Pills.
Little pastel bits of feel-good and fuck-off were going to make him rich enough to curl up on a sofa made of currency. They were going to get him boats, cars, villas, airplanes, long-legged girls—freedom.
Exactly how this stroke of genius came to him isn’t clear, but genius it was. Later, he accused his old boss Hafner of leading him into the underground pill trade, but his account is not credible for several reasons. It is more likely that someone in the Costa Rican online casino game mentioned the prescription drug gambit to LeRoux.
Whatever the case, LeRoux’s timing was spot-on. He was perfectly positioned to ride the crest of a wave—a tsunami, really—that the established drug cartels didn’t see coming. In the United States, the world’s largest market for drugs, both legal and illegal, “dirty” street drugs peddled by the likes of Pablo Escobar and El Chapo were on their way out. Pills that looked like Willy Wonka made them were in.
In 2004, according to an annual U.S. government survey, 7.2 million Americans regularly abused pharmaceuticals by obtaining them through nonmedical channels ranging from friends’ and relatives’ medicine cabinets to “pill mills” run by unscrupulous medical professionals to street drug dealers. That number was roughly double the 3.7 million Americans who habitually abused cocaine, heroin, methamphetamine, and hallucinogens combined. The only substance that outpolled pills was marijuana, with 14.6 million regular users in 2004. Plummeting demand for cocaine was a striking trend, from 5.8 million regular users in 1985, at the height of the crack cocaine epidemic, to 2 million in 2004. Other street drugs had also lost their luster. According to the survey estimates, by 2004, some 166,000 Americans were using heroin regularly; 583,000, methamphetamine; and 929,000, hallucinogens. (By 2017, cocaine use had declined further, to 1.9 million habitual users, but heroin use had tripled, to 475,000 people, many of whom switched to the cheap, plentiful street drug after falling victim to the epidemic of prescription opioids abuse.)
The numbers translated to a very appealing business opportunity. There were at least 7 million very loyal potential pill buyers in the United States and probably almost as many in the rest of the world. The black market was a tiny fraction of the global pharmaceutical market, whose revenues exceeded $1 trillion in 2014, but it was big enough to generate some serious money. It was a niche, but exactly the kind of niche LeRoux was seeking—not yet saturated and plenty of room for growth.
Even better, LeRoux didn’t have to spend a dime on marketing. The pharmaceutical industry had been shaping the image of pills over many decades, lavishing many billions of dollars on ads and other promotions. (One estimate put Big Pharma ad spending at $33 billion in 2004.) Pharma ads invariably showed the product being manufactured in pristine labs and dispensed by physicians in white coats. Healers! Nobody argued with healers.
LeRoux’s websites piggybacked on those themes. His your-pills.com website of May 14, 2005, featured a photo of a man and a woman, both in the white coats of physicians, both fair-skinned, apparently American archetypes. It promised, “Our U.S. Licensed Physicians will review your order and issue your prescription. Next, our U.S. Licensed Pharmacies will dispense, and FedEx your order discreetly using next day delivery.”
LeRoux’s matrixmeds.com website for September 1, 2005, featured a photo of a movie-star-handsome man in surgical scrubs, rattling off a lot of very good reasons to buy online: “Why put up with the waiting rooms, the time off of work, the traffic, the embarrassment, and the long lines when you don’t have to! With our unrivaled system, you can have your prescription delivered tomorrow. No wonder we were voted Number 1. Decide for yourself. You don’t need to suffer from ailments that are preventable. Live life to its fullest! Get the medication you need to start a better life today.” It added, “With MatrixMeds.com, you get USA Prescriptions. MatrixMeds.com is NOT a Canadian online pharmacy. MatrixMeds.com is NOT a UK online pharmacy. MatrixMeds.com is NOT a Mexican online pharmacy.” All true. It was completely illegal, existing in cyberspace by a South African citizen living in Manila.
LeRoux’s cheaprxmeds.com website took a different tack, playing on Americans’ dissatisfaction with astronomical prices of pharmaceuticals in the United States, compared to lower prices in neighboring Canada. The site claimed to be a Canadian business employing “qualified, licensed Canadian physicians and filled directly by a licensed mail order Canadian pharmacy.”
All of this was hype, but there was truth to it. Unlike other e-commerce pill peddlers, LeRoux did not buy pills wholesale from poorly regulated third-world sources and dispatch them to American buyers. He realized that the front-end costs for purchasing, maintaining inventory, packaging, shipping, and getting past U.S. border controls were substantial. That method needed a lot of hands and incurred a lot of risk.
Instead, he recruited a network of physicians and pharmacies inside the United States. He remained offshore as the unseen digital middleman somewhere in a cybercloud. A prospective customer went online and filled out a questionnaire that was assigned to a bona fide doctor or, in some cases, to someone posing as a doctor. Either way, the person who read the questionnaire and wrote a digital prescription was paid by RX Limited. LeRoux created an algorithm to distribute the questionnaires among real and fake doctors in the network, so that each participant’s queue would contain about the same number of “patients.” The resulting prescriptions were forwarded to participating pharmacies that shipped the pills to customers, using a FedEx account set up by RX Limited. LeRoux’s call centers collected credit card payments and paid the real or fake physicians and the pharmacies.
Ethical standards for American pharmacies required a pharmacist to know that a prescription came from a physician who had personally seen the patient. But, as LeRoux was well aware, the pharmacists’ code of conduct was voluntary, not a legally binding regulation. Doctors also had ethical standards, but not every person with a license to practice medicine obeyed them. LeRoux sent representatives to the United States to recruit doctors and pharmacists who needed money and were willing to ignore ethical issues to be part of the network.
The system raised the risks that a customer would get access to too many pills or to medications that were dangerous when mixed. Since repeat customers were assigned randomly to various doctors, no single doctor knew about any particular customer’s purchases. The physicians were paid only when they wrote prescriptions. A doctor who reviewed a questionnaire and rejected a purchase got nothing. Consequently, an RX Limited customer was always right. Anyone who ordered pills got pills. RX Limited usually had about five to ten doctors on duty every day, each approving between 50 and 300 prescriptions per day.
In addition to its own marketing websites, RX Limited used marketing affiliates, paying commissions to independent marketers whose websites would splash ads for RX Limited. According to the testimony of Jonathan Wall, who helped LeRoux manage the business, people who worked in a Manila-based call center called Global I-Net were essentially telemarketers who telephoned individuals who had already bought drugs from RX Limited and pushed them to buy more. A separate Manila call center, Dial Magic, handled customer complaints and questions about shipping and other matters.
To manage risk, LeRoux consulted an American lawyer who knew pharmaceutical regulation. The lawyer warned him against selling any drugs on the federal Controlled Substances Act list. That list included opioids, steroids, and other potent pharmaceuticals, as well as street drugs such as heroin, methamphetamine, cocaine, marijuana, LSD, and so-called club drugs. Selling from the Controlled Substances list violated the federal narcotics laws, which gave the DEA clear jurisdiction over a case and a likely win in court.
On the other hand, selling a pharmaceutical not on the Controlled List without a valid prescription fell under the legal rubric of “misbranding,” a violation of the federal Food, Drug and Cosmetic Act, enforced by the U.S. Food and Drug Administration. The Justice Department could seek fines or, in aggravated cases, criminal penalties, but it rarely d
id. U.S. attorneys had to conserve resources for hard-core crime. They were generally unwilling to spend time and effort to bring prosecutions or even civil cases against proprietors of websites that flouted FDA regulations but did not sell demonstrably dangerous opioids, which Americans held responsible for an epidemic of addiction and deaths.
LeRoux followed the lawyer’s advice and restricted RX Limited sales to milder pharmaceuticals. He was not motivated by concern for his customers but rather by avoiding any activity that could give the DEA a reason to go after him. He figured he could make plenty of money selling popular uncontrolled pharmaceuticals, such as the pain relievers Tramadol, Fioricet, and Soma; Viagra, the drug that helped men maintain erections; and Propecia, which promised to slow hair loss and baldness. (Tramadol, a mild opioid pain-killer that won FDA approval for the U.S. market in 1995, proved to be prone to abuse and was elevated to the Control Substances Act list in 2014.)
As extra insulation from legal jeopardy, he instructed his call centers to sell pharmaceuticals only to people who lived in states that treated off-prescription sales of uncontrolled drugs as civil or administrative violations but not criminal acts. RX Limited did not fulfill prescriptions in Florida, Tennessee, Kentucky, and Nevada, where it was a state crime to sell prescription drugs online without a visit to a doctor.
He scattered his credit card processing arrangements far and wide, so that no single financial institution would see the whole picture. Most were in countries not known as money laundering havens.
LeRoux’s business style was a combination of what he learned working for Hafner and his own intuition. Hafner showed him focus, passion, and tenacity, but he had no need to cloak his business activities and identity. LeRoux did. He improvised a series of clever ruses that enabled him to play ghost—to vanish from the sight of routine law enforcement. These gambits weren’t perfect, but they were good enough for some years, until he accumulated enough wealth to buy his way out of trouble in most places.
Remarkably, on his own, far from anyplace New Economy entrepreneurs gathered to exchange ideas, LeRoux developed an approach to business that looked a lot like the methodology that, in a few years, would be all the rage in Silicon Valley. Author Eric Ries gave it a name in a blog post in 2008 and elaborated on the concept in his bestselling 2011 book, The Lean Startup.
Ries held that the twenty-first-century business world was moving too fast for the traditional MBA-school playbook, involving years of product development, investment banking, board cultivation, executive hiring, and marketing. Instead, Ries said, entrepreneurs had to move swiftly and with agility, using trial and error to find a niche that assured solid returns. “Lean in the sense of low-burn,” Ries wrote in 2008. “Of course, many startups are capital efficient and generally frugal. But by taking advantage of open source, agile software, and iterative development, lean startups can operate with much less waste.”
By unlocking creativity, harnessing cheap or free technology, spending minimally and acting adroitly, the entrepreneur should produce a “minimum viable product,” test the market, and move ahead only after finding objective proof that the concept was right.
Forget romantic notions about vision and dreams, Ries argued. What mattered was numbers. If the first returns are solid, scale up fast. If not, pivot, and redirect your passion and energy to finding the next big idea. Failing was no shame. To the contrary, failure, redefined as pivoting smartly away from a loser, saved time and money.
“It is really about—Try a little, learn a lot,” said Eric Hellweg, managing director of digital strategy for the Harvard Business Review. “A lot of what lean start-up says is, stay scrappy until what you’re thinking works—until it really does resonate and you see some market validation.”
According to federal court proceedings in Minneapolis, in 2005, working through an Israeli associate, LeRoux hired an Israeli citizen named Moran Oz to serve as the day-to-day manager of RX Limited. According to his lawyer, when he took the job, Oz thought the business was legitimate, even altruistic; he claimed that he was told RX Limited aimed to give Americans without health insurance access to affordable prescription drugs. Oz worked out of executive offices in Jerusalem. LeRoux scaled up rapidly. By 2007, according to Oz’s lawyer, the Jerusalem office had 30 employees and a call center in Tel Aviv had 150 people. More call center workers were in Manila, where LeRoux was living much of the time, and Costa Rica, where LeRoux still had a finger in an online casino business. In Manila and Jerusalem, LeRoux made it a practice to put Israelis in back-office jobs involving substantial sums of money. He thought they took care of business well, had connections all over the world through the Jewish diaspora, and, unlike Arabs, traveled anywhere they wanted without attracting the kind of attention that landed them on counterterrorism no-fly lists.
LeRoux found he had more worries from business competitors than from law enforcement. The black market in pills was cutthroat, with rivals hacking one another’s servers, stealing customer lists, and sabotaging software. LeRoux was well equipped to win these skirmishes. He applied his cybersecurity skills to creating elaborate defensive measures. He set up more than fifty servers in various nations, including the Philippines, Israel, and Costa Rica, and rotated them daily. When one server detected an attempted intrusion, it automatically shut down, and the traffic rotated to another server.
In 2008, just as RX Limited hit cruising speed, the business environment for Internet pharmaceutical sales started to change. In the United States, policy makers and lawmakers were beginning to recognize that abuse of prescription drugs had become a serious public health problem. In October of that year, Congress enacted the Ryan Haight Online Pharmacy Consumer Protection Act, named for a teenager who died after taking Vicodin, the trade name for a pharmaceutical containing hydrocodone, a prescription opioid painkiller. An Internet pharmacy had sold the youth the pills that killed him. The legislation in his name strengthened the federal Controlled Substances Act by making it a felony to distribute a controlled substance across the Internet without a valid prescription.
The Haight Act put pressure on the Visa network to bring some accountability to the payment system and to force its member banks to scrutinize online transactions and curtail questionable sales of prescription drugs. Visa officials responded by assigning a special code to pharmaceutical transactions to highlight them and by auditing some member banks. LeRoux’s e-commerce sites were collecting money using the Visa network, with payments processed through banks in Mauritius, the Netherlands, Israel, and Iceland. LeRoux considered issuing his own Visa credit card through banks in a country with lax regulation.
The Haight Act put a crimp in his plans. Although RX Limited was not selling controlled substances, the new spotlight on Internet pharmacies threatened to raise questions about RX Limited’s commercial relationships with banks that processed its credit card payments and with shipping companies.
LeRoux tried to head off deeper inquiries by carpet-bombing the banking system with subterfuges. He sent the banks fake paperwork and set up fake websites that appeared to meet the letter of the new law. When American Express and Discover demanded that online pharmaceutical sellers have valid pharmacy licenses, LeRoux signed up licensed pharmacists to front for him.
Amazingly, he managed to outsmart the Google algorithm. Google executives were trying to do their part to curb prescription drug abuse by barring questionable online pharmacies from buying keywords for the Google AdWords program, which caused advertisers’ names to pop to the top of search results. LeRoux solved this problem by identifying the IP addresses Google was using to collect information about RX Limited. He then redirected the Google probes to fake websites that omitted information that would have disqualified RX Limited from buying keywords.
RX Limited’s success was starting to leave tracks. The traces were faint, but they were ineradicable, if someone with good detective skills could find them and read them.
In September 2007, a few DEA agents in Minneapol
is stumbled onto a suspicious cache of records from a Chicago pharmacy. The records showed that the pharmacy had sent a large volume of prescription drugs to various individuals, using a single FedEx account.
The agents followed the paper trail back to the FedEx account and, back further, to the pharmacies using it. They found no fewer than one hundred pharmacies scattered around the United States in a network linked to the account’s owner, RX Limited.
The agents took a hard look at the identities of some of the signatures on the prescriptions. Some were doctors, but some weren’t. A single individual falsely claiming to be a physician had authorized about 150,000 drug orders between September 2005 and April 2008. Another prescriber was a dentist. The Minneapolis agents didn’t know what they were looking at, and they didn’t know if they had a federal case, but they knew this much: RX Limited stunk. They decided to try to get to the bottom of it. They went online and made undercover buys of prescription drugs from RX Limited. They found and interviewed a physician who admitted participating in the RX Limited network and approving large numbers of pharmaceutical orders, without even reading the customers’ questionnaires.
Before long, they had identified Moran Oz as the man in charge of RX Limited. They obtained search warrants for his email accounts. Over many months, they pierced his communications and identified his possible superior: an individual named Paul LeRoux, with an address in Manila. Following DEA’s standard operating procedure, they sent inquiries to authorities in the Philippines, asking for information on LeRoux.
The investigation promptly leaked back to LeRoux. He had set up an early warning system, by putting an official in the Philippines Department of Foreign Affairs on his payroll. LeRoux knew the man only by a code name—“Dragnet Man.” For a large fee, Dragnet Man purloined U.S. and Australian law enforcement reports sent to the Philippines police, as well as files on American law enforcement personnel and diplomats posted to Manila. He provided these documents to LeRoux.
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