Diverters fraudulently obtain consumer goods at discounted prices from manufacturers and distributors (referred to as "Corporate Victims" in the Indictment) of consumer products by falsely informing them that those products would be donated to non-profit organizations for promotional purposes. Instead, the goods are sold at a substantial profit to wholesalers, retail stores and others.
Diversion is generally recognized as the process of moving genuinely branded products outside agreed-upon distribution channels. Consumer product manufacturers frequently set aside a portion of their products to be sold to legitimate charitable organizations, to various programs that market and promote the manufacturers’ products, or to authorized retailers outside of the United States for substantially discounted prices. In so doing, manufacturers aid humanitarian organizations, engender goodwill for their product, and increase sales for their product by promoting it to a new sector of the market. Pharmaceutical and consumer product diverters take advantage of these programs by operating through a series of complex and sophisticated machinations, including the use of shell companies, fictitious references and aliases. Diverters employ a variety of techniques to obtain deeply discounted prices from manufacturers and distributors by falsely informing them that they will donate the goods to non-profit organizations or that they will distribute them for promotional purposes to institutions such as college campuses, nursing homes/assisted living facilities, prisons, hospitals and campgrounds. Others hold themselves out as institutions or closed-door pharmacies when in fact these are fronts for retail operations. In many cases, diverters divert the products into the gray market even when they sign contracts or Own Use forms that expressly prohibit the distribution of product into unauthorized channels.
Product diversion has substantial financial and regulatory implications, exposing manufacturers in some cases to losses in the tens of millions, if not hundreds of millions, of dollars. For drug manufacturers, diversion can compromise compliance with Prescription Drug Marketing Act. Diversion can also result in the sale of outdated drugs, thereby placing the public at risk.
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