8 1,7(' 6 7$7(6 ,675,&7 2857 -...

(Briefly describe the property to be seized)

(describe the property)

Applicant’s signature

Printed name and title

: submitted, attested to, and acknowledged by reliable electronic means.

Judge’s signature

Printed name and title

District of Colorado

All funds up to $667,879.00 in Comerica BankAccount # 1852626025, held in the name of

YChrome Holdings

Colorado 18981(a)(1)(A) and (C)

All funds up to $667,879.00 in Comerica Bank Account # 1852626025, held in the name of YChrome Holdings

The facts to support a finding of Probable Cause for issuance of a Seizure Warrant are set forth in the attached affidavitwhich is continued on the attached sheet and made a part hereof.

✔

s/ Kevin T. Fiore

Kevin T. Fiore, FBI Special Agent

X

August 25, 2012 05 Jun 2015

Denver, ColoradoNina Y. WangUnited States Magistrate Judge

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Case 1:15-mc-00121-NYW Document 1 Filed 06/05/15 USDC Colorado of 1

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1

AFFIDAVIT IN SUPPORT OF CIVIL SEIZURE WARRANTS

I, Kevin T. Fiore, a Special Agent with the Federal Bureau of Investigation (“FBI”),

being duly sworn, states as follows:

This Affidavit is submitted in application for civil seizure warrants for the following

subject accounts:

a. All funds over $60,000.00 and up to $4,029,559.60, in Bank of the West

Account # 904002300, held in the name of Darby Brown and Kristen Brown;

b. All funds up to $2,315,000.00 in Pershing Investments Account #

A41218545, held in the name of Darby Brown;

c. All funds up to $5,650,034.40 in Comerica Bank Account # 1852626033,

held in the name of Coordinated Comprehensive Insurance Co.; and

d. All funds up to $667,879.00 in Comerica Bank Account # 1852626025,

held in the name of YChrome Holdings.

GENERAL BACKGROUND

I am a Special Agent with the Federal Bureau of Investigation and have been so

employed for over nineteen years. I am currently assigned to its Denver Division.

Throughout my career, I have investigated matters concerning crimes against the

United States, including numerous and varied healthcare related crimes. I have also

attended basic and continuing training on federal laws and effectuated a wide range of

law enforcement methods when conducting criminal and civil investigations.

The information contained in this affidavit is based upon information personally

known to me as an agent working on this investigation, my previous investigative

experience, and information and observations conveyed to me by other agents involved

Case 1:15-mc-00121-NYW Document 1-1 Filed 06/05/15 USDC Colorado Page 1 of 39

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in this investigation, namely Special Agents of the Federal Bureau of Investigation,

Defense Criminal Investigative Service, Office of Personnel Management, Office of

Inspector General and Drug Enforcement Administration.

Additionally, this affidavit contains information provided through witness

interviews, documents provided by witnesses and Pharmacy Benefit Managers

(“PBMs”), TRICARE and Federal Health Benefit claims data.

Because this affidavit is being submitted for the limited purpose of establishing

probable cause in support of seizure warrants, I have not included each and every fact

known concerning this investigation. The facts set forth are presented to establish

probable cause for the issuance of seizure warrants.

PROBABLE CAUSE TO SEIZE

The following facts and information have been discovered through my own

investigation and the investigations and observations of fellow law enforcement officers

as reported to me.

Case Background

1. This matter has been under investigation by FBI since June 30, 2014.

The federal investigation began after FBI Special Agent Kevin Fiore learned about

Brown’s as a result of a Department of Justice and FBI investigation into a related

matter involving compounding pharmacies. CVS Caremark, which was providing

information for the related investigation, gave Fiore anonymous email complaints that

they had received regarding Brown’s. Fiore subsequently subpoenaed documents

from pharmacy benefit managers, financial institutions, and other entities in order to

understand the corporate structures and financial records of the relevant companies.


3

Fiore also interviewed two patients who had received compounded topical creams

from Brown’s, a former MedHealth Rx employee, and a former Brown’s employee.

Unless otherwise specified, the following information regarding Brown’s and

MedHealth Rx was provided during those interviews or contained in those records.

2. Brown’s is a Colorado-based compounding pharmacy owned by Darby

Brown. Brown’s makes expensive topical creams for which patient copayments

usually run in the several-hundred dollar range. Brown’s custom-tailors these

compounded creams by combining, mixing, or altering the ingredients. On January 1,

2012, billing rules for compounded drugs changed so that compounding pharmacies

could bill for each ingredient in the medication, rather than just for the most expensive

ingredient. As a result, insurance costs and patient copayments went up substantially.

Compounding pharmacies were also able to earn high margins on these products.

3. To entice patients to request prescriptions for these compounded

creams, Brown’s waived or capped the high-dollar patient copayments. Health

insurance companies, however, require health care providers to collect full

copayments, and waiving or capping the copayment amount disqualifies providers

from receiving reimbursement. Brown’s submitted fraudulent claims to insurance

companies indicating that the copayments were made in full, when in fact Brown’s had

waived or capped those copayments. Had Brown’s truthfully reported that

copayments were not collected in full, insurance companies would have rejected its

claims for reimbursement.


4

4. Pharmacy Benefit Managers1, such as CVS Caremark, require

adherence to the terms of the insurance company provider manuals. (For example,

see CVS Provider Manual at page 3: “The Provider Manual is a part of the Caremark

Documents and incorporated into the Provider Agreement with Caremark. Provider

must abide by the provisions and terms set forth in the Provider Agreement.

Nonadherence to any of the provisions and terms of the Provider Agreement (which

includes the Provider Manual and all other Caremark Documents) is a breach of the

Provider Agreement.”). These provider manuals clearly and explicitly set forth

copayment requirements. For example:

Excerpts from CVS CAREMARK Provider Manual 2011-Bapplicable from 1/1/2012 through 12/31/2013

Section and Page

Plan Sponsors determine the Patient Pay Amounts which Provider must collect from an Eligible Person for the Pharmacy Services related to a Covered Item. Patient Pay Amounts vary by Plan Sponsor and/or Plan. Therefore, Provider must collect from the Eligible Person the Patient Pay Amount as indicated by the claims system unless otherwise directed by Caremark or as otherwise permitted under applicable Law. Provider shall disclose to each Eligible Person Provider’s Usual and Customary Price if such Usual and Customary Price is less than the applicable Patient PayAmount. Provider shall allow the Eligible Person to pay either the Usual and Customary Price or the Patient Pay Amount, whichever is lower, unless a Plan otherwise requires. Notwithstanding the foregoing, Provider shall still submit a claim to Caremark, even if the Eligible Person elects to pay the Usual & Customary Price. Providers cannot waive, discount, reduce or increase the Patient Pay Amount communicated by the claims system unless otherwise authorized in writing by Caremark or as otherwise permitted under applicable Law. In addition, if Caremark determines that Provider has charged or collected from an Eligible Person in excess of the Patient Pay Amount communicated by the claims system, Provider must promptly reimburse Eligible Person for the excess amount

“Collection of Patient Pay Amounts,”page 10

1 Pharmacy Benefit Managers (PBMs) act as an intermediary to process requests from pharmacies to insurance providers for payments on covered prescriptions. PBMs pay the costs allowed by the insurance provider plans to the requesting pharmacy and then seek reimbursement from insurance companies.


5

upon request from Caremark. Otherwise has the right to recover said excess amounts or unauthorized fees from the Provider (including by offset against other amounts owing to Provider) and return the recovered amounts to the appropriate Eligible Person.Caremark has the right to submit all prescriptions relating to the Provider Agreement to pharmaceutical companies in connection with Caremark’s rebate programs and any similar programs. Provider must not submit any of the prescriptions relating to the Provider Agreement to any pharmaceutical company for the purpose of receiving any rebate, discount or the like except as authorized by Caremark in writing.

“Rebate Programs,”page 38

5. A subsequent CVS CAREMARK Provider Manual (2013) went into effect

on January 1, 2014, and uses the same verbiage for both the Collection of Patient Pay

Amounts and for the Rebate Programs.

6. In addition to the Provider Manuals described above, CVS Caremark

also sent out periodic “Audit Tips” that were included in pharmacies’ invoices for

payments and were provided during audits. A CVS Caremark Audit Tip that was sent

in April 2012 was titled Collecting Copays. The Audit Tip highlighted areas in the

provider manual and gave more detail information, including the following:

Copays required to be collected:

Providers contracted with Caremark are required to collect member

copays. The Copay amount is the amount as determined by each

health plan and is messaged to the pharmacy on the adjudicated claim

transaction. Providers must collect the copay or Patient Pay Amounts

as indicated by the claims system unless otherwise directed by

Caremark or otherwise permitted under applicable law.

Copays should not be discounted, waived, reduced or increased unless

otherwise directed by Caremark or permitted under applicable law.


6

Discounts – Pharmacies cannot discount the Patient Pay Amount or

copay and should not discount the copay in an attempt to gain

business.

Waive – Waiving copays is prohibited, even if the copays are low

dollars. Pharmacies have been found to waive all copays <$10 in an

attempt to steer members to use their pharmacy. Pharmacies should

also not pay copays on member’s behalf.

Reduce – Pharmacies should not provide coupons to discount copays.

Increase – Pharmacies cannot increase the copay collected amount

from the adjudicated claim amount. Items not considered part of the

copay amount that may be charged to the member include cost to add

favoring to a child’s medicine or charges for delivering the prescription.

Pharmacies that alter copays can be cited for failure to comply with the

Caremark Provider Manual and applicable federal requirements and

run the risk of actions including of corrective actions plans, fines and/or

termination.

7. Express Scripts, another Pharmacy Benefit Manager, similarly requires

providers to adhere to the terms of insurance company provider manuals. (For

example, the February 1, 2013 Express Scripts Provider Manual states: “Network

Provider must comply with the provisions and terms set forth in the Provider

Agreement, which includes the terms, conditions, and processes contained in this

Provider Manual and in the Payer Sheets.”) Those manuals prohibit waiving or

discounting a patient copayment. For example:


7

Excerpts from Express Scripts Provider Manual applicable from 02/01/2013 through 08/01/2013

Section and Page

Sponsors determine the Copayment amounts that are to be collected by Network Providers for the provision of Covered Medications. Copayment amounts vary from Sponsor to Sponsor and/or Prescription Drug Programs. Network Provider shall ensure that the Copayment is the correct amount charged to the Member and is not changed or waived.

“Collection of Copayments,” page 15


Section and Page

Sponsors determine the Copayment amounts that are to be collected by Network Providers for the provision of Covered Medications. Copayment amounts vary from Sponsor to Sponsor and/or Prescription Drug Programs. Network Provider shall ensure that the Copayment is the correct amount charged to the Member and is not changed or waived.

“Collection ofCopayments,” page 15


Section and Page

Sponsors determine the Copayment amounts that are to be collected by Network Providers for the provision of Covered Medications. Copayment amounts vary from Sponsor to Sponsor and/or Prescription Drug Programs. Network Provider shall ensure that the Copayment is the correct amount charged to the Member and is not changed or waived. Network Provider may not institute Member copayment discount programs or otherwise alter a Member Copayment, unless such waiver or discount is required by law. If PBM becomes aware of any copayment or cost-sharing discounts being offered by Network Provider – either through audit, investigation, Member statements, or review of Network Provider’s website or other advertising materials – Network Provider may be subject to immediate termination. For clarification, if PBM identifies fliers, advertisements, or other statements from Network Provider suggesting that copayments will be a flat fee or that copayments will be discounted, capped, or waived will result in termination of Network Provider.

“Collection of Copayments,” page 16

A. Secondary Insurance Scheme/MedHealth Rx

Overview of Scheme

8. Beginning in March 2013, Brown’s reported to primary insurance

companies that a secondary insurance provider had paid the balance of the patient’s


8

copayment for the expensive topical creams. In fact, this “secondary insurance

provider” was no more than a shell company called “MedHealth Rx” that was created

by Freedom Pharmaceuticals, a bulk chemical supplier who profited by providing

ingredients to compound pharmacies like Brown’s.

9. The MedHealth Rx scheme worked as follows: MedHealth Rx would pay

the balance of the copayment by withdrawing an Automated Clearing House (“ACH”)

payment from Brown’s that was equal to the patient’s copayment balance. Brown’s

would then submit to PDMI2 for a copayment assistance rebate equal to the patient’s

copayment balance. PDMI would submit the rebate request to MedHealth Rx, which

would pay PDMI the amount of the rebate request. Then, PDMI would forward that

rebate to Brown’s, less a service fee.

10. MedHealth Rx charged compounding pharmacies $6,500 annually, plus

$4 per qualifying claim and a 3% processing fee on each qualifying claim. Thus, the

net effect would be a rebate to Brown’s for the copayment amount they had paid, less

the service fee.

Illustrative Example of a $2000 prescription cost with a $600 copayment:

Phase 1: Doctor prescribes patient a Brown’s compounding cream based on

information provided by a Brown’s sales representative that patient will pay

only a $15 copayment.

Phase 2: Patient gets prescription and pays $15.

2 Pharmacy Data Management Inc. (PDMI) is a rebate processor for MedHealth Rx. Through the MedHealth Rx rebate scheme, PDMI received rebate requests from participating pharmacies for rebates for compounded drugs bearing a Freedom Pharmaceuticals National Drug Code (NDC). PDMI would then process these requests, receive payments from MedHealth Rx, and then remit the rebate payment to the requesting pharmacy. MedHealth Rx was created by the owners of Freedom Pharmaceuticals.


9

Phase 3: Brown’s reports that a Secondary Insurance, “MedHealth Rx” paid

remaining copayment balance of $585.

Phase 4: MedHealth Rx withdraws a $585 ACH payment from Brown’s. This

withdrawal is part of the deception that a secondary insurance program exists

and payments are made to that insurance.

Phase 5: Brown’s makes an insurance claim for $1400 and tells the primary

insurance provider that copayment was made in full by a combination of

patient and secondary insurance. Because of MedHealth Rx, Brown’s can

show that a payment was made to cover the $585 balance.

Phase 6: Brown’s seeks a rebate of $585 from PDMI. PDMI forwards the

rebate claim to MedHealth Rx.

Phase 7: MedHealth Rx accepts the rebate claim and pays PDMI $585 (minus

fees).

Phase 8: PDMI sends the $585 (minus fees) back to Brown’s.


10

11. This circular refund scheme involving Brown’s, MedHealth Rx, and PDMI

enabled Brown’s to defraud the primary insurance companies into paying out claims

for Brown’s high-margin and profitable topical creams.

12. MedHealth Rx, registered on July 26, 2012, with the State of Missouri

Secretary of State, functioned as a shell company for Freedom Pharmaceuticals.

MedHealth Rx is not registered as a manufacturer, pharmacy, or insurance company.

MedHealth Rx described itself on Private Bank and Trust account information as a

compound and specialty pharmaceutical data and marketing business.

13. MedHealth Rx’s patient enrollment form explained that it was a

‘Coordination of Benefits’ Program that would reduce patients’ out of pocket expenses

for prescription drugs to between $15 and $40, at no cost to the patient. Pharmacies

which used MedHealth Rx would report to primary insurance companies that patients’

copayments were collected in full based on receiving (1) $15 to $40 from the patient

Brown’s

MedHealth Rx

Insurance (through PBM)

Patient pays $15

MR

ACH $585

Pays $1,400after Brown’s reports copay made in full

$585 rebate

$585 rebate

rebate processor PDMI

P


11

and (2) the balance of the copayment from a secondary insurance provider under a

Coordination of Benefits.

14. From April 1, 2013 to May 23, 2014, the scheme cost primary insurance

companies at least $3,700,393. From January 1, 2012 to April 1, 2013, the scheme

cost CVS Caremark and Express Scripts at least $1,701,474. (During that time,

Brown’s billed CVS Caremark $623,244 and Express Scripts $926,008 for Brown’s

topical pain creams with copayments above $60.)

PBM Audits

15. Insurance records from two major Pharmacy Benefit Managers –

Express Scripts and CVS Caremark – show that from January 1, 2012 to July 31,

2014, Brown’s billed insurance companies for high dollar topical pain and scar

creams.

16. In April 2014, Express Scripts and CVS Caremark began to receive

email complaints from an individual who said s/he worked at Brown’s. S/he said that

Brown’s was committing insurance fraud by enticing patients to purchase high dollar

medications, Brown’s would either waive or cap the patient copayment. As discussed

above, under the terms of Pharmacy Benefit Manager Provider Manuals relied upon

by CVS Caremark and Express Scripts, Brown’s is required to collect the patient

copayments in full. The Manuals prohibit Brown’s from waiving, capping, or altering

the patient copayment.

17. Based on the information in the email complaints, Express Scripts and

CVS Caremark independently conducted patient surveys to determine if Brown’s was

engaging in fraudulent billing activity. The questionnaires sought information about


12

how much patients paid for the medication, whether Brown’s offered a copayment

discount program, and, if so, how patients qualified for the program. Both surveys

indicated that Brown’s was either waiving or capping patient copayments.

18. Express Scripts and CVS Caremark then conducted audits of Brown’s.

On May 19, 2014, Express Scripts conducted an online audit and acquired sales

receipts showing that patients paid a $15 copayment and a “SECONDARY INS

PAYMENT” accounted for the balance of the copayment. Express Script never

learned who provided the secondary insurance for the audited claims.

19. On May 17, 2014, CVS Caremark conducted an on-site audit of Brown’s.

The auditor questioned several different employees of Brown’s about the pharmacy’s

policies governing waiving and discounting copayments. Individuals at Brown’s gave

conflicting and contradictory answers. The auditor reviewed claims with the pharmacy

manager and found that most patient records showed that the patient had paid less

than the stated copayment. In response to questioning, no one at Brown’s was able

to explain who provided the secondary insurance for the copayments. During the on-

site audit, Brown’s Office Manager Bill Goble advised that Brown’s had had no

payment plans in place since April 2013.

20. On September 4, 2014, Special Agent Fiore interviewed Jennifer Ferrell,

a former Brown’s employee. She verified that Brown’s specialized in pain creams.

She said that she was part of a 15 person out-of-state call center that only filled pain

cream prescriptions. According to Ferrell, prior to October 2013, Brown’s would

collect approximately $15-$60 of a patient’s copayment and would waive any

remaining balance.


13

21. Ferrell also recalled that sometime after October 2013, Brown’s entered

into an agreement with MedHealth Rx that worked as some type of patient assistance

program. Ferrell stated that MedHealth Rx was not an insurance company, but acted

like a Coordinator of Benefits. MedHealth Rx did not cost the patient any money, and

by using MedHealth Rx, patients’ maximum copayments would not exceed $35.

22. A review of Brown’s claims to Express Scripts and CVS Caremark shows

that after March 2013, Brown’s began to report that a secondary insurance provider

acted as a Coordinator of Benefits that would pay the balance of the patient’s

copayment. Brown’s Bank of the West financial records show that Brown’s made

ACH payments captioned “Valunet Health Brown’s” to a Private Bank and Trust

account named “Valunet Health dba MedHealth Rx.” Between April 8, 2013 and June

16, 2014, Brown’s paid $3,750,821 to this account. Brown’s Bank of the West records

also show that PDMI made deposits to Brown’s totaling $3,496,115 between May 3,

2013 and June 16, 2014. The difference between what Brown’s paid to MedHealth Rx

and what PDMI deposited in Brown’s account represents service fees Brown’s paid to

both MedHealth Rx and PDMI.

23. PDMI records indicate that Brown’s sent 31,000 claims to PDMI between

March 26, 2013 and May 23, 2014.

Interview with former MedHealth Rx employee

24. In an interview on April 20, 2015 with Special Agent Kevin Fiore, Jillian

May, a former MedHealth Rx employee, said that she, Adam Hait (interim MedHealth

Rx president), and Jessie Moore (MedHealth Rx employee), all advised Jake Jackson

(owner of MedHealth Rx, former owner of Freedom Pharmaceuticals, and president of


14

Fagron North America), and attorneys at Frier & Levitt, that the circular refund was not

legal. May advised that Hait felt so strongly about the business not being run right

that he stopped all MedHealth Rx operations in December 2013. According to May,

Hait was then let go from MedHealth Rx. May also said that the purpose of

MedHealth Rx seemed to be to reduce beneficiaries’ out-of-pocket expenses and to

increase the sales of Freedom Pharmaceuticals.

25. MedHealth Rx, by appearing to function as a secondary insurance

provider that pays the balance of patient copayments, allowed Freedom

Pharmaceuticals to increase their sales of compounded drugs, since patients would

not otherwise be able to afford these medications.

B. The Business Entities

Brown’s Compounding Center

26. Brown’s Compounding Center Inc., located at 13796 Compark Boulevard

in Englewood, Colorado 80112, is registered with the Colorado Secretary of State as a

compounding pharmacy and is owned by Darby C. Brown. On May 15, 2015, Special

Agent Kevin Fiore verified with the Colorado Department of Regulatory Agencies that

Brown’s is listed as an active prescription drug outlet and manufacturer.

Freedom Pharmaceuticals

27. Freedom Pharmaceuticals supplies raw materials, excipients, bases and

capsules to independent compounding pharmacies. As described below, the owners

of Freedom Pharmaceuticals created MedHealth Rx.

28. According to records subpoenaed from PDMI, Brown’s requested and

received rebates from MedHealth Rx only for compounded drugs bearing a Freedom


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Pharmaceuticals National Drug Code (“NDC”). An NDC is a unique 10-digit number

that is similar to a bar code. It identifies the manufacturer of, and products in, a drug.

All payments by PDMI to Brown’s for rebates from MedHealth Rx were for

compounded drugs supplied by Freedom Pharmaceuticals.

29. According to the MedHealth Rx Administrative Services Agreement with

pharmacies, participating compounding pharmacies were required to use Freedom

Pharmaceutical NDCs in order to receive the rebates from MedHealth Rx through

PDMI. The MedHealth Rx contract also states that by using MedHealth Rx, members,

like Brown’s, would be offered additional discounts on Freedom Pharmaceuticals

products.

MedHealth Rx

30. A review of MedHealth Rx contracts shows:

a. Patient copayments were based on the number of Freedom

Pharmaceutical Products contained in the medication. (Specifically: 0

Freedom ingredients = $40; 1 Freedom ingredient or Dry Powder Inhaler

(DPI) element = $35; 2 Freedom ingredients or DPI elements = $25; 3 or

more Freedom ingredients or DPI elements = $15).

b. MedHealth Rx charged compounding pharmacies $6,500

annually, plus $4 per qualifying claim and a 3% processing fee on each

qualifying claim.

c. How to report to primary insurance that the patient copayment

was made in full by listing a Coordinator of Benefits.

d. How to file for a rebate to recover the payment made to


16

MedHealth Rx in order to give the impression that a Coordinator of

Benefits paid the balance of the copayment.

Key Individuals

31. According to numerous documents and sources described below, the

primary owners, controllers and operators of MedHealth Rx were, Jacob a.k.a. “Jake”

G. Jackson, Kasey Jackson, Joe Jackson (Jake Jackson’s father), Clayton J. Pummill,

Adam C. Hait and Keith D. Butcher.

32. The MedHealth Rx contracts explain that PDMI acts as the rebate

processor for MedHealth Rx. PDMI records show that MedHealth Rx was a client of

AmerisourceBergen, a leading specialty pharmaceutical service provider that partners

with manufacturers.

33. On January 12, 2015, Special Agent Fiore interviewed Rick Goebel, the

Vice President and General Manager of Pharmacy Benefits Account Services at

AmerisourceBergen. Goebel said that an individual named Jake Jackson approached

AmerisourceBergen and represented himself as the owner of Freedom

Pharmaceuticals, which Jake Jackson described as a manufacturer of expensive

compounded pharmaceutical products. Jake Jackson told Goebel that he wanted to

help offset patient expenses with a copayment assistance program. Goebel said that

AmerisourceBergen agreed to assist MedHealth Rx in establishing such a program.

Jake Jackson placed Clayton Pummill in charge of setting up the copayment

assistance program. According to Goebel, Pummill, Joe Jackson, and Adam Hait

worked together and with others, to set up the copayment assistance plan with PDMI.


17

34. According to an interview in PMQuarterly magazine from summer 2013,

Jake and Kasey Jackson are married and are the original owners and creators of

Freedom Pharmaceuticals. As discussed above, Freedom Pharmaceuticals supplies

raw materials, excipients, bases and capsules to independent compounding

pharmacies. Jake and Kasey Jackson met at the University of Missouri Law School,

and after getting married, worked at Kasey’s father’s compounding pharmacy in Tulsa,

Oklahoma. In the summer of 2010, Jake opened Freedom Pharmaceuticals. The

Freedom Pharmaceuticals website lists Kasey Jackson as the company’s General

Counsel.

35. According to financial records for MedHealth Rx from Private Bank and

Trust, Feras Capital is the owner of MedHealth Rx. These documents show that, as of

July 2012, Feras Capital had one owner with 20% plus ownership – an entity called

Caneel Bay that was solely owned by Jake Jackson. Private Bank and Trust records

show that Jake Jackson, Kasey Jackson, Joe Jackson, Keith Butcher, Adam Hait and

Clayton Pummill all had signature authority at one time or another on the MedHealth

Rx Private Bank and Trust account.

36. According to an article dated April 25, 2013, by Arseus (a publicly traded

multinational group of companies located in Waregem, Belgium and headquartered in

Rotterdam, Netherlands) posted on Reuters and entitled “Arseus: Acquisition of

United States based Freedom Pharmaceuticals,” Freedom Pharmaceuticals more

than tripled its sales, product offering and personnel in 2012. That is also the year

when the billing methodology changed so that compounding pharmacies could bill for

each individual ingredient, instead of just for the most expensive ingredient. 2012 is


18

also the year that MedHealth Rx was created. The article explains that on January 4,

2013, Arseus acquired Freedom Pharmaceuticals for 5.5 times EBITDA (earnings

before interest, taxes, depreciation, and amortization).

37. MedHealth Rx closed its doors in May of 2014, and then reopened as

United Compounding Network LLC in approximately July of 2014. On May 15, 2015,

Special Agent Kevin Fiore confirmed with the Missouri Secretary of State that United

Compounding Network LLC is listed as an active business.

38. United Compounding was registered on November 22, 2013, and is

located at 130 South Bemiston Ave., Suite 300, Clayton, Missouri 63105. On July 21,

2014, United Compounding opened a bank account at Private Bank and Trust. The

signors on the account are listed as: Keith Butcher, member; Jacob Jackson, member;

Joe Jackson, member; Kasey Jackson, secretary. Jake Jackson is listed as owning

90% of United Compounding and Keith Butcher as owning 10%. According to an

interview of a former employee at MedHealth Rx, MedHealth Rx changed its name to

United Compounding due to a pending lawsuit. On November 20, 2014, United

Compounding Network LLC changed its name to United Compounding Management.

39. On April 28, 2015, Jillian May contacted United Compounding

Management, the former location of MedHealth Rx. May attempted to retrieve her

personnel files and other information of hers from MedHealth Rx. May was informed

United Compounding Management no longer had any MedHealth Rx records and she

was directed to talk to Clayton Pummill. On May 5, 2015, May contacted Clayton

Pummill who advised that he had the MedHealth Rx records stored in a secure

storage location and that if May wanted he could get the records.


19

40. According to PMQuarterly Magazine and a search of publicly available

internet records for lawyers in St Louis, Missouri, Clayton J. Pummill graduated from

the University of Missouri Law School in 2007 and, with Jake Jackson, opened

Jackson Pummill LLC Attorneys at Law, located at 225 S. Meramec Ave. in St. Louis,

Missouri 63105. Pummill is the registered agent for ValuNet Health and MedHealth

Rx. Pummill also lists himself on Private Bank and Trust financial records as the

President and CEO of MedHealth Rx. The MedHealth Rx contracts for compounding

pharmacies list Pummill as the President of Valunet Health LLC d/b/a MedHealth Rx.

The MedHealth Rx contract states that all contracts and patient enrollment forms

should be sent to Clayton Pummill by certified mail to 130 South Bemiston Ave., Suite

300, Clayton, Missouri 63105 (MedHealth Rx location), or emailed to

[email protected], or faxed to (314) 677-1266. The contracts provide patients and

doctors with the phone number (855) 336-3379 to call if they have questions. This

same phone number, according to a domain search on Whois-History.com, is also

associated with Ferascapital.com, and the administrative contact listed on the website

domain search is Kasey Jackson. The (855) 336-3379 phone number is also listed on

a letter dated May 23, 2014 from Clayton Pummill (president of MedHealth Rx) to

pharmacy members that stated that MedHealth Rx had ceased all financial

transactions with Freedom.

41. Department of Labor and Employment records show 6 quarterly earnings

reports for Pummill from ValuNet Health LLC from second quarter 2013 to third

quarter 2014 for a total of $289,843. Clayton Pummill was the registered agent for the

filing of corporate records for Feras Health, Valens Holdings, ValuNet Health,


20

MedHealth Rx and Feras Pharmaceuticals. The addresses used by Pummill for filing

with the State of Missouri were both his personal residence and 130 South Bemiston

Ave., Suite 300, Clayton, Missouri, 63105 – which was the location of MedHealth Rx.

42. According to State of Missouri Secretary of State corporate records,

Adam Hait is the owner of numerous corporations, including MedHealth Rx, ValuNet

Health, Feras Capital, Feras Health and Feras Pharmaceuticals. Hait’s LinkedIn page

states that Feras Capital is the principal investment arm of Butcher Joseph Capital

Advisors LLC, specializing in healthcare with a focus on the pharmacy compounding

industry. Feras Health LLC’s website states that it was formed in 2013 by compound

industry leaders to create and invest in companies that provide solutions to the

compound pharmaceutical industry. The website explains that Feras Health, LLC

includes: MedHealth Rx, Feras Pharmaceuticals and United Compounding Network.

Clayton Pummill acted as the registered agent for filing corporate records with the

State of Missouri for all of the above listed companies.

43. Private Bank and Trust records dated October 14, 2013, list Adam Hait

as the president of MedHealth Rx. In interviews with Special Agent Fiore, Rick

Goebel (from AmerisourceBergen) and Kaitlin Lefler (a former employee of MedHealth

Rx) said that the president of MedHealth Rx temporarily changed from Pummill to

Hait. Goebel and Lefler both said that Pummill stepped down as MedHealth Rx

president after his wife gave birth to twins. Hait stepped in as president for a short

time and then left MedHealth Rx once Pummill came back as MedHealth Rx

president. Pummill was the president of MedHealth Rx until its closure in May 2014.

44. Keith Butcher is a partner at Butcher Joseph Hayes, an investment bank


21

headquartered in St Louis, Missouri. According to financial records for Private Bank

and Trust, Butcher was listed as CEO of MedHealth Rx on September 13, 2013, and

as president of MedHealth Rx on October 14, 2013. Butcher’s firm also represented

Jake Jackson’s company Freedom Pharmaceuticals in its sale to Arseus in April 2013.

After MedHealth Rx closed its doors in May 2014, Butcher was involved in opening

United Compounding. On July 7, 2014, Private Bank and Trust opened an account for

United Compounding. The financial records list Butcher as a member with signature

authority on the account and an owner of 10% of the company. According to Lefler (a

former employee of MedHealth Rx), Butcher’s stepdaughter Elizabeth English worked

at MedHealth Rx and handled the contracts with compounding pharmacies.

45. In May 2014, all MedHealth Rx employees were brought into a

conference room and given severance checks. Lefler heard rumors from other

MedHealth Rx employees that the reason for the severance checks was that

MedHealth Rx had legal issues with Express Scripts. Lefler also heard rumors from

other MedHealth Rx employees that MedHealth Rx just reopened its doors as United

Compounding doing the same work and that some employees such as Elizabeth

English, stayed on.

FALSE CLAIMS, FALSE STATEMENTS, MAIL FRAUD, WIRE FRAUD, AND

HEALTHCARE FRAUD

A. Federal Employees Health Benefits Program (FEHBP)

46. The Federal Employees Health Benefits (FEHB) Program was

established by the Federal Employees Health Benefits Act of 1959 to provide health

benefits to federal employees, annuitants and their dependents (the “enrollees”). The


22

Office of Personnel Management (OPM) contracts with carriers for Experience-Rated

plans like the Blue Cross and Blue Shield Association (Blue Cross) and the American

Postal Workers Union (APWU) and community-rated plans like health maintenance

organizations, to offer these benefits.

47. Enrollees and the federal government split the cost of premiums, with the

United States paying about 75%. These premiums are deposited in a special trust

fund in the United States Treasury.

48. Contracts with Experience-Rated carriers like Blue Cross and APWU are

cost plus fixed fee contracts. These carriers are reimbursed for the cost of benefits

provided to enrollees, the cost of plan administration, and a fixed profit. They draw

down from their portion of the trust fund in the United States Treasury on a daily basis

dollar for dollar for their daily benefit and administrative costs. They receive their profit

on a monthly basis.

49. Enrollees, either directly or through their health care providers or

suppliers, submit bills for medical care services or supplies to their Experience-Rated

carrier. The carrier pays the claim if appropriate and draws down upon their portion of

the trust fund in the United States Treasury for the reimbursement on the same day

the claim payment check clears.

50. The premiums for Experience-Rated plans are based on the estimated

cost of the total benefits provided to all of the enrollees and the total cost of the plan

administration plus the fixed profit. If the actual cost is less than the estimated cost,

the difference is kept in the trust fund and used to reduce future premiums. Enrollees

and the government will never receive a premium refund from the trust fund.


23

51. Medicare, FEHBP, TRICARE and other government and private

insurance carriers that pay the claims of providers, also accept claims through

electronic data interchange (EDI). These electronically submitted claims essentially

contain the same informational data as “paper” claims filed on a CMS 1500.

52. EDI claims are received and adjudicated via an EDI interface with the

health insurance company’s claims processing system. Providers are issued a unique

identifier under which to submit EDI claims and sign a contract dictating the manner in

which EDI claims are submitted, received and processed.

53. Medicare, FEHBP, TRICARE and other government and private

insurance carriers establish EDI contracts that require that the provider be responsible

for all claims submitted by itself, its employees, or its agents; will ensure that every

electronic entry can be readily associated and identified with an original source

document reflecting the insured’s name, health insurance contract number, date(s) of

service, diagnosis/nature of illness, and procedure/service performed; will submit

claims that are accurate, complete, and truthful; will retain all original source

documentation and medical records pertaining to any such particular claim for a

period of at least six years; will affix the unique identifier number (submitter identifier)

of the provider on each claim electronically transmitted; that the unique identifier

number (submitter identifier) constitutes the provider’s legal electronic signature and

constitutes an assurance by the provider that services were performed as billed and

that it will acknowledge that the submission of such claims is a claim for payment and

that anyone who misrepresents or falsifies or causes to be misrepresented or falsified

any record or other information relating to that claim, upon conviction, be subject to a


24

fine and/or imprisonment.

54. The information provided below demonstrates that Brown’s fraudulently

reported patient copayments to the Federal Employees Health Benefits Program

(“FEHBP”), in violation of 18 U.S.C. §§ 1035, 1341, 1343, and 1347. As described

above, Brown’s fraudulently reported these copayments in order to receive payment

from FEHBP on high-dollar insurance claims. In accordance with Pharmacy Benefit

Manager manuals, FEHBP would have denied Brown’s claims had it known that

Brown’s had not collected the full copayment.

55. Officer of Personnel Management records show that between January 1,

2012 and August 1, 2014, Brown’s billed the FEHBP health insurance program

approximately $3,565,419 and was paid $2,493,776. During that time, Brown’s

reported beneficiary copayments of $1,178,914.

56. FEHBP patients who were interviewed said they did not pay the listed

copayment amounts that Brown’s claimed they paid. Additionally, a former Brown’s

employee stated that Brown’s did not collect copayments above $60 before

MedHealth Rx was established, and that MedHealth Rx functioned as a shell

company that gave the appearance of paying copayments.

57. Listed below is data from CVS Caremark for FEHBP claims before

Brown’s joined MedHealth Rx. During this time period, Brown’s would charge the

patient a copay of up to $50 and simply waive any remaining patient copayment.

Brown’s would fraudulently state through electronic communications to Pharmacy

Benefit Managers seeking reimbursement from insurance companies (such as

FEHBP), that the required copayment had been met. The chart below contains


25

examples of the capping or waiving of copayments prior to MedHealth Rx’s existence.

1 2 3 4 5 6 7 8 9Carrier

[Ins. Co.]

Claim Number Patient ID # Drug Name RX Number Fill Date Total Rx

CostRequired Co-Pay

Actual Amt.Paid

BCBS 120190901050895 R5990555001 Ketamine HCL 132430 1/9/12 $2,162.66 $1081.83 $0

BCBS 130391024094472 R5986141302 Gabapentin 172170 2/5/13 $1,486.25 $766.13 $50BCBS 130491218526511 R5097216404 Gabapentin 174514 2/21/13 $1,544.62 $715.78 $50BCBS 130790284961730 R5820365701 Gabapentin 179154 3/25/13 $1,660.28 $767.83 $50BCBS 122190331029066 R5821819502 Gabapentin 157243 10/9/12 $1,544.62 $477.19 $50BCBS 130290939466026 R5821819502 Gabapentin 157243 1/21/13 $1,544.62 $715.78 $0

BCBS 121791102619527 R5915622402 Ketamine HCL 151297 8/22/12 $2,515.61 $768.48 $50

58. Column 9, which indicates the actual copay the patient provided, was

obtained through CVS Caremark surveys of patients.

59. According to these surveys, patients did not pay the required copay that

Brown’s reported (Column 8). For example, Patient R5915622402 responded to a

CVS Caremark survey letter dated July 1, 2013 concerning RX # 151297. The patient

said s/he had paid a $50 co-pay and commented that “the co-pay amt you show is

outlandish. I would never have paid that.” On November 19, 2014, Special Agent

Fiore contacted patient R5990555001 concerning RX 132430. The patient advised

that his doctor gave him a sample. The patient asked about the cost of the

medication, and the doctor said the sample was free. The patient said that he would

never have paid the listed copayment, which is why he originally asked how much the

prescription would cost.

60. PDMI provided the data in the chart below concerning insurance claims

submitted to FEHBP by Brown’s. Brown’s sent this data to PDMI to receive a “rebate”

from MedHealth Rx. The amount Brown’s received from PDMI is listed in the

MedHealth column (column 6). The sum of the amount Brown’s received from PDMI

(column 6) and the amount the patient paid (column 7) reflects the actual amount of


26

the copayment that the patient should have paid (column 8), as required by the

primary insurance company. Column 9 reflects the amount the FEHBP insurance

plan paid for the medication.

1 2 3 4 5 6 7 8 9Sponsor

NameMember ID

#Prod Abbr Rx Date Rx # MedHealth Patient

PaidTotal

CopayInsurance

PaidMedHealth R5893349501 Ketamine

HCL POW 2/13/14 246546 $112.92 $15 $127.92 $127.92

MedHealth R5905387801 Gabapentin POW 12/27/13 237585 $311.83 $15 $326.83 $326.83

MedHealth 529847574 Gabapentin POW 11/18/13 228686 $418.06 $15 $433.06 $529.29



61. On July 3, 2014, Special Agent Fiore interviewed Patient R5893349501

concerning RX Number 246546. The patient stated that s/he never enrolled in

MedHealth Rx and paid only $15 for the prescription.

B. Private Insurance Companies

62. The information provided below demonstrates that Brown’s also

fraudulently reported patient copayments to private insurance companies, in violation

of 18 U.S.C. §§ 1341 and 1343. As explained above, Brown’s fraudulently reported

these copayments in order to receive payment from private insurance companies on

high-dollar insurance claims. In accordance with pharmacy benefit manager manuals,

private insurance companies would have denied Brown’s claims had they known that

Brown’s had not collected the full copayment.

63. Before and up to April 2013, Brown’s charged private insurance

members a fee based on the number of grams of compounding material contained in

the medication, with a maximum out-of-pocket charge of $50. This amount was a

capped amount and not the actual amount that was specified by the PBMs.


27

64. Listed below are some private insurance claims made after April 2013.

This data was provided by Express Scripts and cross referenced with PDMI records.

1 2 3 4 5 6 7 8

Carrier[Ins. Co.] Member ID# PROD

DescriptionRX

DATE RX #Stated

Amt. Paid by MedHealth

Actual Amt.

PatientPaid

Amt. Insurance

Paid

Premera Blue 600918258 Ketamine

HCL POW 2/10/14 247254 $870 $30 $900

FluorCorp 526665407552 Ketamine

HCL POW 3/27/14 257667 $585 $15 $600

Wal-Mart 06715770w Flurbiprofen POW 2/26/14 250839 $585 $15 $1,400

WS ShareSVC

220064529 Ketamine HCL POW 3/31/14 258470 $585 $15 $600

Well Actives 880320140 Ketamine

HCL POW 2/25/14 250800 $585 $15 $1,400

Univ Of Missouri

PPO466553989377 Ketamine

HCL POW 3/31/14 258566 $585 $15 $2,092

65. As part of the June 14, 2014 audit of Brown’s by Express Scripts,

Brown’s provided billing statements for the above listed patients. All patient billing

statements provided by Brown’s to Express Scripts listed an unnamed secondary

insurance payment that covered the patient’s balance of the required copayment. The

data provided by PDMI shows what Brown’s submitted in order to receive a “rebate”

from MedHealth Rx. The sum of the amount Brown’s received from PDMI (column 6)

and the amount the patient paid (column 7) is the actual amount of the copayment that

should have been collected as required by the primary insurance company.

66. In May 2014, members bearing ID numbers 600918258, 526665407552

and 466553989377 responded to an Express Scripts survey question that asked if

Brown’s offered a discount program and whether that discount program required any

supporting information to join. These members responded no to both questions.

(Though one member, ID 880320140, responded to the same Express Scripts survey


28

in May 2014 and advised that a discount program was offered and information was

provided to join the program.)

Money Laundering

67. The information provided below demonstrates that Brown’s, MedHealth

Rx, and PDMI laundered money. All of the transactions of criminally derived funds in

excess of $10,000 are in violation of 18 U.S.C. § 1957.

68. Brown’s has a Bank of the West account numbered 904002300, and

MedHealth Rx has two Private Bank and Trust accounts (numbered 2328098 and

2327903).

69. Brown’s used Bank of the West #904002300 to make payments to

MedHealth RX via ACH withdrawals. From April 2013 to June 2014, Brown’s financial

records show 64 payments in excess of $10,000 to MedHealth Rx for a total payment

amount of $3,750,821 to MedHealth Rx’s Private Bank and Trust account # 2327903.

70. Brown’s received payments for rebate claims submitted to PBMI. PDMI

would be paid by a MedHealth Rx Private Bank & Trust account for these rebate

claims. PDMI would then remit payment to Brown’s. PDMI made 51 payments to

Brown’s Bank of the West account # 904002300 in excess of $10,000 for a total

payment amount of $3,496,115.

71. Private Bank and Trust financial records for account # 2328098 indicate

that this MedHealth Rx account was primarily used by multiple pharmacies to deposit

funds for reimbursement through PDMI. A total of $19,956,970 passed through the

account from July 15, 2013 to October 6, 2014. The authorized signors on Private

Bank and Trust account # 2328098 titled ValuNet Health LLC, d/b/a MedHealth RX


29

were Adam Hait, Clayton Pummill, Keith Butcher, Jacob Jackson and, Kasey Jackson.

72. The address used to establish Private Bank and Trust account #

2327903 was Pummill’s personal residence, and Pummill is also listed as the

President of ValuNet Health. The authorized signors on Private Bank and Trust

account # 2327903 titled ValuNet Health LLC, d/b/a MedHealth RX were Clayton

Pummill, Keith Butcher, Jacob Jackson, and Kasey Jackson.

Conspiracy

73. The information provided above and below demonstrates that Jacob

Jackson, Kasey Jackson, Joe Jackson, Adam Hait, Clayton Pummill, Keith Butcher,

Darby Brown, and other unknown co-conspirators conspired to defraud both private

and government insurance plans for high dollar medication by falsely reporting that

patient copayments were made in full through a combination of patient out-of-pocket

payments and by MedHealth Rx, in violation of 18 U.S.C. § 1349.

74. MedHealth Rx was a no-cost service to patients. Funds that Brown’s

sent to MedHealth Rx were simply refunded to Brown’s through PDMI, less fees. The

conspirators created corporate and non-corporate entities in an attempt to hide the

true owners of the companies. The conspirators utilized PDMI – an unwitting

pharmacy switch agency – and AmerisourceBergen to give the impression that the

copayment assistance program was part of a legitimate manufacturer program.

75. Brown’s Bank of the West account had $3,750,821 in ACH withdrawals

made to MedHealth Rx’s Private Bank and Trust Bank account. Brown’s Bank of the

West account received $3,496,115 from PDMI as a result of requests for the

MedHealth Rx copayment assistance program. The difference between the amount


30

Brown’s paid to MedHealth Rx and the amount PDMI deposited in Brown’s account

represents service fees Brown’s paid to both MedHealth Rx and PDMI.

76. According to records for Private Bank and Trust Account # 2327903, this

account was primarily used by pharmacies to deposit funds for reimbursement

through PDMI. A total of $19,956,970 passed through the account from July 15, 2013

to October 6, 2014.

ACCOUNTS

Bank of the West Account # 904002300

77. Darby Brown opened the subject Bank of the West Account # 904002300

on June 2, 2004 and is a signer on the account along with his wife, Kristen Brown.

78. Bank of the West Account # 904002300 is Brown’s primary operating

account. From January 2012 to July 2014, this account received in excess of $54

million in payments from Pharmacy Benefit Managers, including CVS Caremark and

Express Scripts, as payment for the sale of various pharmaceutical products, including

pain and scar creams.

79. As discussed above, the billing regulations for compound pharmaceuticals

changed in early 2012, permitting compound pharmacies to bill insurance companies for

each pharmaceutical ingredient used and not just the most expensive ingredient. The

effect of that change can easily be seen by comparing the payments Brown’s received

prior to this change and after. For example, in 2011, CVS Caremark paid Brown’s a

total of $300,744.00 on claims. After the compounded drug billing rules changed for

compounding pharmacies in 2012, CVS Caremark paid Brown’s a total of

$3,390,531.00 in 2012 and a total of $7,921,317.00 in 2013 for claims.


31

Fraud Proceeds from PBMs and Insurers

80. As stated above, prior to the MedHealth Rx secondary insurance scheme,

Brown’s would routinely waive the full co-payments and it is virtually certain that patients

would not have paid the required large co-payments. Specifically, Brown’s would

routinely waive or cap the co-payment to under $60 as a method to entice patients to

purchase high dollar pain and scar creams. Several patients who were sent surveys

from both CVS Caremark and Express Scripts commented they would never pay that

much out of pocket for the medication they received from Brown’s.

81. A review of CVS Caremark claims show payments for either waived or

capped high-dollar pain or scar creams from January 10, 2012 to July 31, 2014 to

Brown’s Bank of the West Account # 904002300 to be approximately $8,444,076.00.

82. In addition, a review of Express Scripts claims show payments for either

waived or capped high-dollar pain or scar creams from January 10, 2012 to July 31,

2014 to Brown’s Bank of the West Account # 904002300 to be approximately

$3,413,132.00.

83. In light of the above, there is probable cause to believe that Brown’s

received at least $11,857,208.00 in fraud proceeds from January 2012 to July 2014 in

Bank of the West Account # 904002300.

Laundered Funds from Secondary Insurance/Rebate Scheme

84. As part of the co-payment scheme, PDMI processed 31,000 rebate claims

submitted by Brown’s to MedHealth Rx for reimbursement for Freedom Pharmaceutical

products per the MedHealth Rx service agreement. The payments from Brown’s Bank

of the West Account # 904002300 would be withdrawn by MedHealth Rx once PDMI


32

requested Brown’s rebate claims be paid by MedHealth Rx. MedHealth Rx would then

transfer the funds to PDMI.

85. In total, MedHealth Rx withdrew over $3,700,000.00 from Brown’s Bank of

the West Account # 904002300 to be processed through the rebate program. Based on

these rebate claims, Brown’s received payments between May 3, 2013 and June 16,

2014 in the amount of $3,496,115.00 from PDMI as rebate payments. The reduction in

value from the over $3,700,000.00 withdrawn represents fees that were charged by

MedHealth Rx and PDMI in processing the rebate program.

86. The entire $3,496.115.00 paid to Brown’s by PDMI represents funds

traceable to the fraudulent conduct described above and property involved in money

laundering.

Withdrawals from Bank of the West Account # 904002300

87. Between March 12, 2012 and February 11, 2014, Brown deposited

$4,815,000.00 into the Pershing Investments Account # A412188545 from Brown’s


88. On or about December 26, 2013, $6,358,729.00 was wired from Bank of

the West Account # 904002300 to Coordinated Comprehensive Insurance, EFG Bank

Cayman Branch.

89. On December 26, 2014, Brown transferred $2,398,840.40 from his Bank

of the West Account # 904002300 into Comerica Bank Account # 1852626033.

Funds Returned to Bank of the West Account # 904002300

90. Funds in the amount of $2,248,806.00 previously transferred from Brown’s

Bank of West Account # 904002300 to EFG Bank Account # 67629 and Comerica Bank


33

Account # 1852626033 were eventually transferred to Comerica Bank Account #

185626025. All of these funds ($2,248,806.00) were then immediately transferred to

Brown’s Bank of the West Account # 904002300 upon deposit into Comerica Bank

Account # 185626025.

Total Funds Available for Forfeiture in Bank of the West Account #

904002300

91. As described above, funds in the total amount of $17,602,129.00 have

been deposited into Bank of the West Account # 904002300 (see Paragraphs 83, 86

and 90).

92. As described above, funds in the total amount of $13,572,569.40 have

been transferred from Bank of the West Account # 904002300 (see Paragraphs 87, 88,

and 89).

93. In light of the above, there is probable cause to believe that at least

$4,029,559.60 ($17,602,129.00 - $13,572,569.40) constitutes fraud proceeds and

property involved in money laundering was deposited into Brown’s Bank of the West

Account # 904002300.

94. In addition, your affiant believes payroll for Brown’s Compounding

Pharmacy is paid from this account. Accordingly, your affiant is only seeking to seize all

funds over $60,000.00 (the approximate payroll amount for two weeks) and up to

$4,029,559.60 for which there is probable cause to seize.

Pershing Investments Account # A41218545

95. On March 7, 2012, Darby Brown opened the subject Pershing

Investments Account # A412188545. Pershing Investments is a part of Bank of New


34

York Mellon. Darby Brown is the only signer on this account. A document dated May

2, 2013 states the type of account is a 401(k)/Profit Sharing account and forty-five (45)

employees are eligible to participate in the plan.

96. A review of this account shows that all transfers into this account were

from Brown’s Bank of the West Account # 904002300. There is no evidence that

employees submitted payments to this account as participation in a 401(k) Profit

Sharing plan.

97. Specifically, between March 12, 2012 and February 11, 2014, Brown

deposited $4,815,000.00 into this account from Brown’s Bank of the West Account #

904002300.

98. On December 31, 2012, Brown wired $2,500,000.00 from the Pershing

Investments Account # A412188545 to EFG Bank Cayman Branch Account # 672629.

99. In light of the above, there is probable cause to believe that $2,315,000.00

($4,815,000.00 - $2,500,000.00) in Pershing Investments Account # A412188545

constitutes proceeds traceable to the fraudulent conduct outlined above and property

involved in the conspiracy to launder money.

Comerica Bank Account # 1852626033 –Coordinated Comprehensive Insurance Company

100. The Comerica Bank Account # 1852626033 was opened January 12,

2014, under the commercial name Coordinated Comprehensive Insurance Co., 411 W

Lafayette MC 3331, Attn: Captive Insurance Group, St Kitts & Nevis. The signors on

the account are Paul D. King (CEO) and Darby C. Brown (Chairman).

101. The Coordinated Comprehensive Insurance Company appears to offer

captive insurance plan for Brown’s Compounding and appears to be run by Paul King


35

as the captive insurance fund manager. Captive insurance companies are insurance

companies established by a parent business with the specific objective of covering the

risks to which the parent is exposed; thus, a form of “self-insurance.” A large portion of

captive insurance companies are formed offshore because of more favorable regulation.

On November 20, 2012, Brown’s wrote a check from Bank of the West Account #

904002300 to Axxess Management LLC, a company operated by Paul King, with a

memo line stating, “initial payment on establishment of captive insurance.”

102. Brown made the following transfers into Comerica Bank Account #

1852626033:

On March 3, 2014, Brown transferred $5,500,000.00 from EFG

Bank Account # 672629 in the Grand Caymans;

On December 26, 2014, Brown transferred $2,398,840.40 from his


103. There was also approximately $1,207,650.21 deposited into this account

from unverified sources for deposits.

104. In total, approximately $9,106,490.61 has been deposited into this account

since it opened on January 12, 2014.

105. Prior to the March 3, 2014, transfer, EFG Bank Account # 672629 had

received at least $8,858,729.00 from Bank of the West Account # 904002300 and

$2,500,000.00 from Brown’s Pershing Investments Account # A412188545, which, in

turn had received approximately $2,725,000.00 from Brown’s Bank of the West Account

# 904002300 at that time.

106. The following transfers were made from Comerica Bank Account #


36

1852626033:

On April 10, 2014, $1,580,927.00 was transferred to Comerica

Bank Account # 1852626025 (the next day this amount was transferred to Brown’s

Bank of the West Account # 904002300);

On June 30, 2014, $412,539.00 was transferred to Comerica Bank

Account # 1852626025 (the next day this amount was transferred to Brown’s Bank of

the West Account # 904002300); and

On July 16, 2014, an additional transfer of $255,340.00 was made

from this account to Comerica Bank Account # 1852626025 (the next day this amount

was transferred to Brown’s Bank of the West Account # 904002300).

107. In light of the above, there is probable cause to believe that at least

$5,650,034.40 ($5,500,000.00 + $2,398,840.00 - $1,580,927.00 - $412,539.00 -

$255,340.00) constitutes proceeds from fraud payments which were originally received

into Bank of the West Account # 904002300 and property involved in money laundering.

Comerica Bank Account # 1852626025 – YChrome Holdings

108. The Comerica Bank Account # 1852626025 was opened January 12,

2014, under the commercial name YChrome Holdings. The signor on the account is

Paul D. King (CEO).

109. From January 12, 2014 to July 16, 2014, as outlined above,

$2,248,806.00 has been wired from Comerica Bank Account # 1852626033 into this

account.

110. All of these funds ($2,248,806.00) were immediately transferred to

Brown’s Bank of the West Account # 904002300.


37

111. However, at least two of these transfers occurred within the last twelve

months. Specifically, on June 30, 2014 and July 16, 2014, two deposits, $412,539.00

and $255,340.00, respectively, constituting fraud proceeds and property involved in

money laundering were transferred into this account from Comerica Bank Account #

1852626033.

112. In addition, your affiant has confirmed that all recent deposits into this

account were from Comerica Bank Account # 1825626033.

113. Accordingly, there is probable cause to believe that approximately

$667,879.00 in fraud proceeds and property involved in money laundering was

deposited into this account within the last twelve months, and therefore, is subject to

forfeiture from this account pursuant to 18 U.S.C. §§ 981(a)(1)(A) and (C), and 18

U.S.C. § 984.

CONCLUSION

114. Based on the preceding facts, my experience and training, and information

provided by witnesses and complainants during this investigation, there is probable

cause to believe that Brown’s and the owners of MedHealth Rx have conspired and

submitted false health care claims by the use of mail and wire transmissions to FEHB

plans and private health care insurance plans, all in violation of 18 U.S.C. §§ 1035,

1341, 1343, 1347 and 1349.

115. Likewise, there is probable cause to believe that the subject accounts

contain proceeds traceable to violations of 18 U.S.C. §§ 1035, 1341, 1343, 1347 and

1349 and, therefore, are subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C).

116. In addition, proceeds from the criminally derived scheme to defraud both


38

FEHB and private health insurance plans resulted in financial transactions that were

designed to conceal or disguise the source, ownership, and control of the funds in

violation of 18 U.S.C. § 1956. Moreover, proceeds from the criminally derived scheme

to defraud both FEHB and private health insurance plans resulted in financial

transactions involved proceeds greater than $10,000.00, in violation of 18 U.S.C. §

1957.

117. Accordingly, there is probable cause to believe that the subject accounts

below also contain property involved in money laundering violations of 18 U.S.C. §§

1956 and 1957 and, therefore, is subject to forfeiture pursuant to 18 U.S.C. §

981(a)(1)(A).

118. Further, Title 18, United States Code, section 984 provides that the

government need not identify the specific property involved in an offense that is the

basis for the forfeiture if the property involved is funds deposited into a financial account

when the forfeitable funds were placed into that account within the prior year.

119. Accordingly, your affiant seeks seizure warrants for the following property:

a. All funds over $60,000.00 and up to $4,029,559.60, in Bank of the

West Account # 904002300, held in the name of Darby Brown and Kristen Brown;

b. All funds up to $2,315,000.00 in Pershing Investments Account #

A41218545, held in the name of Darby Brown;

c. All funds up to $5,650,034.40 in Comerica Bank Account #

1852626033, held in the name of Coordinated Comprehensive Insurance Co.; and


39

d. All funds up to $667,879.00 in Comerica Bank Account #

1852626025, held in the name of YChrome Holdings.

s/ Kevin T. FioreKevin T. Fiore, Special AgentFederal Bureau of Investigation

Reviewed and submitted by Jaime A. Peña, Rebecca S. Weber, and Tonya S. Andrews, Assistant United States Attorneys.

Subscribed and sworn to before me this _____ day of June, 2015.

_______________________________NINA Y. WANGUnited States Magistrate JudgeDistrict of Colorado

5th

______ ____________________ _____ __NINANNNN Y. WANG


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