Incident 40126

Defendants Admit Criminal Enterprise Engaged in Broad Array of Crimes Including Money Laundering, Bank Fraud, and Identity Theft to Fuel Multi-Million Dollar Conspiracy

Thirty-two people were arrested on May 6, 2015, after being charged variously with racketeering conspiracy; conspiracy to commit identity theft; conspiracy to commit access device fraud; conspiracy to commit mail, wire, and bank fraud; conspiracy to commit money laundering; conspiracy to use a facility of interstate commerce to commit murder-for-hire; and conspiracy to engage in the unlicensed wholesale distribution of drugs.

This led to multiple guilty pleas. For example, on May 27, 2020, Mihran Stepanyan, Artur Stepanyan, Yan German, and Khachig Geuydjian pleaded guilty to crimes stemming from their respective roles in a wide-ranging racketeering conspiracy involving diversion of prescription drugs, money laundering, bank fraud, identity theft, and additional crimes, announced United States Attorney David L. Anderson; Federal Bureau of Investigation Special Agent in Charge John F. Bennett; and Internal Revenue Service, Criminal Investigation, Special Agent in Charge Kareem Carter. The pleas were accepted by the Hon. Charles R. Breyer, United States District Judge, and leaves one remaining defendant to stand trial for allegations made in a Second Superseding Indictment filed in February of 2016 against 38 defendants.

“Patients needing prescription drugs shouldn’t have to worry that their medications came out of a back alley,” said U.S. Attorney Anderson. “The defendants and their co-conspirators were able to make massive profits by diverting street drugs back into mainstream channels while creating false paperwork to conceal their true source. Thanks to the FBI, IRS, and federal prosecutors in San Francisco, the defendants now face the prospect of lengthy prison sentences for their criminal conduct.”

“The American public was victimized twice by this scheme,” said FBI San Francisco Special Agent in Charge John F. Bennett. “The majority of the profits were subsidized both by American taxpayers and by those paying private insurance premiums.” “Additionally, patients were put at risk by the movement of these black market drugs, as the defendants disregarded general safety protocols and guidelines, to include expiration dates and pharmaceutical lot numbers.”

“Today’s guilty pleas bring us one step closer to closing the chapter on this criminal enterprise,” said Kareem Carter, Special Agent in Charge IRS Criminal Investigation. “The crimes committed by these defendants ranged from picking up drugs at a pizza shop to a half-million-dollar tax check fraud scheme. In total, more than $199 million in diverted prescription drug proceeds were laundered through bank accounts established with false identities and shell companies. IRS-CI is committed to following the money so we can financially disrupt and dismantle criminal organizations like these.”

All four defendants pleading guilty today—Mihran Stepanyan (M. Stepanyan), his cousin Artur Stepanyan (A. Stepanyan), German, and Geuydjian—have acknowledged that they were members of a nationwide conspiracy referred to in court documents as the Karapedyan-Stepanyan Enterprise (Enterprise). One key aspect of the criminal activity was a multi-million dollar prescription drug diversion scheme. According to the plea agreements filed today, members and associates of the Enterprise procured prescription drugs from unlicensed sources, usually street dealers, and resold the drugs to unknowing customers. The Stepanyans also admitted that they are not licensed to sell drugs, that they procured millions of dollars of drugs through street suppliers and other unlicensed sources, and that the drugs they procured eventually were resold as legitimate products.

The Stepanyans’ plea agreements include an overview of the complexity and sophistication of the Enterprise’s operations. Members of the Enterprise conducted the affairs of the organization through a pattern of racketeering and committed crimes throughout California as well as in Minnesota, Ohio, and Puerto Rico. Further, the Stepanyans’ plea agreements describe how members and associates of the Enterprise procured and distributed a wide variety of drugs from unlicensed sources for distribution throughout the country. The drugs included medications used to treat HIV infection, Type-2 diabetes, dementia, and high blood pressure, among other conditions. Members and associates of the Enterprise also created false and fraudulent paperwork, referred to as pedigrees, to make it appear that those drugs had been purchased from legitimate sources. In addition, they created sham companies and used multiple bank accounts to receive and distribute the proceeds from their fraudulent transactions. The plea agreements also describe how the Stepanyans, along with other members and associates of the Enterprise, intentionally used the identities of real people to carry out their unlawful objectives. The plea agreements of Geuydjian and German provide further details of the Enterprise’s operations. Specifically, Geuydjian’s plea agreement describes how he negotiated fraudulent personal and tax checks for the benefit of the Enterprise, and German’s plea agreement describes how he supplied drugs for distribution by the Enterprise and managed aspects of the Enterprise’s money laundering operations.

According to M. Stepanyan’s plea agreement, he became a member of the Enterprise as early as January 2010. He admitted that he agreed with his co-conspirators to commit multiple criminal acts involving money laundering, mail fraud, wire fraud, bank fraud, identity theft, and multiple acts involving the distribution of drugs from unlicensed sources to conduct the affairs of the Enterprise. In his plea agreement, M. Stepanyan admitted that he controlled several entities, including Red Rock Capital Group, Inc.; Trans Atlantic Capital Group, Inc.; GC National Wholesale, Inc.; and Sky Atlantic Group, Inc., in addition to numerous bank accounts through which approximately $199 million of pharmaceutical money flowed between 2010 and 2014. M. Stepanyan also admitted purchasing approximately $56 million in gold using the illicit proceeds from the unlawful sale of prescription drugs. As a further example of his participation in the Enterprise, M. Stepanyan used an entity called Niva Pharmaceuticals to facilitate transactions related to the criminal conspiracy. Specifically, M. Stepanyan admitted that in January of 2014, he purchased Niva from a co-conspirator who had set up the company. Although Niva was licensed to engage in drug wholesaling in California, it was not and did not engage in wholesale drug distribution. Instead, M. Stepanyan acknowledged, Niva was nothing more than a shell company with offices that generally were empty except for a desk, a computer, and tables for drugs that the Enterprise procured. The plea agreement describes how Enterprise members stored boxes of drugs in Niva’s offices and shipped them throughout the country using fraudulent labels that suggested the drugs were being shipped by or to authentic companies, including a legitimate drug company operating in Puerto Rico.

A. Stepanyan also admitted in his plea agreement that he was a member of the Enterprise beginning in at least January of 2010. Between 2010 and 2015, he directed and participated in a prescription drug diversion scheme whereby he procured drugs from various unlicensed sources and sold them to a co-defendant who, in turn, sold the drugs to pharmacies throughout the United States. Further, A. Stepanyan admitted that the gross receipts for the sale of those diverted prescription drugs was at least $199 million. According to the plea agreement, A. Stepanyan and his cousin, M. Stepanyan, laundered those proceeds through various bank accounts established in false identities, which M. Stepanyan controlled.

German admitted in his plea agreement that he was a member of the Enterprise between 2013 and 2015. He acknowledged that he was responsible for establishing a network of unlicensed street suppliers to provide drugs for the distribution scheme. As described in his plea agreement, German had multiple sources of drugs. Between 2013 and 2014, he obtained boxes full of prescription drugs from one of his co-conspirators in Los Angeles, California. For example, he would pick up drugs from one of his sources at a pizza shop with the help of one of his associates, load the boxes into the trunk of a car, and drive them to a nearby mall or another pre-arranged location where he would deliver them to the Stepanyans. German also admitted that in his role managing money-laundering operations for the Enterprise, he assisted with wire fraud, bank fraud, identity theft, and illegal check cashing schemes. In the plea agreement, German admits that he used his birth name, Henrik Hartyunyan, during some of the underlying illegal conduct he performed on behalf of the Enterprise.

Geuydjian admitted that he was a member of the Enterprise from at least 2012 through approximately 2014. In his plea agreement, he describes himself as a “money launderer for the Enterprise.” Geuydjian acknowledged that he and others in the Enterprise created sham companies and used multiple bank accounts to receive and distribute the proceeds from the fraudulent transactions. Geuydjian liquidated tax fraud and drug diversion proceeds by making deposits to a number of sham corporate entities that he created and allowed other members and associates of the Enterprise to use his businesses to send illicit funds and other merchandise. Furthermore, Geuydjian used the identities of real people to carry out many of the Enterprise’s unlawful objectives. For example, the plea agreement describes how Geuydjian’s co-conspirators acquired and possessed stolen identifying information for dozens of individuals in order to file fraudulent tax returns online. The Enterprise obtained checks issued by the federal government and mailed from the United States Treasury based on fraudulent tax returns. From approximately August 2012 through August 2013, Geuydjian fraudulently liquidated approximately 51 checks totaling more than $538,295 though accounts he held in the names of three companies he controlled. Geuydjian also used photocopies of driver’s licenses, social security cards, or other personal identifying with the identities of real people to open bank accounts or gain access to the victims’ bank accounts, to negotiate checks made out in the victims’ names. Furthermore, Geudjian and his co-conspirators perpetrated a tax check fraud scheme. For example, in March 2014, Geudjian deposited two tax refund checks into fraudulent Wells Fargo bank accounts—one in the amount of $117,887 and another in the amount of $131,205. These checks, which were from legitimate tax return filings, were stolen out of the mail by “runners” employed by members of the conspiracy. Geudjian also liquidated approximately $71,806 that his co-conspirators stole from a victim’s Fidelity 401K retirement account.

On February 11, 2016, a federal grand jury handed down the Second Superseding Indictment charging the four defendants—as well as 34 additional individuals—with various crimes in connection with the activities of the Enterprise. All four defendants pleading guilty today are released on bond pending sentencing. A majority of the defendants in this case have pleaded guilty to various charges.

For those defendants who have not yet been sentenced, in addition to a term of imprisonment and fine, the court also may order additional periods of supervised release, restitution, and special assessments. However, any sentence following conviction would be imposed by the court only after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

A separate investigation resulted in another indictment filed on May 6, 2015 in the Southern District of Ohio charging M. Stepanyan, A. Stepanyan, and others with various crimes arising from their sale of millions of dollars of illicitly-procured drugs. That matter was transferred to the Northern District of California and consolidated with the instant case.

Assistant United States Attorneys Claudia A. Quiroz, Andrew Dawson, and Chris Kaltsas are prosecuting the case with the assistance of Adrienne DelaPena and Kevin Costello. The prosecution is the result of an investigation by the Federal Bureau of Investigation and the IRS.