Northern District of California | David J. Miller and Minnesota Independent Cooperative, Inc. convicted in multi-million dollar prescription drug diversion scheme

SAN FRANCISCO — A federal jury convicted David Jess Miller and his Minnesota Independent Cooperative (“MIC”) company on a variety of charges related to the unlicensed and fraudulent distribution of prescription drugs, U.S. Attorney Stephanie M. Hinds announced. Federal Bureau of Investigation Special Agent in Charge Robert K. Tripp; Internal Revenue Service, Criminal Investigation (IRS-CI), Oakland Field Office Special Agent in Charge Darren Lian; US Postal Inspection Service (USPIS) Pittsburgh Division Inspector Lesley Allison; and the US Food and Drug Administration Office of Criminal Investigations (FDA-OCI) Special Agent in Charge of the Metro Washington Field Office George A. Scavdis. The verdicts came after a two-week trial before the Hon. Charles R. Breyer, senior US District Judge.

“The health and safety of American patients is critical, and Americans have a right to trust that the prescription drugs they take are safe,” said US Attorney Hinds. “Those who undermine the security of the prescription drug supply chain for their own gain by laundering diverted medicines are putting those patients at risk and will be prosecuted.”

“The FDA is responsible for overseeing the supply chain for prescription drugs; When criminals breach security around this chain, patients can no longer rely on the safety or efficacy of the stolen drugs that are illegally reintroduced into the legitimate supply line,” said Special Agent in Charge Scavdis. “We will continue to prosecute and bring to justice those whose criminal activities would endanger public health.”

“When doctors prescribe medication and patients receive medication, their focus should be on the drug’s effectiveness for the intended treatment and not on the authenticity or legitimacy of the pills they receive from pharmacies. The swift verdict shows the community’s intolerance towards those who abuse this basic trust in our healthcare system for greed and personal gain. IRS Criminal Investigation is committed to working with our law enforcement partners to dismantle and disrupt this criminal activity and instill confidence in the system,” said Special Agent in Charge Lian. “I commend the case agents and trial team who have worked tirelessly on this case to bring justice to light.”

“David Miller’s illegal conduct was reprehensible,” said FBI Special Agent Robert Tripp. “He and his co-conspirators have undermined safeguards designed to protect the public, reintroduced diverted prescription drugs into the supply chain and compromised patient safety for personal gain.”

The trial was the result of indictments filed in two separate counties – the Northern District of California and the Southern District of Ohio. The convictions included charges brought in a second indictment by a grand jury in the Northern District of California on February 11, 2016 and by a separate indictment on May 6, 2015 in the Southern District of Ohio. Both charges involved other defendants and charges that were not presented at trial.

Evidence at the trial revealed that Miller, 58, of Santa Ana, Calif., was at the center of a massive ransomware corporation responsible for the fraudulent distribution of hundreds of millions of dollars’ worth of diverted prescription drugs, including cases involving Miller and His co-conspirators distributed tampered with drugs that posed a health risk to consumers. The program targeted brand-name prescription drugs developed to treat HIV, hepatitis C, mental disorders and several other serious medical conditions. Miller and MIC lied to their customers about the nature and origin of the prescription drugs they sold, falsely claiming that the drugs were held in the secure, federal and state regulated supply chain. Evidence at the trial revealed that Miller and his company, along with many others including Mihran Stepanyan, 37, and Artur Stepanyan, 45, agreed to run the affairs of their wide-ranging and long-standing criminal enterprise. The evidence revealed that the company, which operated primarily out of Southern California and Minnesota, was responsible for distributing diverted prescription drugs to unsuspecting pharmacies across the county. When the jury found Miller guilty, they concluded that he played a role in furthering the criminal conspiracy. For example, between 2007 and 2015, Miller, as the owner and operator of MIC, purchased approximately $157 million worth of diverted prescription drugs from co-defendants Mihran Stepanyan and Artur Stepanayan. Miller and MIC also knew that the Stepans were not licensed to sell prescription drugs and that the Stepans obtained their drugs from street vendors. Miller and MIC still bought the siphoned drugs from the Stepans and lied to their customers about the sources and nature of those drugs.

In addition, the jury concluded that Miller was involved in a money laundering conspiracy. Evidence revealed that between approximately 2007 and 2015, Miller and others laundered hundreds of millions of dollars to further their criminal activities and disguise the nature of their plan. For example, to cover up the fact that Miller was paying the Stepanyans for the drugs they distributed from illegal sources, Miller made payments to the Stepanyans’ company GC National Wholesale through companies he controlled in Puerto Rico. At another supplier, Miller authorized payments into accounts held in the name of various front companies at banks in multiple countries. In this way, Miller and his co-conspirators attempted to cover up the illegal sources of MIC drugs and to disguise the true identities of the suppliers.

In summary, at the end of the trial, Miller was convicted of a conspiracy to racketeering in violation of 18 USC § 1962(d); a charge of conspiracy to commit mail, money order and bank fraud in violation of 18 USC § 1349; a charge of conspiracy to commit money laundering in violation of 18 USC § 1956(h); ten counts of mail fraud in violation of 18 USC § 1341; and a charge of conspiracy to engage in unlicensed wholesale drug distribution and to make false statements to the FDA, violating 21 USC §§ 331

Miller is staying out of custody pending sentencing. Miller faces the maximum statutory sentence of life imprisonment; However, any penalty will be imposed by the court only after considering the US sentencing guidelines and the federal statute for imposing a penalty, 18 USC § 3553.

The Stepanyans and 38 other defendants have pleaded guilty to their respective roles in the conspiracies.

Assistant United States Attorneys Claudia Quiroz, Andrew Dawson and Chris Kaltsas are prosecuting the case with the assistance of Kevin Costello. The prosecution is the result of an investigation by the FBI, IRS, FDA and USPIS. The United States Attorney’s Office notes the exceptional contributions and dedication of IRS-CI Special Agent Bryan Wong to the case.


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