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FedEx Pleads Not Guilty to Illegal Drug Shipping Charges

FedEx Corp. pleaded not guilty to U.S. charges that it delivered pain pills, anti-anxiety drugs and other controlled substances for illegal Internet pharmacies in a case carrying the potential for hundreds of millions of dollars in fines.

The operator of the world’s largest cargo airline was indicted by a federal grand jury July 17 on 15 counts of conspiracy to distribute controlled substances and misbranded drugs and drug trafficking.

As part of a crackdown on prescription drug abuse, United Parcel Service Inc. (UPS) agreed last year to forfeit $40 million in payments from illicit online pharmacies under a non-prosecution agreement with the U.S. Justice Department. Walgreen Co. (WAG) and CVS Caremark Corp. (CVS) have paid a total of more than $150 million in civil fines over claims they sold medications knowing they weren’t for legitimate medical use.

If convicted, FedEx may face a fine of twice the gains from the conduct, alleged to be at least $820 million for it and co-conspirators. The company entered its plea today in San Francisco federal court.

“We are a transportation company, not a pharmacy, not a website, not a doctor,” Cris Arguedas, a lawyer for FedEx, said at today’s hearing in federal court in San Francisco.

The FedEx investigation is “ongoing” and the government intends by Aug. 28 to present an updated indictment to a federal grand jury probing the company, prosecutors said today in court and in a filing. FedEx has been providing information to a grand jury for six years, Arguedas said.

Internet Pharmacies

FedEx delivered drugs to Internet pharmacies that supplied pills to customers who filled out online questionnaires and were never examined by doctors -- knowing these practices violated federal and state drug laws, the government alleged.

FedEx vowed to fight the charges, saying it can’t be responsible for the contents of the 10 million packages it transports daily and that policing customers would violate their privacy.

“The company has cooperated with the Department of Justice throughout its multiyear investigation,” Arguedas said after today’s hearing. “FedEx will continue to defend its conduct and its people.”

FedEx’s gains from shipments by the pharmacies listed in the indictment were far below the figures cited by the government, Patrick Fitzgerald, a spokesman for the Memphis, Tennessee-based company, said in an e-mail.

Barry Bonds

Arguedas and Allen Ruby, another attorney who appeared in court today for FedEx, were among the lawyers who represented Barry Bonds during the former San Francisco Giants slugger’s perjury and obstruction of justice trial. Bonds was convicted of obstructing a U.S. probe of steroids in professional sports and a mistrial was declared on the perjury charges.

U.S. District Judge Charles Breyer said the case against FedEx will turn on “what were the duties” of the company regarding the pharmacies that were using it to ship drugs.

“What did they know, what didn’t they know, what were they told, what weren’t they told,” Breyer said.

The company said last year that an indictment or prosecution would threaten a basic tenet of its shipping business -- not opening packages. Revenue from online pharmaceutical shipments is a small percentage of total sales, the company previously said. FedEx reported $44.3 billion in revenue for fiscal 2013.

The company said in a Feb. 18 regulatory filing that a conviction could be “material.”

Under the U.S. Controlled Substances Act, a shipping or freight company is allowed to possess and transport drugs “in the lawful and usual course of its business” without registering with drug enforcement authorities. The law regulates the manufacture and distribution of narcotics and certain other drugs and chemicals used in the illegal production of controlled substances.

Consumers are turning to online pharmacies because of the convenience and privacy of purchasing medicines there, and as insurance companies encourage home delivery for long-term medications, according to the U.S. Food and Drug Administration website.

The case is U.S. v. FedEx Corp. (FDX), 14-cr-00380, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Peter Blumberg, Andrew Dunn

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