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July 06, 2005
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To do so, an FBI affidavit says (see below) Smith traveled abroad under a false passport, used a cash card to obtain money from a bank account after it had been seized by the court, and had his wife, his girlfriend and others bring him thousands of dollars in cash.
The affidavit also claims at least two former Xpress Pharmacy Direct employees traveled in early June to the Dominican Republic to help Smith set up the new business. A former employee allegedly downloaded Xpress Pharmacy Direct's customer database, including 100,000 names and ordering information, for Smith. Former employees also allegedly sent about $53,000 to Smith to rehire employees, according to federal authorities.
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According to the FBI, Smith apparently learned of the arrest warrant possibly through Internet postings, and was returning to Minnesota to appear at the contempt hearing.
But Smith had no intention of surrendering to the authorities. In fact, the government claims that Smith took steps to avoid being arrested. He bought a ticket from the Dominican Republic that terminated in Miami, and then purchased a last-minute ticket from Miami to Minneapolis.
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| High Security - Video visiting allows for those visiting inmates to do so without the inmate having to be moved from the jail cell area. This increases both safety and security by reducing the movement of inmates within the facility and minimizes contact between civilians and inmates. |
Davis shut down the business in May and ordered a government receiver to take over its funds after authorities alleged the company sold painkillers and Viagra without a license.
Smith secretly kept large sums of money, luxury vehicles and other assets Davis ordered confiscated, according to the affidavit. In May, federal investigators seized $4 million worth of houses, pricey cars and other assets, and prohibited Smith from withdrawing up to $18 million.
Davis will determine if Smith is eligible for bail. Two of Smith's associates are scheduled to be at the hearing for allegedly aiding him in trying to establish another online pharmacy and transferring money to him that had been frozen by Davis.
Though not charged with a crime earlier, Smith now should be held in criminal contempt and jailed for six months, the U.S. attorney's office recommended Tuesday.
Smith, a high school dropout, was an internationally known e-mail spammer when he started the drug business, first with at least a dozen Internet sites and last year adding a call center with about 85 employees, authorities said.
After complaints from customers and former employees, the FBI, the Food and Drug Administration and the Drug Enforcement Administration began investigating Smith for alleged money laundering, mail fraud and wire fraud.
They concluded that Smith was selling medicines to customers without proper prescriptions, and paying a New Jersey doctor to write at least 20,000 prescriptions for patients he had not seen.
Assistant U.S. Attorney Greg Brooker has said in court that Smith operated the pharmacy without a license from the state pharmacy board or the required registration with the U.S. Drug Enforcement Administration.
Smith's attorney, John Nelson, declined to comment on the accusations.
"They're only allegations at this point," Nelson said. "I believe that a number of them will be found to be untrue."
Nelson said he would not comment on whether Smith was in the Dominican Republic. However, he said Smith had no travel restrictions placed on him by federal authorities.
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Case0:05-cr-00219-MJD Document 5 Filed 06/24/2005
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MINNESOTA
UNITED STATES OF AMERICA, )
)
Plaintiff, )
) AFFIDAVIT OF SPECIAL AGENT
) GEORGE KYRILIS
V. )
)
1. CHRISTOPHER WILLIAM SMITH, )
a/k/a BRUCE JONSON, CHRIS )
JOHNSON AND ROBERT JONSON; )
2. BRUCE LIEBERMAN; AND )
3. CREAGHAN HARRY )
)
Contemnors. )
STATE OF MINNESOTA )
COUNTY OF HENNEPIN )
Your affiant, George Kyrilis, having been duly sworn, states the following is true and correct to the best of my knowledge and belief.
Introduction and Agent Background
1. I am a Special Agent of the Federal Bureau of Investigation (FBI) assigned to the Minneapolis Office and have been employed by the FBI for 27 years. Currently I a assigned to the FBI squad in Minneapolis that investigates fraud cases committed over the Internet, and I am one of the case agents for the investigation of Christopher Smith and others.
2. I make this affidavit in support of motion for civil contempt, as well as a motion for an order to show cause why certain individuals should not be held in criminal contempt of the Court's Orders of May 9, 2005 (Temporary Restraining Order), and May 20, 2005 (Order for Preliminary Injunction, Order Appointing Receiver, and Other Equitable Relief). The individuals include Defendant Christopher Smith, as well as Bruce Lieberman and Creaghan Harry, individuals who have been agents of Christopher Smith and/or his corporate entities, and/or who were otherwise in active concert or participating wit Christopher Smith or his corporate entities in the operation of an illegal online pharmacy. The information contained in this affidavit is based upon conversations with other law enforcement officers and others, my review of various documents and records, and, where specified, my personal observations and knowledge.
Christopher Smith
3. As the government has previously informed the Court, Defendant Christopher Smith was the owner and operator of Online Payment Solutions/Xpress Pharmacy Direct (hereinafter, "Xpress Pharmacy Direct"). Through Xpress Pharmacy Direct and related entities, including various web sites, Smith perpetrated a fraudulent scheme of selling prescription drugs to the public.
4. Smith was expressly named in the Court's Orders of May 9, 2005 (Temporary Restraining Order), and May 20, 2005 (Order for Preliminary Injunction, Order Appointing Receiver, and Other Equitable Relief) and he personally appeared at the hearing on May 20, 2005.
5. As is more fully outlined below, your affiant has evidence that, in the days and weeks following the Court's Order of May 20, 2005, and throughout much of the month of June 2005, Christopher Smith has been in the Dominican Republic and other locations outside the United States for the purpose of setting up another online pharmacy and telemarketing call center in violation of the Court's Orders, In addition, Smith has been directing others to transfer assets to himself and others working with him in his new online pharmacy business. Thus, your affiant has evidence that Christopher Smith is continuing to engage in his fraudulent online pharmacy schemes by (1) setting up new or expanding existing online pharmacy businesses in foreign countries such as the Dominican Republic which are distributing illegal prescription drugs to customers in the United States, and by (2) continuing to dissipate assets, all in violation of this Court's Orders of May 9, 2005, and May 20, 2005.
Bruce Lieberman
6. At the time of the Court's Orders, Bruce Lieberman, a resident of New York, held the title of Chief Financial Officer of Smith's company and was employed by Smith to handle the merchant accounts (credit card processing accounts) for Xpress Pharmacy Direct. Lieberman was also retained by Smith as Smith's personal accountant.
7. Lieberman controlled a merchant bank account for Xpress Pharmacy Direct, in the name of Rxorderfill.com, Inc., that had been subject to the Court's May 9 Order, and thus Lieberman was put on notice that the funds in that account were frozen by the Court on or about May 10, 2005. After placing telephone calls to the United States Attorney's Office to inquire about the status of his bank account and the frozen funds, on or about June 2, 2005, Lieberman was provided by facsimile with actual notice of the Court's May 20 Order by the United States Attorney's Office.
8. As will be discussed further below, Lieberman has engaged in acts that are in violation of the Court's Orders. Such acts include aiding and abetting Smith in setting up a new online pharmacy located outside the United States.
Creaghan Harry
9. At the time of the Court's Orders, Creaghan Harry (a/k/a/ Harry Creaghan and Ed Creaghan), a Florida resident who operates an online pharmacy/call center in the Dominican Republic, was acting in concert or active participation with Christopher Smith in that Harry provided Xpress Pharmacy Direct with additional telemarketing support through Harry's Dominican Republic call center. In other words, in addition to direct sales by way of various web sites, Smith's company used telemarketers located on site at Xpress Pharmacy Direct in Burnsville, Minnesota, as well as telemarketers located in the Dominican Republic at Harry's company, to market prescription drugs.
10. Harry, a long-term friend and associate of Christopher Smith (Harry was listed as a groomsman in Smith's wedding), received a substantial commission in exchange for providing Smith with use of his Dominican Republic call center. During the period September 2004 through January 2005, Harry's company, Americas Best Worldwide, Inc. received more than $2 million from Smith in commissions for telemarketing to Smith's customers.
11. Like Smith, Harry also has a history of engaging in massive questionable and ultimately illegal spamming campaigns and is notorious for his spamming activity. Your affiant has learned that the Federal Trade Commission ("FTC") was investigating Harry for spamming illegal human growth hormones on the Internet and that the FTC just recently, on May 5, 2005, reached a settlement agreement with Harry which provided for a stipulated permanent injunction. Harry was enjoined, among other things, from making false or misleading statements in connection with selling any product over the Internet.
12. There is substantial evidence that Harry has been on notice of this Court's Orders. Namely, in June 2005, a recorded message on Harry's customer service phone number, 1-800-487-6217, instructs callers that Harry's company is no longer supplying orders for Xpress Pharmacy Direct and it then instructs Xpress Pharmacy Direct customers who may need a refund to call Andrew Luger (the Court-appointed receiver), and the message further provides Mr. Luger's phone number and email address. In addition, on June 22, 2005, lawyers for Harry's company, Americas Best Worldwide, submitted an invoice to the receiver, Andrew Luger, for unpaid services rendered to Smith's company in April and May 2005.
13. As will be discussed further below, Harry has engaged in acts that are in violation of the Court's Orders. Namely, since the date of the Court's Orders, Harry, through his call center, has been soliciting former customers of Xpress Pharmacy Direct, customers to which Harry had access when he called on those customers for Smith, to purchase prescription drugs.
Affirmative Acts of Contempt
14. Christopher Smith, Bruce Lieberman, Creaghan Harry, and others, including former associates and employees of Smith's companies, including Xpress Pharmacy Direct, have committed a number of affirmative acts of contempt since the date of the Court's Orders. Such acts include the following:
a. In approximately late May, following the Court's May 20 hearing, Christopher Smith left the United States and has since that time been primarily located in the Dominican Republic and neighboring islands for the purpose of setting up a new online pharmacy. He is traveling under either an illegal or fake passport, as his passport was seized during search warrants executed on May 10, 2005. Christopher Smith is intentionally locating his new online pharmacy offshore for the purpose of evading the jurisdiction of the United States, including this Court, and the United States authorities. In addition, there is evidence that Christopher Smith is deliberately residing outside the United States so that, if criminal charges are filed against him, he may avoid prosecution in the United States.
b. Christopher Smith has been undertaking various measures to keep his whereabouts and his plans secret from everyone except for a few limited individuals that he has taken into his confidence. For example, Smith has been avoiding contact with many friends, family and associates. He has also been known to frequently acquire new cell phones and to then discard his cell phones within a short time after using them.
c. In early June 2005, Christopher Smith offered cash to some former Xpress Pharmacy Direct employees to come to the Dominican Republic to work for him in a new online pharmacy business.
d. In early June 2005, at least two former Xpress Pharmacy Direct employees traveled to Dominican Republic to meet with Christopher Smith and to assist him in setting up his new online pharmacy business.
e. On or about May 15, 2005, at Christopher Smith's direction, a former employee of Xpress Pharmacy Direct was able to remotely access the customer database for the company and to download that customer data to a disc. The disc, which included the names and ordering information for more than 100,000 customers, was provided to Christopher Smith for his use in running a new online pharmacy.
f. In early June 2005, Christopher Smith arranged with former Xpress Pharmacy Direct employees to have large sums of cash (totaling approximately $53,000) sent by Federal Express to two associates of Christopher Smith who were working with him in his new online pharmacy business. At least one of these associates, Brian Podalak, is under investigation by federal authorities in Iowa for operating an online pharmacy. Podalak was interviewed, confirming that he was expecting to receive cash from Smith and that there were plans for him to work with Smith in a new online business. The cash, which was intercepted by federal authorities, consists of illegal proceeds from Smith's online pharmacy business, assets that were enjoined as part of the Court's Orders.
g. In June 2005, Smith arranged to have large sums of cash brought to him in the Dominican Republic by more than one individual, including his girlfriend, a Minnesota resident. The cash that was delivered to Smith consists of illegal proceeds from Smith's online pharmacy business, assets that were enjoined as part of the Court's Orders.
h. There is evidence that Smith is maintaining large sums of cash, as well as other assets, including luxury vehicles for which the government previously obtained seizure warrants that were not executed, in various secret locations. The assets that Smith is hiding either were derived from or consist of illegal proceeds from Smith's online pharmacy business, assets that were enjoined as part of the Court's Orders.
i. Starting in late May 2005 and continuing until at least this week, the week of June 20, 2005, Christopher Smith has been attempting, through his accountant and former associate, Bruce Lieberman, to open up a new merchant account for the purpose of processing credit card orders for a new online pharmacy located in the Dominican Republic or other offshore location. As part of Lieberman's efforts to secure the new merchant account for Smith, there is evidence Lieberman is aware of Smith's plans regarding the new online pharmacy, including Smith's plans to locate the business overseas for the express purpose of evading the jurisdiction of the United States and its authorities.
j. The government has just learned, the week of June 20, 2005, that Christopher Smith has launched at least two web sites for the purpose of soliciting business for his new online pharmacy: www.allusamedical.com and www.allusapainmeds.com. These two web sites are currently functioning and permit customers to place prescription drug orders over the Internet without having a prior prescription from a physician. They demonstrate that Smith's new online pharmacy is essentially the same as the business that was enjoined by the Court, although with a significant expansion of the drug offerings. The domain name for one of the web sites, www.allusamedical.com, was registered by Smith on May 2, 2005, under his alias Robert Jonson and with the same false registration information that Smith used to register some of his prior web sites, including www.digihealthcorp.net. The domain name for the other web site, www.allusapainmeds.com, was just registered on June 19, 2 005, by Smith under a new alias, Bruce Ronson (similar to Smith's old alias, Bruce Jonson), with the same Burnsville, Minnesota address that Smith used in January 2005 to update his Minnesota driver's license records. Also, the www.allusapainmeds.com web site includes numerous references to the www.allusamedical.com site, including the title page on the home page itself, demonstrating the interrelatedness of the two sites.
k. Harry, through his call center and various web sites, has been soliciting a substantial number of former customers of Xpress Pharmacy Direct. Those customers have been contacting both the government and the receiver in large numbers, complaining about repeated solicitations from telemarketers identifying themselves as working for online pharmacies going by such names as "Americas Best," "Med Source," "Med Services," and "Online Pharmacy." Americas Best and Med Services are known to be company names affiliated with Harry. Moreover, in at least some instances, the calls appear to be placed from 1-800-487-6217, which is the phone number for Harry's company.
l. On or about June 6, 2005, Christopher Smith made two withdrawals from Xpress Pharmacy Direct's U.S. Bank account (of $1,000 each, plus transaction fees) by way of Xpress Pharmacy Direct cash card previously issued to Smith. Smith made the withdrawals from a casino located in Santo Domingo, Dominican Republic. The U.S. Bank account is one that had been frozen by this Court, but which was temporarily unfrozen by the receiver for the purpose of paying employees.
15. Your affiant is prepared to provide further details on each of the foregoing acts, and to provide additional facts regarding Smith, Lieberman, and Harry, and others, to the Court in whatever manner the Court may request.
Further your affiant sayeth not.
George Kyrilis
Special Agent, FBI
Subscribed and Sworn to before me
this 23rd day of June 2005.
Muriel J Holland
Notary Public
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