Judgment entered against fourteen defendants in case dismantling nationwide racketeering conspiracy


Date: March 30, 2023

Contact: newsroom@ci.irs.gov

San Francisco — On Thursday, March 23, 2023, and Friday, March 24, 2023, the federal court entered judgment against fourteen defendants, including cousins and ringleaders Mihran Stepanyan and Artur Stepanyan, who were sentenced for their respective roles in a variety of crimes stemming from a wide-ranging racketeering conspiracy involving diversion of prescription drugs, money laundering, mail and wire fraud, and additional crimes, announced United States Attorney Ismail J. Ramsey; Internal Revenue Service, Criminal Investigation, Special Agent in Charge Darren Lian; and Federal Bureau of Investigation Special Agent in Charge Robert K. Tripp. The sentences were handed down by the Hon. Charles R. Breyer, Senior United States District Judge, and leaves nine defendants remaining to be sentenced for crimes committed in connection with the case.

The fourteen defendants had been charged with various crimes as part of a Second Superseding Indictment filed on February 11, 2016. The Second Superseding indictment alleged that 38 defendants were involved with the activities of a nationwide conspiracy, referred to in court documents as the Karapedyan-Stepanyan Enterprise (Enterprise), that engaged in, among other crimes, a multi-million-dollar prescription drug diversion scheme, a tax fraud and Treasury check scheme, and several other criminal schemes. Information about charges brought earlier in the case can be found here and information about several defendants' guilty pleas can be found here.

The Prescription Drug Diversion Scheme

Last week, seven defendants were sentenced for their respective roles in the prescription drug diversion scheme. Among them were four of the principal actors in the Enterprise: Mihran Stepanyan of Glendale, Calif., Artur Stepanyan of Glendale, Calif., Yan German (a.k.a., Henrik Harutyunyan) of Encino, and Arman Zargayan of Granada Hills, Calif. All four defendants pleaded guilty to racketeering conspiracy, in violation of 18 U.S.C. § 1962(d).

The prescription drug diversion scheme had nationwide reach; indeed, a separate investigation resulted in another indictment filed on May 6, 2015, in the Southern District of Ohio. That indictment charged the Stepanyans and others with various crimes arising from their sale of illicitly procured drugs and was transferred to the Northern District of California and consolidated with the instant case.

Court documents describe how the Enterprise took advantage of a "robust black market involving the wholesale distribution of prescription drugs." According to the government's filings, prescription drugs were procured illicitly at below market value and then were resold and re-introduced into the market as legitimate drugs at near-market prices. Illicit procurement can involve stealing drugs from manufacturers; buying drugs from patients with prescriptions at below-market prices (the patients' costs are offset or reduced by insurance, including Medicare); buying drugs using false prescriptions and straw patients, usually with the aid of a corrupt doctor (again, with the costs offset or reduced by insurance); and purchasing drugs from a manufacturer at a discounted price through fraud, e.g., falsely claiming a charitable or similar discount. These "diverted" prescription drugs often are cleaned or repackaged to make them appear legitimate. Each of the defendants sentenced pleaded guilty to crimes in accordance with their participation in the crimes of the Enterprise. Each defendant's plea agreement describes the role that the defendant played in the drug diversion scheme.

According to their plea agreements, Artur and Mirhan Stepanyan obtained illicit prescription drugs from a network of unlicensed drug suppliers and supplied the drugs to co-conspirators at deep discounts. The Stepanyans were responsible for nearly $200 million in sales to their co-defendants who sold the drugs to customers throughout the United States. The defendants used fraudulent documents to establish the pedigree of the drugs they sold. In addition, the Stepanyans sold prescription drugs to their co-defendants in California, although they were not licensed to do so. Starting as early as 2009, the Stepanyans sold tens of millions of dollars in diverted prescription drugs per year to their codefendants. The Stepanyans incorporated multiple entities in Nevada, including Panda Capital Group, Trans Atlantic Capital Group, and Red Rock Capital Group and in 2012, the Stepanyans began doing business as GC National Wholesale. The Stepanyans were paid more than $160 million for diverted drugs—typically at prices ranging from 15% to 25% off the Wholesale Acquisition Cost ("WAC") established by manufacturers of prescription drugs. For their respective parts in the conspiracy, Mihran Stepanyan was sentenced to 60 months in prison and Artur Stepanyan, was sentenced to 54 months in prison.

German was sentenced to 23 months in prison for his role in the scheme. German admitted he was one of the suppliers of pharmaceutical drugs for the Stepanyans. According to his plea agreement, German admitted he engaged in a wire fraud and money laundering as part of the Enterprise and that he was involve in a separate prescription drug diversion and check cashing scheme with co-defendant Ara Karapedyan. German also acknowledged the loss amount for which he is responsible is between $9.5 and $25 million.

Zargayan was sentenced to 35 months in prison for his role in the scheme. Zargayan operated a California-licensed drug wholesale company, Nuvo Pharmaceuticals, with an unindicted co-conspirator. Zargayan admitted that he used Nuvo Pharmaceuticals as a front for the drugs that a company called ME Wholesale sold to LLC Wholesale from May to August 2013. Nuvo Pharmaceuticals was licensed in California, but it did not actually supply the drugs that ME Wholesale sold. In addition, the pedigrees for ME Wholesale's drugs falsely claimed that Nuvo Pharmaceuticals had received the drugs from McKesson.

Fraudulent Check Scheme

Also sentenced last week were seven defendants, all California residents, in connection with attempts to negotiate over 500 fraudulent checks issued to a variety of payees and totaling more than $5 million. A substantial number of the fraudulent checks were tax refund checks sent by mail by the United States Treasury and many of these tax refund checks had been issued based on fraudulent tax returns filed with the Internal Revenue Service. The defendants acquired and possessed identifying information for dozens of individuals, which was used to file fraudulent tax returns online. Associates of the Enterprise negotiated numerous fraudulent checks through a business owned by one of the co-conspirators—a service that was offered in exchange for a percentage of the proceeds.

In sum, of the 38 defendants charged in the February 2016 Superseding Indictment, 33 have been convicted and nine remain to be sentenced. The charges against five defendants have been dismissed. Judge Breyer scheduled two additional hearings for May 31, 2023, at which time co-defendants Asatour Magzanyan and Loui Artin are scheduled to be sentenced.

Assistant United States Attorneys Claudia Quiroz, Andrew Dawson, and Chris Kaltsas are prosecuting the case with the assistance of Kevin Costello. The prosecution is the result of an investigation by the IRS-CI, the FBI, the FDA, and USPIS.