkinsdid say that he knew nothing about the drugs he was selling, except that some of themneeded to be refrigerated.
“Are you basically a front for someone else in this business?,” Venema asked.Atkins refused to answer this question too. Arias and Venema emerged from the meetingconvinced that BTC was a shell company, its true nature unclear.In Florida it was laughably easy to become a pharmaceutical wholesaler. All youneeded was a refrigerator, a burglar alarm, an air conditioner, $200 for a security bond,and $700 for a license. You needed no experience and no particular knowledge. You hadto certify that you had no criminal record, but the pharmaceutical bureau did not actuallycheck.
Florida’s pharmaceutical wholesale companies proliferated like rabbits. By 2002,Florida had licensed 1,399 of them—one for every three pharmacies in the state. Thewholesalers ranged from trained pharmacists, doctors, and lawyers to criminal kingpinsand uneducated street thugs. Some were former drug dealers seeking a safer line of work.Aided by lax regulations and Florida’s large Medicaid-and-medicine-dependent elderlypopulation, those trafficking in diverted medicine were making a fortune.Two days after the interview with Atkins, Venema, Arias, and Arias’s partner, druginspector Gene Odin, set out for Boca Raton to interview the employees of the StoneGroup. At 72, Odin had a Ph.D. in medicinal chemistry and two hearing aids that oftenconked out. He lulled those he regulated into believing he was senile as a way ofextracting information from them.
“We’re going to put people in jail,” Venema said by way of introduction. Danaand the other Stone Group employees, none of whom were charged with a crime,appeared terrified. Each recognized a mug shot of Carlow—suntanned and smiling with adiamond stud in one ear—from his arrest in 2000. So far, they had purchased more than$2 million in medicine from Carlow at BTC.
They explained that on January 20, 2002—four days after Marty Bradley’s drugshad been stolen from his warehouse—a Stone Group salesman had picked them up fromCarlow’s home in Weston, Florida, near Fort Lauderdale, where he kept medicine in hislaundry room and garage.
The inspectors seized several boxes of medicine and loaded them into the truck ofMiami-Dade police sergeant John Petri. Short and muscular, with a well-groomedmustache, Petri is a master of surveillance, following suspects invisibly from his truck.Now he gathered with the others in the parking lot and listened as Arias explained thatthe case against Carlow couldn’t be much simpler: “You can’t have a pharmacy in yourhouse.”
Windmill Ranch Estates—a grid of manicured palm trees and Italianate palazzi onsparkling lakes—was among the costliest gated communities in Weston. Carlow livedhere on expansive landscaped grounds. His neighbors knew him as a gregarious familyman.
He had come a long way since filing for bankruptcy four years earlier. Then, hehad lost his $108,000 Bentley and $675,000 Sea Ray yacht, the Cheshire Cat, named afterthe vanishing feline in Alice in Wonderland. After his bankruptcy, Carlow also vanishedin his particular way. He began to put most of his new possessions in the name of hisfourth wife, Candace. He also formed companies that appeared to belong to others.Michael Carlow was born in Connecticut and raised in Hollywood, Florida. Aftergraduating from high school in 1970, he drifted through a series of jobs. He alsoembarked on a series of crimes. According to police reports, in 1973, at age 20, he wasconvicted of armed robbery and served three years in prison. In 1984 he was arrested fordealing in stolen property, but the case against him was dismissed. In 1986 he pleadedguilty to grand theft, was given three years’ probation, and was ordered to complete asubstance-abuse treatment program. While enrolled in the program, he was arrested inAlabama for selling cocaine and fled. Later that year he turned himself in and resumedhis drug rehab.
By the mid-1990s, Carlow had shed any semblance of the drug-addled hood in hisold mug shots. In 1991 he formed what he called a consulting company, which evolvedinto Quest Healthcare Inc. As he explained to those from whom he wanted money orbusiness, Quest oversaw more than a dozen mental-health, male-impotence, and H.I.V.clinics in six states.
After his 1998 bankruptcy, Quest and his various spin-off companies, most ofthem not in his name, began branching out into pharmaceuticals. His arrest in June 2000was a temporary setback, but he never really left the game.By February 2002, according to authorities, two men were making regular trips toCarlow’s Weston mansion, toting duffel bags and old boxes that contained a jumble ofpill bottles, medicine vials, and bags of blood derivatives—some still bearing the labelsof patients to whom they had been dispensed. The men, Fabian Diaz and Henry Garcia,were known in certain circles as Carlow’s “cooks.” And their job was to acquire as muchmedicine as possible.
Investigators believed that the medicine they collected was Carlow’s lifeblood. Tomake the kind of profit Carlow wanted, it needed to be cheap. Free was best of all.Ordering medicine and not paying for it was one way to do this. Another was through theefforts of Diaz and Garcia. The men were so productive that Carlow’s garage became avirtual pharmacy repackaging operation, a pharmacist who says he dropped off medicinethere told investigators.
At the street level, according to law-enforcement sources, Diaz and Garcia boughtcancer and aids drugs from Medicaid patients at health clinics in Miami’s slums. Somewere “professional patients” who sold, rather than took, their medicine. A notoriousexample of such a patient, Michael McKinnon, made $5,000 a month by selling his aidsmedicine.
Sometimes Diaz and Garcia would simply create patients, authorities say, byretrieving names and Medicaid numbers from pharmacies and treatment centers. Ifnecessary, they also could steal drugs by breaking into warehouses. Through his shiftingroster of companies, Carlow then resold the drugs to other wholesalers.But Carlow had not stopped at selling to obscure companies. He had developedwhat every small wholesaler dreamed of: a lucrative relationship with one of the industrygiants, Cardinal Health. From 1999 through the middle of 2000, Quest Healthcare soldnearly $1.5 million in products to National Specialty Services, then a Cardinal divisionthat was the nation’s largest supplier of blood products, cancer drugs, and other specialtypharmaceuticals to hospitals. Cardinal’s purchases from at least four companies thatCarlow controlled thrust his medicine into the heart of the nation’s drug supply, where itinevitably reached patients.
After midnight on February 6, 2002, Gary Venema was awake, staring at the ceiling. Hecouldn’t sleep, because it was Wednesday, and on Wednesdays the city of Westoncollected trash at Windmill Ranch Estates.
Dressed in dark jeans, a T-shirt, and sneakers, Venema glided toward the door. Heenjoyed thinking of himself as a thief in the night (albeit one on the right side of the law).In his truck he drove to Carlow’s gated community, where he flashed his badge and asleepy guard let him in. Driving down Windmill Ranch Road, he approached a big stuccomansion in the Mediterranean style with pillars and archways shaded by palm trees. Apool glimmered out back.
He drove past slowly, looking to see if anyone registered his presence, but thehouse remained dark. He doubled back and, with the engine still running, hopped out,grabbed the trash bag, and threw it into the flatbed.Venema returned twice the next week. Each time, Carlow’s trash disgorgedevidence that he was into pharmaceuticals and attempting to expand his variousbusinesses. The records indicated that BTC received mail at Carlow’s home and solddrugs to companies in Missouri and Nevada. Exuberant after these uncensored looks into Carlow’s life, Venema wrote and sent a memo:To: Stephanie Feldman/StatewideFrom: Gary Venema/Starfleet Command Steph—couldn’t sleep last nite—and you know what I do when I can’t sleep—ido trash pulls! Carlow had a w-9 or whatever showing misc.income for 2001 at $700,000.00 from some investment firm. Also a letter from Hatterasyachts—FDLE agents don’ motor around the waterways in Hatteras Yachts—[our] wholeoffice couldn’t buy gasoline for one!
He continued:My strategy would be to:1) Call Mr. Carlow real nicely for a little friendly chat ...2) Have the warrant ready for when his [then] attorney, David Mandel tells me to poundsalt3) Hit his house like the weapon of mass destruction that I intend to be on this guy.
Through the trash alone, Venema soon formed an intimate dislike of Carlow, and hebegan declaring to almost anyone who would listen that he was “coming downtown,Charlie Brown, to get Michael Carlow.”
Venema returned to Carlow’s mansion on February 15, 2002. This time he wasaccompanied by Arias, Odin, and five other investigators, including Randy Jones, a bearof a detective from the Miami-Dade Police Department who was carrying cameras andvideo equipment. Venema held a search warrant that cited suspicion of racketeering,conspiracy to racketeer, grand theft, dealing in stolen property, and prescription fraud.Venema rang the doorbell and a startled maid opened the door. Carlow wasn’thome. The investigators, whose wives clipped coupons, were stunned by what they saw.A zippy yellow Dodge Viper with black racing stripes sat just outside the garage.Carlow’s red Ferrari was parked inside. In the house were gleaming antiques, flat-screentelevisions and computer monitors, a designer refrigerator, and other accoutrements ofmajor money.
Carlow’s file cabinets turned up neatly indexed folders for shell companies,financial records, and yacht purchases. A box of business cards listed Carlow as the“principal” for BTC Wholesale. The investigators emerged with the names of dozens ofpeople and companies, bank-account records, and other leads to mine.
Five days later, Stephanie Feldman summoned Venema, Arias, Odin, Petri, and Jones toher office to create a special task force. At her direction, the five men would investigatehow stolen, diverted, and counterfeit medicine was moving throughout Florida and intothe nation’s supply. She would call their work Operation Stone Cold. Their goal, she said,would be to build a racketeering case against Michael Carlow and his accomplices.Venema would be their lead investigator. She expected indictments within six months.The five men were not an obvious dream team. Except for Arias, they were all 50or over. Several of them took medicine for high blood pressure and had to holddocuments and restaurant menus at arm’s length to read them. None had worked acomplex investigation before. But they shared other characteristics not lost on Feldman.They were old-school investigators who came early and stayed late. And none likedspending time behind a desk.
Arias and Odin would supply the essential knowledge of medicine. Venema, aslead investigator, would supply the adrenaline. Petri and Jones, who had worked togetherfor 15 years and had known each other longer, would do the surveillance.Arias began calling their group “the Horsemen of the Apocalypse,” because heenvisioned them exacting a biblical revenge on those who sold bad medicine. Theycodified their identity with five black polo shirts bearing the image of a Grim Reaperholding a scythe amid a cluster of horses. They wore them while executing warrants.While Feldman was a relative novice, she had a personal interest in the case.
Since age 14 she had battled juvenile diabetes, the disease’s most severe form. Fourteenmonths earlier, she had been admitted to the hospital in a diabetes-related coma. Sheknew that patients’ lives were threatened if they did not get exactly the right medicine,maintained in the right way.
Feldman had dubbed the task force Operation Stone Cold because she viewedthose trafficking in adulterated medicine as stone-cold killers. “What was happening wasnothing short of murder by inches,” she concluded early on.Waiting in the broiling sun on April 4, 2002, Venema peered down an empty side streetin North Miami. “The delivery should be here, I just called them,” the short, bearded mannext to him announced. Posing as a wholesaler, Venema was waiting for a delivery ofhigh-dose Epogen with a dubious pedigree and a suspiciously low price.Epogen, a miracle of genetic engineering, had transformed the lives of patientswho suffered from anemia after organ transplants, cancer treatments, or kidney disease.Derived from human DNA, the drug turned its manufacturer, Amgen Inc., into the world’s largest independent biotechnology company. And Epo, as it is known in thetrade, became the best-selling medicine of biotechnology, bringing in $2.6 billionworldwide in 2004 alone. Epogen has to be maintained at a constant temperature of twoto eight degrees Celsius and requires protection from moisture, frost, excessive heat, andeven light. Amgen—like other makers of delicate medicines—tries to maintain anunbroken set of optimal conditions throughout the manufacturing process. However, assoon as these drugs leave the manufacturer’s loading docks, they are liable to drop into agray market run by pharmaceutical middlemen of just the sort Venema now confronted.The bearded man, Sheldon Schwartz, had brokered the deal for 100 boxes of Epogen, plus 17 boxes of an aids medicine that had already been delivered. Venema hadagreed to cut him a check for $509,000, still far below the drugmaker’s lowest price. “Idon’t want to move anything until we go down and you have your check and you’re ahappy camper,” Venema said casually. “I’ll just look over to see if the dates are cool andeverything.”
Schwartz nodded.
Although the sting had no direct connection to the pursuit of Carlow, the newlychristened Horsemen were elated at the opportunity it presented. They were fishing in atainted lake and were sure to draw out at least more information, if not diverted drugs.Arias, Odin, Petri, and Jones watched and waited silently in cars and truckspositioned around the parking lot. Finally, a silver Mercedes crept down the alley. Ariasknew the driver. It was Brian Hill of Jemco Medical International. Arias and Odin hadinvestigated the man for years, but could never find an explanation in his records for hishuge success.
Hill climbed out of the car and popped open the trunk. There, baking in acardboard box without benefit of a cooler or other protection, was the Epogen, almostcertainly degraded by the extreme heat and the turbulence of the ride.The men went inside a nearby warehouse and Venema scrutinized the boxes. Notone had the sticky residue of medicine that had already been dispensed, and they allshared the same lot number: P002970. The drugs appeared pure.As arranged, his walkie-talkie buzzed and he uttered the words that signaled thebackup units to move in. The Horsemen, accompanied by Miami police with guns drawn,stormed the warehouse. Staying in character, Venema feigned outrage and surprise. Hilllooked shaky and stunned. Schwartz and the others in the warehouse denied wrongdoingand were not arrested.
Arias and Odin studied the medicine. It looked perfect even to their practicedeyes.
Later that day, Arias contacted Jon Martino, a security official at Amgen, askingwhether the company had sold 100 boxes of high-dose Epogen with the lot numberP002970 to a single buyer in the last year. Martino wrote back that 100 boxes of highdoseEpogen was too big an order for anyone in the country.This led Arias to wonder: If no one had bought 100 boxes of the high-dosemedicine at one time, how did they end up grouped together? And who could afford tobuy that much? The medicine had a market value of almost $500,000.
In late April, Martino contacted Arias with a succinct verdict on the Epogen: “It’sbad.” The drug actually was Epogen and came from Amgen, Martino said. But it was nothigh-dose Epogen—the Rolls-Royce of anemia treatments—as labeled. It was the lowdosemedicine, one-twentieth the strength, which cost $258 per box. Someone had gluedon counterfeit labels, making each box worth $4,700.
In the parlance of the drugmakers, the medicine had been “up-labeled.” Thecounterfeit labels were indistinguishable from the real ones except for two tiny degreesymbols missing in the words “Store at 2 to 8 C.” Amgen was sending out a warningletter to physicians, pharmacists, and wholesalers nationwide, identifying the lot andurging those who suspected counterfeit medicine to call the F.D.A. Arias was floored.As the Horsemen dug deeper, it became increasingly clear that a current ofdiverted, degraded, and expired medicine lay right below the surface of the so-calledlegitimate supply. It was not simply that the two streams merged on occasion, byaccident, but that the legitimate supply was routinely polluted by inventory fromdangerous sources. Since the Big Three bought from Florida’s smallest wholesalers,Florida’s problem was everybody’s.
Medicine counterfeiting has long been endemic in China, India, and certainAfrican countries. But increasingly the American market offers a unique incentive tocriminals in search of a niche: medicine here costs far more than anywhere else in theworld.
From 2000 to 2004, the F.D.A.’s criminal cases that involved counterfeitingincreased almost tenfold, from 6 a year to 58. As of October 2004, 91 counterfeitingcases were active at the agency’s Office of Criminal Investigations. One counterfeitingcase in 2003 prompted the recall of 18 million doses of Lipitor, an anti-cholesterol drugthat is America’s best-selling medicine. Pfizer’s global security vice president estimatesthat counterfeit Lipitor may have reached more than 600,000 patients. Those whoreceived it swallowed pills with a bitter aftertaste and no health benefit.
No one actually knows how much counterfeit, adulterated, or subpotent medicineis in our supply, since no one has tested our drugs system-wide. F.D.A. officials haveestimated that less than 1 percent of America’s drug supply is counterfeit, but even thatnumber is potentially huge. In 2004, Americans filled 3.5 billion prescriptions fromdomestic suppliers, according to pharmaceutical-industry consultant IMS Health. Onepercent of that is 35 million prescriptions.
The up-labeled Epogen the Horsemen discovered had already reached patientsacross the country, including Tim Fagan, a 16-year-old Long Island boy who hadundergone a liver transplant and needed weekly injections of Epogen to help boost hisred-blood-cell count. The Fagan family bought the medicine from a CVS pharmacy.Desperate to advance his recovery, Tim’s mother had administered the injections foreight straight weeks, as directed. After each shot, Tim suffered wrenching musclecramps, and he did not get better.
Though no one knew it at the time, some of the medicine had most likely movedthrough a cooler in the back room of a seedy Miami strip club called Playpen South,where counterfeit medicine was allegedly being bought and sold. Carlow had a tangentialrelationship with the club’s owners. He didn’t know them, but some of his suppliers did.Consequently, investigators suspect, some of the drugs that flowed from Playpen Southmoved through Carlow’s shell companies.
Operation Stone Cold appeared to be going smoothly. Nine months after the break-in atMarty Bradley’s warehouse, 55 of Florida’s more than 450 in-state drug wholesalerswere either subjects or targets of the investigation, their particulars taped on the wall of asmall, windowless conference room at F.D.L.E.
But in truth, by the fall of 2002, things were not going well at all. Despite theextensive corruption Arias and Odin had helped uncover, their own agency, the Bureau ofStatewide Pharmaceutical Services, continued issuing wholesale licenses to thoseassociated with felons, effectively pouring more sludge into the funnel that the Horsemenwere trying to clean up at the other end.
In addition, the case’s sheer size and its promise of media attention brought outmicro-managers and obstructionists everywhere. Worst of all was the sentiment in thehighest ranks of the statewide prosecutor’s office that Michael Carlow’s offenses mightnot be worth prosecuting. He allegedly had passed on phony documents, obscured theorigin of medicine, and bought and sold without a license, but these were offenses that,under the state’s weak health laws, were punishable only with fines and probation. Usingthem to build a racketeering case was a legal adventure—the last thing any career-mindedprosecutor wants to undertake.
Over lunch at the Quarterdeck restaurant, in Plantation, Florida, on May 23, 2003,Carlow extolled the virtues of Costa Rica. He spoke of nice real estate, interesting “retail”opportunities, and the “hookers” he had enjoyed there recently. “I got one for theweekend,” he said. “Smoking hot,” commented his lunch companion, Steven “Doc”Ivester.
From a distance, the two men might have been mistaken for good friends. Carlowdivulged that he found his young wife, Candace, “very immature,” while Ivester confidedthat he went to therapy. “You have this really tangled personal life,” observed Carlow.“It’s like a bowl of spaghetti that’s been drying out.”
But Ivester hated Carlow, and the wire tucked beneath his shirt was recording thesuspected medicine trafficker’s every word. Over the two-hour lunch, Ivester keptleading the conversation back to Carlow’s past schemes and his future plans. At onemoment, Carlow spelled out his business ethics, stating, “I do not put friends, neighbors,acquaintances into any deals that I am not in myself.” At another, he noted approvinglyof a woman in the restaurant, “That’s a tight pussy there.”In 1998, Ivester, a technology inventor and entrepreneur, launched a companycalled Navigator, P.C., to develop navigational devices for the navy. Carlow became aninvestor, pledging $500,000.
One day, Ivester says, he overheard Carlow offer a secretary $25 if she wouldshow him her panties. Another day, a janitor told Ivester about some men takingphotographs of a car in the parking lot. It was the Horsemen, photographing Carlow’scar. When Ivester asked his new partner whether he was under investigation, Carlowblew up, screaming, “You don’t fucking know me. I’m going to ruin you.”Shortly afterward, Ivester says, he found Carlow hugging his girlfriend. Carlowhad begun a campaign of seduction that ultimately divided the couple. Ivester believed itwas Carlow’s revenge for his asking about the investigation.But Ivester knew something about revenge, too. “I’m not a badass, but I’m notdumb,” he said. At the right moment, he had a friend reach out to state officials to offerhis services. When Venema learned of Ivester’s offer, it was as though Christmas hadcome early.
Now Venema was outside listening while Carlow—as cocky as ever—providedIvester with a veritable map of his criminal activities. He described expanding hispharmaceutical business with a new shell company in Kansas, World Pharma, run by hisformer banker and confidante, Jean McIntyre. He also explained that McIntyre wouldbecome his new bookkeeper, replacing his mother-in-law, Marilyn Atkins, whom Carlowsaid he’d recently terminated for “piss-poor recordkeeping” and being “in-fuckingcompetent.”He went on to talk about Costa Rica. But his lurid description of his weekend witha 20-year-old named Danielle mattered little to Ivester or to the Horsemen. What grabbedtheir attention was Carlow’s almost incidental remark that he might go back to CostaRica “this coming week.”
If Carlow needed another incentive to leave the country, he got it three days later,when the Fort Lauderdale Sun-Sentinel ran a front-page story, former convicts try a saferventure: pharmaceuticals. The article described Carlow as a “major wholesaler sellingmillions of dollars worth of questionable medications out of his $1.3 million home.”After the article came out, Ivester unearthed a document that Carlow had left in hisNavigator offices. It was entitled “Michael Carlow Offshore Wealth PreservationPlanning Business Structure Diagram” and listed various offshore accounts, essentiallyproviding a template for a life on the lam.
If Michael Carlow had been caught selling crack cocaine at a Miami intersection, hewould have been arrested instantly and faced serious prison time. Instead, he wassuspected of selling more than $54 million in adulterated medicine to wholesalersnationwide, tainting the country’s drug supply, and potentially killing patients. Andalmost no one in Florida government could seem to figure out how to stop him.Weeks had rolled into months of interagency bickering as some members of theAttorney General’s Office of Statewide Prosecution argued with the F.D.L.E. overjurisdiction. It seemed that the most senior state prosecutors were hesitant to proceed.One insider believes they liked “three-by-five cases,” those in which the evidence fit on afile card that small. Conversely, they hated “box cases,” in which the evidence arrived ina box. Carlow’s was a quintessential “box case.”
In June, however, the Horsemen’s bosses finally got religion. Red lights turnedgreen. Convinced that Carlow was ready to flee, Venema’s supervisors now wanted toarrest him.
Late at night on July 20, 2003, Gary Venema flipped open his badge at the WindmillRanch security gate. “F.D.L.E.,” he announced. The guard waved him uneasily into thegated community. In the moonlight, Venema saw right away that the Carlows were home.Two vans were parked in their semicircular driveway, and the Viper’s yellow nose peeked out from the side garage.
The investigator took a lazy swing past the house, satisfied that the couple wouldstill be home at first light. In his truck he had arrest warrants for Carlow and 17associates, among them his wife; his brother-in-law, Thomas Atkins Jr.; his mother-inlaw,Marilyn Atkins; and his suspected “cooks,” Fabian Diaz and Henry Garcia. He alsohad a copy of a 95-page indictment that listed 32 charges, including racketeering andgrand theft.
I’ve been waiting my whole life to do something like this, Venema reflected, just so I could say I did.
That night, Venema actually slept a few hours, but by 4:30 a.m. he was out thedoor. His department had decided to wait until dawn to make sure that there were nomistakes and that Carlow and the others could clearly read the investigators’ field jackets.The dangers they faced were twofold: someone threatened with arrest might strike up agun battle, or, more likely, Carlow would hire lawyers to bury them in proceduralcomplaints.
At five a.m., Venema parked his truck on a side street with a clear view of thehouse. And then he waited.
At first light, a line of unmarked cars with darkened windows rolled slowly andsilently toward Carlow’s home. Other units moved into place behind the house. And thentwo marked police cars, lights turning silently, joined the caravan.The sound of car doors opening and slamming shut echoed in the sleepyneighborhood. Agents with guns drawn crawled up an embankment behind the mansion,covering it from both sides. It took Venema only a few seconds to reach the door andstart pounding. Carlow appeared in a pair of shorts, surveyed the line of idling cars, andsaid casually, “Come on in.”
Then he sat down at his kitchen table and shook out a cigarette from his pack.In a separate room, Venema showed Candace a diagram with her husband’spicture in the center and the photographs and names of 17 others ringed around him. Allof them—including her mother and brother—were being arrested simultaneously. Hereyes widened, but she told Venema, “I don’t want to talk to you about anything.”In the kitchen, Carlow asked Venema what his wife was being charged with.
“Racketeering,” he said. “Her bond is $1.15 million.” He did not yet tell Carlow theamount of his own bond: $7 million.
“Can I make some coffee?” Carlow asked. “You’re not going to be here thatlong,” one of the officers responded.
By noon, 12 of the 18 indicted were in custody. Exhausted, grubby, exhilarated,the Horsemen went home, showered, and put on suits for the press conference.Carlow appeared as buoyant as ever at his bail hearing, on July 28. He entered thecourtroom in a jail-issue jumpsuit, waving, blowing kisses, and giving thumbs-ups to hisfriends packing the courtroom.
Candace, however, looked haggard and distraught. Her mood visibly deterioratedas the hearing progressed. As all three prosecution witnesses not only spoke of Carlow’salleged pharmaceutical misdeeds but also detailed his extramarital affairs, Carlow turnedto his wife and mouthed, “Are you O.K.?” His secretary and his banker both testified thatthey had slept with him. Steven Ivester testified that Carlow had seduced his girlfriend. “Ican honestly say we beat out The Jerry Springer Show,” John Petri later observed.The judge ultimately reduced Carlow’s bond from $7 million to just under $3million. Carlow posted bail and enjoyed his freedom for a day—until the bail bondsmenlearned that the Carlows had already defaulted on the mortgage that Candace had offeredas collateral for her bail. They apprehended Michael Carlow and took him back to jail.By the end of 2004, the Horsemen had arrested 55 suspects—more than 30 of them onracketeering charges—and seized $33 million in bad medicine and almost $3 million incash. Sixteen suspects had agreed to cooperate, most pleading guilty to an array ofcharges.
The efforts of the Horsemen led to the passage of Florida’s 2003 PrescriptionDrug Protection Act, which imposed heavy new restrictions on drug wholesalers,required criminal-background checks for those seeking licenses, and created seriouscriminal penalties for trafficking in adulterated drugs.In the wake of the state’s reforms, the number of licensed drug wholesalers inFlorida dropped by almost half. And Operation Stone Cold expanded its reach, workingto break up a ring making at least $50 million a year selling painkillers over the Internet,and another that had submitted more than $700 million in fraudulent claims for prostheticlimbs.
Across the country, the F.B.I., the F.D.A., and state investigators continue toprobe illicit diversion and counterfeiting networks. Even Marty Bradley, whose call toCesar Arias sparked Operation Stone Cold, did not escape the increased scrutiny. OnMarch 23, he and seven associates were indicted in Georgia on charges includingracketeering and money-laundering. Bradley vowed to fight the charges.Yet without an overhaul of national laws, bad medicine still pours into thenation’s distribution system, and no one is any closer to knowing where it has been. The F.D.A. made clear, in a February 2004 task-force report on domestic counterfeiting, thatit would not impose a solution on the powerful wholesalers. Instead, the agency isencouraging the use of promising technology that is still being developed: bar coding andradio-frequency identification that can help track a drug’s origin electronically. Theagency has also emphasized the need to reduce the “regulatory burdens” for“stakeholders”—which include the middlemen. The nation’s drug supply still runs in parton an honor system.
Meanwhile, the cases against the Horsemen’s biggest targets are plodding through thelegal system. Michael Carlow pleaded not guilty to all 20 charges, but he has beenabandoned by confidants and former associates, who are lining up to testify for the state. Carlow remains in jail in Fort Lauderdale, awaiting trial later this year. His wife,Candace, filed for bankruptcy in August 2004 and is also awaiting trial. The Windmill Ranch mansion fell into disrepair and was sold in foreclosure in February 2005.The Horsemen have remained as cohesive as ever, through good and bad. In late2004 the five men and their wives headed to Amelia Island, off Florida’s northeast coast,for a long weekend. They stayed by the ocean, rode horses along the beach, and at nighthad a cookout, spreading a tarp across the sand. Though they knew they had exposedonly a sliver of a systemic problem, they viewed the case and the resulting friendships asthe true bonus of a lifetime.
Excerpted from Dangerous Doses: How Counterfeiters Are Contaminating America’s Drug Supply
Aboard a cruise ship to Cozumel, a vodka-and-soda in hand, Marty Bradley glared at the Gulf of Mexico from inside a locked suite. He had brought 60 employees on the gleaming white ship for his company’s annual blowout, a reward for meeting their sales targets. But all Bradley could think of now was which of the employees on board had sold himout and gotten away with the score of their lives.
Just 24 hours earlier, on January 16, 2002, a white van had backed into an alleyway behind his Miami warehouse. Some men climbed from the van and managed to twist the dead bolt, tear off the rear metal door, and enter the warehouse. Once inside, they knew exactly what to look for.
Bradley’s company, BioMed Plus, is one of the nation’s largest private wholesale distributors of blood products. The thieves had headed directly for a freezer that contained plasma derivatives destined for patients with compromised immune systems, hemophilia, and other disorders. All told, they had taken 344 vials of the clear liquids that for many patients mean the difference between life and death. Some of the vials cost almost $4,000 apiece. The heist was worth about $335,000. The break-in occurred just hours after the delivery of a shipment that included a rare drug called Novo Seven, which helps form blood clots in hemophiliacs. The thieves had taken all of it.
Bradley reported the theft to Florida’s Bureau of Statewide Pharmaceutical Services, a regulatory requirement he expected to solve nothing. The inspector he knew there, Cesar Arias, a tousled Cuban-American whose heart was certainly in his job, had no juice whatsoever. One glance at the man’s car, a dilapidated blue Buick, told the storyof his agency’s budget woes.
The local cops took a report, but they were too busy chasing dealers of street drugs to care much about a theft of clotting factor. But Bradley knew the stolen vials posed a serious danger. The medicine inside had to remain motionless at a constant temperature and could be transported only with careful planning. At best, it had become useless to a patient; at worst, it could do harm.
Bradley was in the ship’s cocktail lounge waiting to disembark when his cell phone rang. His purchasing manager, Marlene Caceres, was calling to report that a small pharmaceutical wholesale company, the Stone Group, was offering to sell some plasma derivatives, which it had never offered before. Bradley had done business with thefledgling company in the past.
The pharmaceutical wholesale market operates as an all-hours auction, with deals and discounts materializing suddenly and medicine passing through many hands. And while few patients know that these middlemen exist, much of the nation’s medicine passes through companies like BioMed Plus and the Stone Group.
As Caceres read off the details of the offer, Bradley said, “I don’t believe it.” Everything she mentioned—including 51 vials of NovoSeven and specific amounts of Gamimune, Gammagard, and Iveegam, all for the steeply discounted price of $229,241— was identical to his list of stolen goods. Bradley knew the medicine was his.
He sought advice from the one person whose number he had with him: Cesar Arias. “Stand by,” Arias said excitedly. The drug inspector called one of his few contacts in law enforcement, a state cop named Gary Venema, and then called Bradley back to relay Venema’s advice at top volume: “Buy it back! Buy it back!”
Gary Venema was impossible not to notice. A big, sandy-haired man of 50 who had a wiseass grin and wore Hawaiian shirts and a gold sailboat charm around his neck,he had a magnetic, even manic presence that drew every eye in a room. A former cop with 24 years’ experience, 15 as a homicide-and-narcotics detective in Hialeah, a grittysuburb of Miami, Venema had seen it all, but his days of adrenaline-pumping shoot-outs were long gone. In 1991, after a political clash, the Hialeah police chief demoted him to road sergeant.
In 1997, he had jumped at the chance to join the Florida Department of LawEnforcement (F.D.L.E.), a statewide police agency with power and panache butnotoriously low pay. Despite all his experience, his starting salary was $42,000. Many ofhis new colleagues were just a few years older than his three sons. But he enjoyed thetraining, and almost immediately he embarked on a case that involved the organized theftof over-the-counter goods from drugstore chains. Even though the merchandise crossedstate lines, the feds, who would be needed to pursue it, didn’t seem interested. Venemabecame discouraged. And then, almost by accident, the case for which he’d been waitinghis entire life came along.
It had started inauspiciously enough. On November 13, 2001, he was summonedto a meeting with Assistant Statewide Prosecutor Stephanie Feldman, a petite 28-year-oldwith five years’ trial experience who stood about five feet one inch in heels. Feldman sentVenema and Arias on a one-day sting operation involving a few vials of stolen cancermedicine.
Before he met Arias, Venema had never thought about the safety of his medicine. Heassumed that it traveled directly from the drugmaker to the pharmacy. But Arias worriedabout the medicine’s transport, its temperature, where it originated, the path it took, andthe documentation of all this. Venema began to think of himself as a student andapprenticed himself to Arias.
On January 21, 2002, a young Stone Group salesman, Sean Dana, arrived at Bradley’swarehouse in a souped-up Trans Am. He was wearing shorts and a T-shirt and carried acooler full of the medicine stolen from Bradley five days earlier.After Dana dropped off the medicine in the receiving bay, Bradley took him to theconference room, where five people were waiting: Arias, Bradley’s lawyer, and threeMiami–Dade County detectives.
When asked if he knew that the medicine had been stolen, Dana stammered, “Idon’t know anything about that.” Struggling through a few more questions, Dana thenoffered that he would like to help but wanted to consult a lawyer first. At that word,“lawyer,” the questions had to end.
The next day, the president of the Stone Group contacted the authorities and toldthem that the drugs had been purchased from a company in Kissimmee called BTCWholesale. His contact there was a man named Michael Carlow, whom he believed to bethe owner.
As much as anyone, Carlow personified what was wrong with Florida’s medicinebusiness. In the distant past, he had served time in prison for armed robbery and gottenprobation for grand theft. In 1998 the state gave his wife, Candace, a prescription-drugwholesale license for a company that Carlow ran as president. In June 2000 he wasarrested for buying $83,000 of stolen Neupogen, a cancer and aids drug, in the parking lotof a Miami restaurant. He pleaded no contest, paid a nominal fine, and was sentenced to18 months probation, and he and his wife surrendered their state license—what passed forharsh justice under Florida’s weak health law.
Carlow’s alleged involvement with BTC—which on paper belonged to hisbrother-in-law, a former mattress salesman named Thomas Atkins Jr.—suggested that hemight be making a comeback. Stephanie Feldman directed Venema and Arias to be atBTC first thing the next morning.
Pharmaceutical middlemen buy, sell, sort, repackage, and distribute 98 percent of thenation’s medicine. The companies, about 6,500 in all, range from publicly traded giantswith pristine warehouses to small, obscure firms that operate from back rooms.The largest middlemen, McKesson, AmerisourceBergen, and Cardinal Health multi-billion-dollar publicly traded entities known as the Big Three—control 90 percentof this market. Below them sit some 15 regional wholesalers that do billions in business.And below them sit the smaller, secondary wholesalers, a group that included numerouscompanies set up by Michael Carlow. All of these companies buy from, and sell to, oneanother. They thrive by speculating on price increases. The Big Three have tradingdivisions that scout the secondary wholesale market for discounted medicine.
Whereas governments in Europe and Canada largely regulate pharmaceuticalprices, drugmakers in the United States fought off price controls, choosing instead tooffer targeted discounts that allow them to increase their market shares. The drugmakerscharge pharmacies “direct” prices and give wholesalers a small reduction. Hospitals andso-called closed-door pharmacies, which solely supply facilities such as nursing homes,sometimes pay less than half the direct price.
The secondary wholesalers contend that aggressive trading helps them reduceprices for mom-and-pop pharmacies and local hospitals that lack the buying power of thebig chains. But the bargains also drive a parallel and illegal practice called “diversion,” inwhich some middlemen resort to fraud to obtain discounted medicine. Corruptwholesalers often solicit those who qualify for discounts to buy more medicine than theyneed and sell the rest for kickbacks. In 2000, a task force for the National Association ofBoards of Pharmacy estimated that up to four-fifths of the closed-door pharmacies thatreceived discounted medicine exploited loopholes to resell at least a portion to outsidebuyers.
By 2002 the F.D.A.’s criminal investigators faced a problem that they could notclearly measure or solve: a huge volume of the nation’s medicine no longer floweddirectly from drugmakers to one of the Big Three to a pharmacy or hospital. Instead, themedicine passed through numerous middlemen, with each company taking a wedge ofthe profit. These sales often went unrecorded or were accompanied by phony pedigreepapers that obscured the origin of the medicine and left no way to ensure its safety.
This illicit diversion has become a multi-billion-dollar industry, Terrell L.Vermillion, director of the F.D.A.’s Office of Criminal Investigations, estimates. Yet thepractice closely resembles the legal trading of pharmaceuticals, and the laws governing itare murky at best. Michael Carlow and many others allegedly used this confusion to theiradvantage. They had state licenses, lawyers, accountants, and all the trappings oflegitimacy. Their businesses embodied the spirit of “pure capitalism,” as one of Carlow’slawyers described it. “Buy low, sell high, make money.”
At 10 a.m. on January 23, 2002, Venema’s red truck rattled up to the fading little officebuilding in Kissimmee where BTC had its headquarters. Thomas Atkins Jr., who hadbeen instructed to be there, declined to answer most of Arias’s and Venema’s questions,including queries about Carlow, whom he acknowledged was his brother-in-law. Atkinsdid say that he knew nothing about the drugs he was selling, except that some of themneeded to be refrigerated.
“Are you basically a front for someone else in this business?,” Venema asked.Atkins refused to answer this question too. Arias and Venema emerged from the meetingconvinced that BTC was a shell company, its true nature unclear.In Florida it was laughably easy to become a pharmaceutical wholesaler. All youneeded was a refrigerator, a burglar alarm, an air conditioner, $200 for a security bond,and $700 for a license. You needed no experience and no particular knowledge. You hadto certify that you had no criminal record, but the pharmaceutical bureau did not actuallycheck.
Florida’s pharmaceutical wholesale companies proliferated like rabbits. By 2002,Florida had licensed 1,399 of them—one for every three pharmacies in the state. Thewholesalers ranged from trained pharmacists, doctors, and lawyers to criminal kingpinsand uneducated street thugs. Some were former drug dealers seeking a safer line of work.Aided by lax regulations and Florida’s large Medicaid-and-medicine-dependent elderlypopulation, those trafficking in diverted medicine were making a fortune.Two days after the interview with Atkins, Venema, Arias, and Arias’s partner, druginspector Gene Odin, set out for Boca Raton to interview the employees of the StoneGroup. At 72, Odin had a Ph.D. in medicinal chemistry and two hearing aids that oftenconked out. He lulled those he regulated into believing he was senile as a way ofextracting information from them.
“We’re going to put people in jail,” Venema said by way of introduction. Danaand the other Stone Group employees, none of whom were charged with a crime,appeared terrified. Each recognized a mug shot of Carlow—suntanned and smiling with adiamond stud in one ear—from his arrest in 2000. So far, they had purchased more than$2 million in medicine from Carlow at BTC.
They explained that on January 20, 2002—four days after Marty Bradley’s drugshad been stolen from his warehouse—a Stone Group salesman had picked them up fromCarlow’s home in Weston, Florida, near Fort Lauderdale, where he kept medicine in hislaundry room and garage.
The inspectors seized several boxes of medicine and loaded them into the truck ofMiami-Dade police sergeant John Petri. Short and muscular, with a well-groomedmustache, Petri is a master of surveillance, following suspects invisibly from his truck.Now he gathered with the others in the parking lot and listened as Arias explained thatthe case against Carlow couldn’t be much simpler: “You can’t have a pharmacy in yourhouse.”
Windmill Ranch Estates—a grid of manicured palm trees and Italianate palazzi onsparkling lakes—was among the costliest gated communities in Weston. Carlow livedhere on expansive landscaped grounds. His neighbors knew him as a gregarious familyman.
He had come a long way since filing for bankruptcy four years earlier. Then, hehad lost his $108,000 Bentley and $675,000 Sea Ray yacht, the Cheshire Cat, named afterthe vanishing feline in Alice in Wonderland. After his bankruptcy, Carlow also vanishedin his particular way. He began to put most of his new possessions in the name of hisfourth wife, Candace. He also formed companies that appeared to belong to others.Michael Carlow was born in Connecticut and raised in Hollywood, Florida. Aftergraduating from high school in 1970, he drifted through a series of jobs. He alsoembarked on a series of crimes. According to police reports, in 1973, at age 20, he wasconvicted of armed robbery and served three years in prison. In 1984 he was arrested fordealing in stolen property, but the case against him was dismissed. In 1986 he pleadedguilty to grand theft, was given three years’ probation, and was ordered to complete asubstance-abuse treatment program. While enrolled in the program, he was arrested inAlabama for selling cocaine and fled. Later that year he turned himself in and resumedhis drug rehab.
By the mid-1990s, Carlow had shed any semblance of the drug-addled hood in hisold mug shots. In 1991 he formed what he called a consulting company, which evolvedinto Quest Healthcare Inc. As he explained to those from whom he wanted money orbusiness, Quest oversaw more than a dozen mental-health, male-impotence, and H.I.V.clinics in six states.
After his 1998 bankruptcy, Quest and his various spin-off companies, most ofthem not in his name, began branching out into pharmaceuticals. His arrest in June 2000was a temporary setback, but he never really left the game.By February 2002, according to authorities, two men were making regular trips toCarlow’s Weston mansion, toting duffel bags and old boxes that contained a jumble ofpill bottles, medicine vials, and bags of blood derivatives—some still bearing the labelsof patients to whom they had been dispensed. The men, Fabian Diaz and Henry Garcia,were known in certain circles as Carlow’s “cooks.” And their job was to acquire as muchmedicine as possible.
Investigators believed that the medicine they collected was Carlow’s lifeblood. Tomake the kind of profit Carlow wanted, it needed to be cheap. Free was best of all.Ordering medicine and not paying for it was one way to do this. Another was through theefforts of Diaz and Garcia. The men were so productive that Carlow’s garage became avirtual pharmacy repackaging operation, a pharmacist who says he dropped off medicinethere told investigators.
At the street level, according to law-enforcement sources, Diaz and Garcia boughtcancer and aids drugs from Medicaid patients at health clinics in Miami’s slums. Somewere “professional patients” who sold, rather than took, their medicine. A notoriousexample of such a patient, Michael McKinnon, made $5,000 a month by selling his aidsmedicine.
Sometimes Diaz and Garcia would simply create patients, authorities say, byretrieving names and Medicaid numbers from pharmacies and treatment centers. Ifnecessary, they also could steal drugs by breaking into warehouses. Through his shiftingroster of companies, Carlow then resold the drugs to other wholesalers.But Carlow had not stopped at selling to obscure companies. He had developedwhat every small wholesaler dreamed of: a lucrative relationship with one of the industrygiants, Cardinal Health. From 1999 through the middle of 2000, Quest Healthcare soldnearly $1.5 million in products to National Specialty Services, then a Cardinal divisionthat was the nation’s largest supplier of blood products, cancer drugs, and other specialtypharmaceuticals to hospitals. Cardinal’s purchases from at least four companies thatCarlow controlled thrust his medicine into the heart of the nation’s drug supply, where itinevitably reached patients.
After midnight on February 6, 2002, Gary Venema was awake, staring at the ceiling. Hecouldn’t sleep, because it was Wednesday, and on Wednesdays the city of Westoncollected trash at Windmill Ranch Estates.
Dressed in dark jeans, a T-shirt, and sneakers, Venema glided toward the door. Heenjoyed thinking of himself as a thief in the night (albeit one on the right side of the law).In his truck he drove to Carlow’s gated community, where he flashed his badge and asleepy guard let him in. Driving down Windmill Ranch Road, he approached a big stuccomansion in the Mediterranean style with pillars and archways shaded by palm trees. Apool glimmered out back.
He drove past slowly, looking to see if anyone registered his presence, but thehouse remained dark. He doubled back and, with the engine still running, hopped out,grabbed the trash bag, and threw it into the flatbed.Venema returned twice the next week. Each time, Carlow’s trash disgorgedevidence that he was into pharmaceuticals and attempting to expand his variousbusinesses. The records indicated that BTC received mail at Carlow’s home and solddrugs to companies in Missouri and Nevada. Exuberant after these uncensored looks into Carlow’s life, Venema wrote and sent a memo:To: Stephanie Feldman/StatewideFrom: Gary Venema/Starfleet Command Steph—couldn’t sleep last nite—and you know what I do when I can’t sleep—ido trash pulls! Carlow had a w-9 or whatever showing misc.income for 2001 at $700,000.00 from some investment firm. Also a letter from Hatterasyachts—FDLE agents don’ motor around the waterways in Hatteras Yachts—[our] wholeoffice couldn’t buy gasoline for one!
He continued:My strategy would be to:1) Call Mr. Carlow real nicely for a little friendly chat ...2) Have the warrant ready for when his [then] attorney, David Mandel tells me to poundsalt3) Hit his house like the weapon of mass destruction that I intend to be on this guy.
Through the trash alone, Venema soon formed an intimate dislike of Carlow, and hebegan declaring to almost anyone who would listen that he was “coming downtown,Charlie Brown, to get Michael Carlow.”
Venema returned to Carlow’s mansion on February 15, 2002. This time he wasaccompanied by Arias, Odin, and five other investigators, including Randy Jones, a bearof a detective from the Miami-Dade Police Department who was carrying cameras andvideo equipment. Venema held a search warrant that cited suspicion of racketeering,conspiracy to racketeer, grand theft, dealing in stolen property, and prescription fraud.Venema rang the doorbell and a startled maid opened the door. Carlow wasn’thome. The investigators, whose wives clipped coupons, were stunned by what they saw.A zippy yellow Dodge Viper with black racing stripes sat just outside the garage.Carlow’s red Ferrari was parked inside. In the house were gleaming antiques, flat-screentelevisions and computer monitors, a designer refrigerator, and other accoutrements ofmajor money.
Carlow’s file cabinets turned up neatly indexed folders for shell companies,financial records, and yacht purchases. A box of business cards listed Carlow as the“principal” for BTC Wholesale. The investigators emerged with the names of dozens ofpeople and companies, bank-account records, and other leads to mine.
Five days later, Stephanie Feldman summoned Venema, Arias, Odin, Petri, and Jones toher office to create a special task force. At her direction, the five men would investigatehow stolen, diverted, and counterfeit medicine was moving throughout Florida and intothe nation’s supply. She would call their work Operation Stone Cold. Their goal, she said,would be to build a racketeering case against Michael Carlow and his accomplices.Venema would be their lead investigator. She expected indictments within six months.The five men were not an obvious dream team. Except for Arias, they were all 50or over. Several of them took medicine for high blood pressure and had to holddocuments and restaurant menus at arm’s length to read them. None had worked acomplex investigation before. But they shared other characteristics not lost on Feldman.They were old-school investigators who came early and stayed late. And none likedspending time behind a desk.
Arias and Odin would supply the essential knowledge of medicine. Venema, aslead investigator, would supply the adrenaline. Petri and Jones, who had worked togetherfor 15 years and had known each other longer, would do the surveillance.Arias began calling their group “the Horsemen of the Apocalypse,” because heenvisioned them exacting a biblical revenge on those who sold bad medicine. Theycodified their identity with five black polo shirts bearing the image of a Grim Reaperholding a scythe amid a cluster of horses. They wore them while executing warrants.While Feldman was a relative novice, she had a personal interest in the case.
Since age 14 she had battled juvenile diabetes, the disease’s most severe form. Fourteenmonths earlier, she had been admitted to the hospital in a diabetes-related coma. Sheknew that patients’ lives were threatened if they did not get exactly the right medicine,maintained in the right way.
Feldman had dubbed the task force Operation Stone Cold because she viewedthose trafficking in adulterated medicine as stone-cold killers. “What was happening wasnothing short of murder by inches,” she concluded early on.Waiting in the broiling sun on April 4, 2002, Venema peered down an empty side streetin North Miami. “The delivery should be here, I just called them,” the short, bearded mannext to him announced. Posing as a wholesaler, Venema was waiting for a delivery ofhigh-dose Epogen with a dubious pedigree and a suspiciously low price.Epogen, a miracle of genetic engineering, had transformed the lives of patientswho suffered from anemia after organ transplants, cancer treatments, or kidney disease.Derived from human DNA, the drug turned its manufacturer, Amgen Inc., into the world’s largest independent biotechnology company. And Epo, as it is known in thetrade, became the best-selling medicine of biotechnology, bringing in $2.6 billionworldwide in 2004 alone. Epogen has to be maintained at a constant temperature of twoto eight degrees Celsius and requires protection from moisture, frost, excessive heat, andeven light. Amgen—like other makers of delicate medicines—tries to maintain anunbroken set of optimal conditions throughout the manufacturing process. However, assoon as these drugs leave the manufacturer’s loading docks, they are liable to drop into agray market run by pharmaceutical middlemen of just the sort Venema now confronted.The bearded man, Sheldon Schwartz, had brokered the deal for 100 boxes of Epogen, plus 17 boxes of an aids medicine that had already been delivered. Venema hadagreed to cut him a check for $509,000, still far below the drugmaker’s lowest price. “Idon’t want to move anything until we go down and you have your check and you’re ahappy camper,” Venema said casually. “I’ll just look over to see if the dates are cool andeverything.”
Schwartz nodded.
Although the sting had no direct connection to the pursuit of Carlow, the newlychristened Horsemen were elated at the opportunity it presented. They were fishing in atainted lake and were sure to draw out at least more information, if not diverted drugs.Arias, Odin, Petri, and Jones watched and waited silently in cars and truckspositioned around the parking lot. Finally, a silver Mercedes crept down the alley. Ariasknew the driver. It was Brian Hill of Jemco Medical International. Arias and Odin hadinvestigated the man for years, but could never find an explanation in his records for hishuge success.
Hill climbed out of the car and popped open the trunk. There, baking in acardboard box without benefit of a cooler or other protection, was the Epogen, almostcertainly degraded by the extreme heat and the turbulence of the ride.The men went inside a nearby warehouse and Venema scrutinized the boxes. Notone had the sticky residue of medicine that had already been dispensed, and they allshared the same lot number: P002970. The drugs appeared pure.As arranged, his walkie-talkie buzzed and he uttered the words that signaled thebackup units to move in. The Horsemen, accompanied by Miami police with guns drawn,stormed the warehouse. Staying in character, Venema feigned outrage and surprise. Hilllooked shaky and stunned. Schwartz and the others in the warehouse denied wrongdoingand were not arrested.
Arias and Odin studied the medicine. It looked perfect even to their practicedeyes.
Later that day, Arias contacted Jon Martino, a security official at Amgen, askingwhether the company had sold 100 boxes of high-dose Epogen with the lot numberP002970 to a single buyer in the last year. Martino wrote back that 100 boxes of highdoseEpogen was too big an order for anyone in the country.This led Arias to wonder: If no one had bought 100 boxes of the high-dosemedicine at one time, how did they end up grouped together? And who could afford tobuy that much? The medicine had a market value of almost $500,000.
In late April, Martino contacted Arias with a succinct verdict on the Epogen: “It’sbad.” The drug actually was Epogen and came from Amgen, Martino said. But it was nothigh-dose Epogen—the Rolls-Royce of anemia treatments—as labeled. It was the lowdosemedicine, one-twentieth the strength, which cost $258 per box. Someone had gluedon counterfeit labels, making each box worth $4,700.
In the parlance of the drugmakers, the medicine had been “up-labeled.” Thecounterfeit labels were indistinguishable from the real ones except for two tiny degreesymbols missing in the words “Store at 2 to 8 C.” Amgen was sending out a warningletter to physicians, pharmacists, and wholesalers nationwide, identifying the lot andurging those who suspected counterfeit medicine to call the F.D.A. Arias was floored.As the Horsemen dug deeper, it became increasingly clear that a current ofdiverted, degraded, and expired medicine lay right below the surface of the so-calledlegitimate supply. It was not simply that the two streams merged on occasion, byaccident, but that the legitimate supply was routinely polluted by inventory fromdangerous sources. Since the Big Three bought from Florida’s smallest wholesalers,Florida’s problem was everybody’s.
Medicine counterfeiting has long been endemic in China, India, and certainAfrican countries. But increasingly the American market offers a unique incentive tocriminals in search of a niche: medicine here costs far more than anywhere else in theworld.
From 2000 to 2004, the F.D.A.’s criminal cases that involved counterfeitingincreased almost tenfold, from 6 a year to 58. As of October 2004, 91 counterfeitingcases were active at the agency’s Office of Criminal Investigations. One counterfeitingcase in 2003 prompted the recall of 18 million doses of Lipitor, an anti-cholesterol drugthat is America’s best-selling medicine. Pfizer’s global security vice president estimatesthat counterfeit Lipitor may have reached more than 600,000 patients. Those whoreceived it swallowed pills with a bitter aftertaste and no health benefit.
No one actually knows how much counterfeit, adulterated, or subpotent medicineis in our supply, since no one has tested our drugs system-wide. F.D.A. officials haveestimated that less than 1 percent of America’s drug supply is counterfeit, but even thatnumber is potentially huge. In 2004, Americans filled 3.5 billion prescriptions fromdomestic suppliers, according to pharmaceutical-industry consultant IMS Health. Onepercent of that is 35 million prescriptions.
The up-labeled Epogen the Horsemen discovered had already reached patientsacross the country, including Tim Fagan, a 16-year-old Long Island boy who hadundergone a liver transplant and needed weekly injections of Epogen to help boost hisred-blood-cell count. The Fagan family bought the medicine from a CVS pharmacy.Desperate to advance his recovery, Tim’s mother had administered the injections foreight straight weeks, as directed. After each shot, Tim suffered wrenching musclecramps, and he did not get better.
Though no one knew it at the time, some of the medicine had most likely movedthrough a cooler in the back room of a seedy Miami strip club called Playpen South,where counterfeit medicine was allegedly being bought and sold. Carlow had a tangentialrelationship with the club’s owners. He didn’t know them, but some of his suppliers did.Consequently, investigators suspect, some of the drugs that flowed from Playpen Southmoved through Carlow’s shell companies.
Operation Stone Cold appeared to be going smoothly. Nine months after the break-in atMarty Bradley’s warehouse, 55 of Florida’s more than 450 in-state drug wholesalerswere either subjects or targets of the investigation, their particulars taped on the wall of asmall, windowless conference room at F.D.L.E.
But in truth, by the fall of 2002, things were not going well at all. Despite theextensive corruption Arias and Odin had helped uncover, their own agency, the Bureau ofStatewide Pharmaceutical Services, continued issuing wholesale licenses to thoseassociated with felons, effectively pouring more sludge into the funnel that the Horsemenwere trying to clean up at the other end.
In addition, the case’s sheer size and its promise of media attention brought outmicro-managers and obstructionists everywhere. Worst of all was the sentiment in thehighest ranks of the statewide prosecutor’s office that Michael Carlow’s offenses mightnot be worth prosecuting. He allegedly had passed on phony documents, obscured theorigin of medicine, and bought and sold without a license, but these were offenses that,under the state’s weak health laws, were punishable only with fines and probation. Usingthem to build a racketeering case was a legal adventure—the last thing any career-mindedprosecutor wants to undertake.
Over lunch at the Quarterdeck restaurant, in Plantation, Florida, on May 23, 2003,Carlow extolled the virtues of Costa Rica. He spoke of nice real estate, interesting “retail”opportunities, and the “hookers” he had enjoyed there recently. “I got one for theweekend,” he said. “Smoking hot,” commented his lunch companion, Steven “Doc”Ivester.
From a distance, the two men might have been mistaken for good friends. Carlowdivulged that he found his young wife, Candace, “very immature,” while Ivester confidedthat he went to therapy. “You have this really tangled personal life,” observed Carlow.“It’s like a bowl of spaghetti that’s been drying out.”
But Ivester hated Carlow, and the wire tucked beneath his shirt was recording thesuspected medicine trafficker’s every word. Over the two-hour lunch, Ivester keptleading the conversation back to Carlow’s past schemes and his future plans. At onemoment, Carlow spelled out his business ethics, stating, “I do not put friends, neighbors,acquaintances into any deals that I am not in myself.” At another, he noted approvinglyof a woman in the restaurant, “That’s a tight pussy there.”In 1998, Ivester, a technology inventor and entrepreneur, launched a companycalled Navigator, P.C., to develop navigational devices for the navy. Carlow became aninvestor, pledging $500,000.
One day, Ivester says, he overheard Carlow offer a secretary $25 if she wouldshow him her panties. Another day, a janitor told Ivester about some men takingphotographs of a car in the parking lot. It was the Horsemen, photographing Carlow’scar. When Ivester asked his new partner whether he was under investigation, Carlowblew up, screaming, “You don’t fucking know me. I’m going to ruin you.”Shortly afterward, Ivester says, he found Carlow hugging his girlfriend. Carlowhad begun a campaign of seduction that ultimately divided the couple. Ivester believed itwas Carlow’s revenge for his asking about the investigation.But Ivester knew something about revenge, too. “I’m not a badass, but I’m notdumb,” he said. At the right moment, he had a friend reach out to state officials to offerhis services. When Venema learned of Ivester’s offer, it was as though Christmas hadcome early.
Now Venema was outside listening while Carlow—as cocky as ever—providedIvester with a veritable map of his criminal activities. He described expanding hispharmaceutical business with a new shell company in Kansas, World Pharma, run by hisformer banker and confidante, Jean McIntyre. He also explained that McIntyre wouldbecome his new bookkeeper, replacing his mother-in-law, Marilyn Atkins, whom Carlowsaid he’d recently terminated for “piss-poor recordkeeping” and being “in-fuckingcompetent.”He went on to talk about Costa Rica. But his lurid description of his weekend witha 20-year-old named Danielle mattered little to Ivester or to the Horsemen. What grabbedtheir attention was Carlow’s almost incidental remark that he might go back to CostaRica “this coming week.”
If Carlow needed another incentive to leave the country, he got it three days later,when the Fort Lauderdale Sun-Sentinel ran a front-page story, former convicts try a saferventure: pharmaceuticals. The article described Carlow as a “major wholesaler sellingmillions of dollars worth of questionable medications out of his $1.3 million home.”After the article came out, Ivester unearthed a document that Carlow had left in hisNavigator offices. It was entitled “Michael Carlow Offshore Wealth PreservationPlanning Business Structure Diagram” and listed various offshore accounts, essentiallyproviding a template for a life on the lam.
If Michael Carlow had been caught selling crack cocaine at a Miami intersection, hewould have been arrested instantly and faced serious prison time. Instead, he wassuspected of selling more than $54 million in adulterated medicine to wholesalersnationwide, tainting the country’s drug supply, and potentially killing patients. Andalmost no one in Florida government could seem to figure out how to stop him.Weeks had rolled into months of interagency bickering as some members of theAttorney General’s Office of Statewide Prosecution argued with the F.D.L.E. overjurisdiction. It seemed that the most senior state prosecutors were hesitant to proceed.One insider believes they liked “three-by-five cases,” those in which the evidence fit on afile card that small. Conversely, they hated “box cases,” in which the evidence arrived ina box. Carlow’s was a quintessential “box case.”
In June, however, the Horsemen’s bosses finally got religion. Red lights turnedgreen. Convinced that Carlow was ready to flee, Venema’s supervisors now wanted toarrest him.
Late at night on July 20, 2003, Gary Venema flipped open his badge at the WindmillRanch security gate. “F.D.L.E.,” he announced. The guard waved him uneasily into thegated community. In the moonlight, Venema saw right away that the Carlows were home.Two vans were parked in their semicircular driveway, and the Viper’s yellow nose peeked out from the side garage.
The investigator took a lazy swing past the house, satisfied that the couple wouldstill be home at first light. In his truck he had arrest warrants for Carlow and 17associates, among them his wife; his brother-in-law, Thomas Atkins Jr.; his mother-inlaw,Marilyn Atkins; and his suspected “cooks,” Fabian Diaz and Henry Garcia. He alsohad a copy of a 95-page indictment that listed 32 charges, including racketeering andgrand theft.
I’ve been waiting my whole life to do something like this, Venema reflected, just so I could say I did.
That night, Venema actually slept a few hours, but by 4:30 a.m. he was out thedoor. His department had decided to wait until dawn to make sure that there were nomistakes and that Carlow and the others could clearly read the investigators’ field jackets.The dangers they faced were twofold: someone threatened with arrest might strike up agun battle, or, more likely, Carlow would hire lawyers to bury them in proceduralcomplaints.
At five a.m., Venema parked his truck on a side street with a clear view of thehouse. And then he waited.
At first light, a line of unmarked cars with darkened windows rolled slowly andsilently toward Carlow’s home. Other units moved into place behind the house. And thentwo marked police cars, lights turning silently, joined the caravan.The sound of car doors opening and slamming shut echoed in the sleepyneighborhood. Agents with guns drawn crawled up an embankment behind the mansion,covering it from both sides. It took Venema only a few seconds to reach the door andstart pounding. Carlow appeared in a pair of shorts, surveyed the line of idling cars, andsaid casually, “Come on in.”
Then he sat down at his kitchen table and shook out a cigarette from his pack.In a separate room, Venema showed Candace a diagram with her husband’spicture in the center and the photographs and names of 17 others ringed around him. Allof them—including her mother and brother—were being arrested simultaneously. Hereyes widened, but she told Venema, “I don’t want to talk to you about anything.”In the kitchen, Carlow asked Venema what his wife was being charged with.
“Racketeering,” he said. “Her bond is $1.15 million.” He did not yet tell Carlow theamount of his own bond: $7 million.
“Can I make some coffee?” Carlow asked. “You’re not going to be here thatlong,” one of the officers responded.
By noon, 12 of the 18 indicted were in custody. Exhausted, grubby, exhilarated,the Horsemen went home, showered, and put on suits for the press conference.Carlow appeared as buoyant as ever at his bail hearing, on July 28. He entered thecourtroom in a jail-issue jumpsuit, waving, blowing kisses, and giving thumbs-ups to hisfriends packing the courtroom.
Candace, however, looked haggard and distraught. Her mood visibly deterioratedas the hearing progressed. As all three prosecution witnesses not only spoke of Carlow’salleged pharmaceutical misdeeds but also detailed his extramarital affairs, Carlow turnedto his wife and mouthed, “Are you O.K.?” His secretary and his banker both testified thatthey had slept with him. Steven Ivester testified that Carlow had seduced his girlfriend. “Ican honestly say we beat out The Jerry Springer Show,” John Petri later observed.The judge ultimately reduced Carlow’s bond from $7 million to just under $3million. Carlow posted bail and enjoyed his freedom for a day—until the bail bondsmenlearned that the Carlows had already defaulted on the mortgage that Candace had offeredas collateral for her bail. They apprehended Michael Carlow and took him back to jail.By the end of 2004, the Horsemen had arrested 55 suspects—more than 30 of them onracketeering charges—and seized $33 million in bad medicine and almost $3 million incash. Sixteen suspects had agreed to cooperate, most pleading guilty to an array ofcharges.
The efforts of the Horsemen led to the passage of Florida’s 2003 PrescriptionDrug Protection Act, which imposed heavy new restrictions on drug wholesalers,required criminal-background checks for those seeking licenses, and created seriouscriminal penalties for trafficking in adulterated drugs.In the wake of the state’s reforms, the number of licensed drug wholesalers inFlorida dropped by almost half. And Operation Stone Cold expanded its reach, workingto break up a ring making at least $50 million a year selling painkillers over the Internet,and another that had submitted more than $700 million in fraudulent claims for prostheticlimbs.
Across the country, the F.B.I., the F.D.A., and state investigators continue toprobe illicit diversion and counterfeiting networks. Even Marty Bradley, whose call toCesar Arias sparked Operation Stone Cold, did not escape the increased scrutiny. OnMarch 23, he and seven associates were indicted in Georgia on charges includingracketeering and money-laundering. Bradley vowed to fight the charges.Yet without an overhaul of national laws, bad medicine still pours into thenation’s distribution system, and no one is any closer to knowing where it has been. The F.D.A. made clear, in a February 2004 task-force report on domestic counterfeiting, thatit would not impose a solution on the powerful wholesalers. Instead, the agency isencouraging the use of promising technology that is still being developed: bar coding andradio-frequency identification that can help track a drug’s origin electronically. Theagency has also emphasized the need to reduce the “regulatory burdens” for“stakeholders”—which include the middlemen. The nation’s drug supply still runs in parton an honor system.
Meanwhile, the cases against the Horsemen’s biggest targets are plodding through thelegal system. Michael Carlow pleaded not guilty to all 20 charges, but he has beenabandoned by confidants and former associates, who are lining up to testify for the state. Carlow remains in jail in Fort Lauderdale, awaiting trial later this year. His wife,Candace, filed for bankruptcy in August 2004 and is also awaiting trial. The Windmill Ranch mansion fell into disrepair and was sold in foreclosure in February 2005.The Horsemen have remained as cohesive as ever, through good and bad. In late2004 the five men and their wives headed to Amelia Island, off Florida’s northeast coast,for a long weekend. They stayed by the ocean, rode horses along the beach, and at nighthad a cookout, spreading a tarp across the sand. Though they knew they had exposedonly a sliver of a systemic problem, they viewed the case and the resulting friendships asthe true bonus of a lifetime.
Excerpted from Dangerous Doses: How Counterfeiters Are Contaminating America’s Drug Supply