The nation's largest pharmacy chain will pay a record fine for illegally selling large amounts of a key methamphetamine ingredient to criminal traffickers, a problem that prosecutors say led to a surge in production of the widely abused drug in California.
CVS Pharmacy Inc. agreed to pay a $75-million fine and forfeit $2.6 million in profits on the unlawful sales of pseudoephedrine in California and Nevada in 2007 and 2008, according to federal prosecutors based in Los Angeles.
The penalty is the largest for a civil violation of the Controlled Substances Act, a 40-year-old law that is more often aimed at street dealers and narcotics traffickers.
The illegal sale of cold and allergy medications and other products containing pseudoephedrine, or PSE, "was an unacceptable breach of the company's policies and was totally inconsistent with our values," CVS Caremark Corp. Chairman Thomas M. Ryan said in a statement. CVS Pharmacy is a division of CVS Caremark, a company that reported making a $3.7-billion profit on $98.7 billion in sales last year and operates more than 7,100 stores.
The company admitted that CVS stores in California, Nevada and 23 other states were vulnerable for more than a year to criminals who bought enough PSE through repeated purchases to make methamphetamine, a highly addictive stimulant abused in epidemic proportions and linked to violence and other crimes.
CVS blamed the problem on the flawed implementation of an electronic monitoring system that was supposed to guard against excessive purchases.
In an effort to curb the production of methamphetamine, the Combat Methamphetamine Epidemic Act of 2005 required retailers to store PSE products behind the counter, check purchasers' identifications and limit sales to the equivalent of one package a day and three a month. Customers also had to sign for each purchase.
Prosecutors said the company fixed the problem only after discovering that the government had opened an investigation. "CVS's flagrant violation" made the company "a direct link in the methamphetamine supply chain," said Michele M. Leonhart, acting administrator of the U.S. Drug Enforcement Administration.
In addition to the financial penalties, the company agreed to implement a compliance and ethics program and to make periodic reports to the DEA for five years. In exchange, the government agreed not to pursue criminal prosecution or further civil action.
"CVS knew it had a duty to prevent methamphetamine trafficking, but it failed to take steps to control the sale of a regulated drug used by methamphetamine cooks as an essential ingredient for their poisonous stew," said U.S. Atty. Andre Birotte Jr.
The investigation began in 2008 after the arrests of dozens of people across Southern California for alleged possession of pseudoephedrine. Agents with the state Bureau of Narcotics Enforcement and local police in several cities noticed that the suspects had purchased unusually large quantities of medicines containing pseudoephedrine from CVS stores.
Those officials contacted the DEA, said Mike Lewis, head of the agency's diversion program in Los Angeles, which focuses on the growing problem of legal drugs being diverted to a black market that caters to addicts.
Lewis launched a review of the company's sales practices that revealed that CVS store computers were on an improper setting that allowed customers to make repeated purchases of products containing the drug in quantities above the federal daily limit. This allowed "smurfing," in which meth makers or their associates travel from one store to another — or make repeat trips to the same store — to gather enough pseudoephedrine to make meth. The reference comes from the image of the tiny cartoon characters acting as drug dealers' minions.
Meth makers targeted CVS stores, especially in the Los Angeles and Las Vegas areas, sometimes "cleaning out store shelves," according to a news release announcing the agreement Thursday.
Assistant U.S. Atty. Shana T. Mintz, who led negotiations with CVS on behalf of the government, said that from September 2007 through November 2008, CVS sold more generic pseudoephedrine in Southern California stores than in their stores in the rest of the country combined.
Mintz said investigators found many CVS customers who made up to a dozen purchases in a single store in one day. One customer made 10 transactions in 53 minutes at a CVS in Huntington Park, she said.
The customers did not seem particularly secretive about their purchases — many used CVS discount cards to get credit for what they were buying, Mintz said. The most popular form of the drug was the CVS generic.
"Apparently, smurfers are good shoppers too," she said.