From FBI Wire: Former House Majority Leader Martineau is charged in dealings with pharmacy company and health insurer

The United States government has charged former House Majority Leader Gerard M. Martineau with honest services mail fraud for engineering personal business dealings with a pharmacy company and a health insurer and, in return, steering the outcome of legislation in which those companies were interested. Martineau, who is alleged to have been paid more than $900,000 in the two schemes, has agreed to plead guilty to the charges.

United States Attorney Robert Clark Corrente and Warren T. Bamford, Special Agent in Charge of the Federal Bureau of Investigation, announced a two-count information, which was filed today in U.S. District Court, Providence. Along with the information, an agreement was filed in which Martineau agrees to waive indictment and plead guilty. He has not yet entered a plea.

In 1998, according to the information, Martineau formed a personal business entity called the Upland Group. Thereafter, he arranged to sell paper prescription bags to the health insurance company, for use as promotional items, and both plastic and paper bags to the pharmacy company for use in its merchandising. In return, according to the information, he used his position to affect legislation on the companies’ agendas, including the so-called pharmacy freedom of choice legislation, which both companies opposed.

Health Insurance Company Scheme

In 1998, according to the information, the health insurance company agreed to buy paper bags through the Upland Group, bags into which the company could insert promotional items. It could then distribute the bags free to independent pharmacies. Thereafter, Martineau, through the Upland Group, periodically billed the company for bags in lots of one and three million, at $19,500 per million. On some occasions – in December 1998, December 2000, and in December 2001, he billed the company just days or weeks before the start of a legislative session.

In all, Martineau contracted to sell the health insurance company ten million bags, but fewer than two million were ever manufactured. He billed the health insurer $195,000 for the ten million bags, and was paid $175,500. According to the information, the health insurer did not pay the final invoice for $19,500, which Martineau submitted in 2003.

Pharmacy Freedom of Choice

The health insurance company contracted with the pharmacy company for a restricted pharmacy network that required insured clients to use the restricted network for prescriptions. For several years, legislation was introduced to open the network to other pharmacies. Both the health insurance company and the pharmacy opposed that legislation, known by various titles, such as “Pharmacy Freedom of Choice, and “Any Willing Provider.”

Until 1999, Martineau was in favor of pharmacy freedom of choice. However, after the Upland Group started selling bags to the health insurer and the pharmacy, Martineau announced his opposition to the legislation, and subsequently used his position as Majority Leader to stymie its passage.

Between 1999 and the end of the 2002 session, Martineau also worked for or against other legislation on the insurance company’s agenda, including a bill in 1999 that would have facilitated the sale of the insurer to a for-profit company.

Pharmacy Scheme

According to the information, prior to 1999, Martineau had a long standing business relationship with the pharmacy, selling commodities to it for commission. After he formed the Upland Group, he began dealing directly with the pharmacy, arranging the sale of both plastic and paper bags to the company. Between 1999 and the end of 2002, he received a total of $716,435 in commission payments on contracts with the pharmacy for bags.

According to the information, in addition to thwarting passage of pharmacy freedom of choice legislation, Martineau also worked for or against other legislation on the pharmacy’s agenda.

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According to the information, Martineau never disclosed to Rhode Island citizens his conflicts of interest with the pharmacy and the health insurer. According to the information, he even took steps to conceal the relationships, by such devices as not signing his name to invoices, and writing business letters from the Upland Group to the health insurer over the signature of another person who had no relationship to the Upland Group.

The information charges Martineau with two counts of using the mail to deprive Rhode Island citizens of their right to his honest services. Each count carries a maximum penalty of five years imprisonment and a fine of $250,000 or twice the amount of gain or loss.

An information is merely an allegation and a defendant is presumed innocent unless and until proven guilty. Even though Martineau has signed an agreement to plead guilty, he has not yet entered a plea. He will have an opportunity to formally enter a plea at a U.S. District Court hearing that has not yet been scheduled.

The information resulted from a continuing public corruption investigation by the Federal Bureau of Investigation, other federal agencies, and the Rhode Island State Police into relationships between Rhode Island legislators and entities that have interests in legislation and activity of the General Assembly.

Assistant U.S. Attorney Gerard B. Sullivan, Assistant U.S. Attorney Stephen G. Dambruch, and Daniel A. Petalas, a Trial Attorney with the Department of Justice Public Integrity Section, are prosecuting the case.