http://www.post-gazette.com/pg/05242/562571.stm

For one man, online drug sales meant fast profits
Tuesday, August 30, 2005

By Heather Won Tesoriero, The Wall Street Journal



Browsing the Internet on Halloween night in 1998, Mark Kolowich read that Viagra was difficult to get in Great Britain while the government decided whether to pay for it. The owner of a struggling San Diego picture-frame business smelled a new commercial opportunity.

In a couple of weeks, Mr. Kolowich says, he had procured the anti-impotence pills from Tijuana, Mexico, where they could easily be obtained without a prescription. He started selling the pills to United Kingdom buyers on a rudimentary Web site, which later became known as WorldExpressRx .com. Within five years, Mr. Kolowich was selling a wide array of prescription drugs to thousands of customers around the world. By one U.S. government estimate, he made as much as $7 million, but he says he made much more.

Eventually, Mr. Kolowich was arrested for importing and selling counterfeit drugs, mail fraud and money laundering. In April 2004, he pleaded guilty to all four counts and is now serving a 51-month prison term at the low-security Federal Correctional Institution in Lompoc, Calif., near Santa Barbara.

But for years, he was able to evade investigators from the Food and Drug Administration, border officials from U.S. Immigration and Customs Enforcement and the Federal Bureau of Investigation. The 45-year-old Mr. Kolowich agreed recently to discuss in detail his commercial operations, and how he was able to stay one step ahead of the law for so long. In a four-hour interview -- clad in prison khakis, 40 pounds lighter than when he was living the high life, sitting in plastic chairs in the prison's visitors lounge -- he offered a rare look into the rapidly expanding, often shady, sector of online pharmaceutical sales.

Though Viagra and other anti-impotence remedies are available with a prescription at legitimate pharmacies, there's a thriving online market for these drugs, where customers can obtain the pills anonymously and with ease. But online pharmacies are largely unregulated and unmonitored by health authorities. In many cases, site operators such as Mr. Kolowich are unlicensed to sell or prescribe prescription medications. Since October 1999, the FDA's Office of Criminal Investigations has made about 180 Internet drug arrests, most of which have resulted in convictions.

New sites are constantly sprouting up. Like Mr. Kolowich, criminals set up online drug sites because they're inexpensive to create and hard to shut down. Counterfeit supplies are widely available and easy to smuggle. Drug makers consider other versions of their patent-protected drugs to be counterfeit. Pfizer Inc.'s Viagra patent is valid in the U.S. until March 2012.

There are "tens of thousands of URLs, which lead back to thousands of online pharmacies," according to Michael Allison, chairman and chief executive officer of ICG Inc., a Princeton, N.J., firm that investigates fraudulent Internet activity for companies. ICG estimates that 80 percent of drugs sold online are considered counterfeit by drug manufacturers, although others in the industry caution that such figures are hard to prove.

Mr. Kolowich remembers a life as the youngest of eight children in a rich, roving family. He says he spent some of his childhood aboard an 82-foot yacht in the Caribbean and attended a British boarding school. One of his sisters confirms this account. Mr. Kolowich's father was an entrepreneur who made a fortune selling a trucking business. He says his father, now deceased, also served 30 days in prison for tax evasion.

Mr. Kolowich never went to college. He never graduated from high school. He says he passed a high-school equivalency exam back in the U.S. and then hopscotched from job to job, including as an overnight federal-funds trader and as an airline ticketing agent. He never held a position for long.

Then came the Halloween inspiration. Mr. Kolowich taught himself how to build a Web site from a few books on e-commerce. Recalling his days at the British boarding school, he sprinkled the site with words such as "chemist" and "fortnight." He figured out how to use aboveboard businesses to his advantage.

He opened a bank account with the First Bank of Beverly Hills, listing his business as selling "health supplements." The bank sold its merchant-accounts unit in June 2001. First Bank of Beverly Hills Chief Executive and President Joseph W. Kiley, who wasn't with the bank when Mr. Kolowich said he did business with it, said he wasn't aware of this particular case.

Since he initially targeted British customers, Mr. Kolowich procured London-based telephone numbers from j2 Global Communications Inc., a company that sells phone numbers for more than 1,300 cities around the world. Customers would think they were calling England, while Mr. Kolowich and his employees would take the calls in California, according to the criminal complaint filed by the government.

Christine Brodeur, a spokeswoman for j2 Global, confirmed that Mr. Kolowich had an account, and said the company reserves the right to terminate service if it determines a customer is acting illegally. She says the company wasn't contacted by law enforcement regarding Mr. Kolowich.

In the first week his Web site was live, Mr. Kolowich says, he got 40 orders. He drove to Tijuana to buy what he says were Pfizer-made Viagra pills from a pharmacy, smuggling them back to San Diego in his Lexus. Mr. Kolowich says he was able to make bulk purchases without a prescription from a local Tijuana pharmacy. He had no license to prescribe or sell prescription drugs.

As business picked up in the first few months of 1999, Mr. Kolowich grew savvy about getting past border-patrol protocol. He says he stuffed the pills under the seat and floor mats -- every place but the trunk. A spokesman for U.S. Customs and Border Protection says that "every car, every person does undergo some level of inspection." But he adds that the high volume means "the officer has precious few seconds" sometimes for the inspection.

In his first year, Mr. Kolowich says, he had revenue of $985,000 from his Viagra sales. He then diversified, selling what he says were also real versions of weight-loss drug Xenical, painkiller Celebrex and hair-loss drug Propecia, bought in Mexico at pharmacies. Law-enforcement agents say that the drugs Mr. Kolowich sold were tested and though they contained some active ingredient, they weren't manufactured by pharmaceutical companies that had patented them.

Mr. Kolowich hired three employees for customer service and filling orders, and merged several sites he had built into one: WorldExpressRx.com. A growing number of U.S. customers, particularly those with college-campus mailing addresses, bought from the site. In his second year, he says, he brought in revenue of $3 million.

In early 2001, Mr. Kolowich got a big break when he read an article online about "generic Viagra" made by the Indian drug company Ranbaxy Laboratories Ltd., under the name Caverta. In the past, India hasn't recognized U.S. pharmaceutical patents, spawning a thriving industry in knockoff drugs.

Mr. Kolowich says he and a friend flew first class to Mumbai. Carrying $40,000 in cash, he says, he met with people at Ranbaxy who politely told him that the drug wasn't for export. But he says someone at the company gave him the name of a local wholesaler whom he met six hours later. He won't identify his tipster. A spokesman for Ranbaxy, informed of Mr. Kolowich's account, declined to comment on it and would only say, "Ranbaxy abides by all local laws, rules and regulations in all countries where it has operations."

Mr. Kolowich says he paid cash to the local wholesaler at 48 cents a pill -- well below the $7 a pill he was paying in Mexico. Online, he charged $13 a pill for his Mexican supply. Viagra sells for about $10 a pill when purchased through legitimate outlets. Back in the U.S., he planned to sell Ranbaxy's Caverta pills for $6.50 each, a 1,200 percent markup. He bought 80,000. The pills were red triangles, as opposed to Viagra's blue diamonds. He jammed them into two large suitcases.

Mr. Kolowich encountered some unexpected resistance on his India trip. It took him several weeks to negotiate the supply deal. The cash payment, he says, "was a red flag" to the wholesaler, who photocopied every U.S. bill he had brought and asked for a "one-page due diligence" document about his creditors. He passed himself off as a doctor, saying he had an online pharmacy on the side.

Then in Mexico City, on the way back to San Diego from India, customs officials opened his bag. When they discovered his Caverta pills, Mr. Kolowich says, he was swarmed by security. He showed them a business card from a Tijuana pharmacy. Because he couldn't communicate well in Spanish, Mr. Kolowich says, he engaged in charades to explain that the drugs were for impotence. He says some men took a small sample of the pills, disappeared for a while, and let him proceed after they returned. He then drove the drugs over the border to San Diego.

Gabriela Deffis Ramos, a spokeswoman for Mexican customs, said customs didn't have a record of the incident.

About that time, Mr. Kolowich says, he received six months' notice from the First Bank of Beverly Hills saying it would be terminating his account. According to the bank's Mr. Kiley, many banks were getting suspicious about online businesses after there were a number of high-profile scams. Banks had started requiring these businesses to carry high minimum balances, charging high fees for all transactions -- and sometimes cutting them off.

Mr. Kolowich quickly adjusted. He got Deutsche Bank in Munich and Bank of Montreal in Vancouver to take his accounts. Spokesmen for Deutsche Bank and Bank of Montreal declined to comment on the case. Realizing that other online pharmacies had similar banking difficulties, he set up a new business to help them out, according to law-enforcement agents. He would allow other online druggists to become "affiliates" of WorldExpressRx.com, and would then manage their accounts for them. He'd charge them a transaction fee as low as 5 percent, a big savings for the pharmacists paying up to 9 percent at mainstream banks. Mr. Kolowich says he invested $200,000 in software to handle the new financial side of his operation, and took in daily revenue on it of $50,000 to $60,000.

The drug side of the business was expanding sharply as well. He says the India supply line expanded and became the major source for his business, which advertised the Caverta pills as "generic Viagra." He made a second trip to India and sent a friend on a third, but eventually, he had his Indian drugs shipped to Mexico, and hired someone to smuggle them over the border. He says he paid about $1 million to people in Mexico for smuggling. A federal investigation later uncovered letters and wire transfers from an Indian-based company requesting Mr. Kolowich pick up his shipment in Mexico.

He had plenty of money left over to enjoy a lavish lifestyle. According to law-enforcement agents familiar with the case, he drove a leased Porsche with the license plate "BLU PIL." He says he drank $3,000 bottles of Bordeaux wine and fed a cocaine habit. "My whole life I always wanted to come up with an idea that would succeed, and here it was working," says Mr. Kolowich.

All the time his business expanded, Mr. Kolowich says, he wrestled with what he was doing. He was thrilled by a business success at last, but knew he was breaking the law. "I think I've unleashed a lion, the Internet's booming ... I think I've got something pretty unique," he recalls feeling. "But I'm also doing something highly illegal." Mr. Kolowich had no license to sell or import prescription drugs. Further, he didn't report income from his business. He told himself it was OK: "My inner voice said, 'Mark, it's just Europe.' "

When he expanded beyond Europe, and into the U.S., he still felt he was performing a service for his clients, an argument he stresses repeatedly in the prison interview. His customers, he says, frequently thanked him via email and phone calls. And he says that he never crossed the line to selling controlled substances, which he described as "dangerous drugs." Still, drugs sold without a prescription can pose serious health risks. For instance, patients taking nitrate-containing drugs such as heart medications shouldn't take Viagra, since the combination could cause a dangerous drop in blood pressure, according to a Pfizer spokesman.

In the fall of 2003, Mr. Kolowich told his girlfriend, Odette Pidermann, currently serving an 18-month sentence for crimes related to WorldExpressRx.com, he was getting out of the business by New Year's. In an interview last February before she began her prison sentence, Ms. Pidermann, who pleaded guilty to charges of conspiracy and mail fraud, said that she was drawn into the activities because of her relationship with Mr. Kolowich.

But "Jan. 1 came and went," he says, and instead of quitting, he only dove deeper into the illegal pharmaceutical world. Rather than just selling pills he purchased, he began negotiating a deal to manufacture his own knockoff pills in Mexico, according to the U.S. attorney's office in San Diego.

Mr. Kolowich's fate took a turn when a former employee of his firm happened to pawn a laptop. Law-enforcement agents familiar with the case say a person hired by the pawn shop to do the routine cleaning of the computer's hard drive notified authorities after discovering images of pills and other WorldExpressRx.com documents. That triggered an FBI investigation. According to the criminal complaint, law-enforcement agents also made several undercover purchases from Mr. Kolowich's site.

On March 22, 2004, Mr. Kolowich and his girlfriend landed at the San Diego International Airport, back from a ski vacation at a luxury resort in western Canada. Authorities trailed him as he got off the plane and walked through the airport. They arrested him and his girlfriend at the baggage carousel. They didn't resist.

"After the initial shock," says Mr. Kolowich, "it was a big relief."