Firefighters, cop, pizzeria owner among 7 arrested in Jersey Shore drug fraud ring with ties to James Kauffman

Seven people, including three firefighters, a police officer, and an owner of Tony’s Baltimore Grill in Atlantic City, were arrested Friday and charged in a $50 million prescription-drug health-benefits scheme that has already snagged dozens of public employees and pharmaceutical representatives at the New Jersey Shore.

The arrests followed the unsealing of a 50-count federal indictment charging William Hickman, 42, of Northfield; his wife, Sara, 42; Ventnor Police Officer Thomas Schallus, 42; brothers and Margate Firefighters John, 37, and Thomas Sher, 46; Camden Firefighter Christopher Broccoli, 47, of West Deptford; and Brian Pugh, 41, of Absecon, identified in the indictment as a businessman.

All were charged with conspiracy to commit health-care fraud and wire fraud, and with individual acts of health-care fraud and wire fraud, according to the U.S. Attorney’s Office. Pugh and the Hickmans were additionally charged with conspiracy to commit money laundering.

Pugh is co-owner of the popular Atlantic City pizzeria, which he purchased with his father, a longtime employee, in 2017. John and Thomas Sher have a brother, Michael, who also is a Margate firefighter. Michael Sher has already pleaded guilty in the case. A fourth Sher brother is a potential witness in the case, said Assistant U.S. Attorney David Walk.

Hickman, a pharmaceutical representative, was named in a search warrant executed in June 2017 at the office of James Kauffman, an endocrinologist who later killed himself while in prison awaiting trial in the murder of his wife, April.

The search warrant, obtained by The Inquirer, identifies Hickman as a ringleader in the prescription drug scheme. The warrant alleges that Hickman is alleged to have used a shell company, Boardwalk Medical LLC, to solicit the services of Kauffman and other doctors for fraudulent prescriptions for expensive creams, vitamins, and libido medication, and scar ointments.

All seven defendants pleaded not guilty Friday afternoon in front of U.S. Magistrate Judge Ann Marie Donio in Camden and were expected to be released on $100,000 bail. A status hearing was set for Thursday.

Donio ordered no contact among the Sher brothers, even at their children’s games, unless one of the parents of the accused, Anne Marie or Dennis Sher, were present.

“We go to every game,” their mother assured the judge Friday, from the second row as her son John stood by somberly, shackled around the waist like the others. “We have 26 grandchildren.”

“It’s a sad day for Margate,” said Mayor Mike Becker.

All three firefighters and the Ventnor officer will be suspended pending the outcome of the case. The judge also ordered the defendants not to travel outside New Jersey, disrupting planned vacations by the Hickman family to Clearwater, Fla., and Puerto Rico, over their attorneys’ objections.

The bail for the Hickmans was required to be secured, and Walk, the assistant U.S. attorney, told the judge the Hickmans had failed to disclose assets totaling $1.4 million.

The probe into the conspiracy also previously snagged an Atlantic City firefighter, a Ventnor firefighter, two doctors, four school employees including two teachers, and 13 pharmaceutical representatives. All have pleaded guilty, but have had their sentencings repeatedly delayed.

Six of those who previously pleaded guilty, including Matthew Tedesco, previously described as being a ringleader, were named in Friday’s indictment as unindicted co-conspirators.

The scheme outlined in the search warrant is alleged to have happened from July 2014 to April 2016 and was run with the aid of a now-closed pharmacy in Hammond, La., called Central Rexall Drugs.

Ventnor Police Chief Doug Biagi said Schallus was an interim sergeant with 19 years on the force and pay of $123,700 a year.

“He has been suspended without pay,” Biagi said and declined to comment further.

Michael Baldassare, attorney for Pugh, said the U.S. attorney’s actions Friday smeared his client.

“He is a well-respected local businessman, and he is presumed innocent,” Baldassare said in a statement. “After a two-year, multimillion-dollar failure to find any evidence against the big corporate players, the prosecutors are trying to bully police officers, teachers, and hard-working local business people.”

Attorneys Jerome Ballarotto and Joseph Grimes, representing John and Thomas Sher, said their clients were unaware that doctors were getting paid to write the prescriptions they had a role in procuring. They said they had merely been acting as referrers for pharmaceutical representatives to legitimately get fees.

“The government has turned this into some giant conspiracy,” Ballarotto said.

“The evidence will come down to who knew whether or not doctors were getting paid or not to write prescriptions,” said Grimes.

Shore towns have been aware for at least two years that many of their public employees had been involved in some way with the scheme, and the towns complied with demands for health insurance records.

Hickman’s attorney, Samuel Moulthrop, said in a statement that Hickman “is innocent, and we are eager to contest these charges.”

Moulthrop said in court that Hickman had been in repeated contact with the U.S. Attorney’s Office during the last two years as others in the scheme pleaded guilty.

Atlantic County Prosecutor Damon Tyner has said he expects to charge lower-level employees once the federal investigation has been completed.

The indictment describes a now-familiar scheme in which compounding pharmacies were able to charge recurring monthly rates billed to the state health-benefits programs of public employees.

That money was then spread through the organization and down through to the public employees, who were given prescriptions without having been seen by a physician or needing the medication.

The indictment alleges that the ringleaders recruited state and local government and education employees who had the benefits that would pay for the expensive compounded medicines.

The prescriptions were paid for by the state benefits administrator, which billed the state for the amounts paid. The indictment alleges the defendants found the “most expensive medications with the highest number of refills to obtain the highest possible insurance reimbursement.”

More than $50 million was paid out by the state benefits plan, and the pharmacy paid the Hickmans more than $26 million. A portion of that was paid to Pugh, Schallus, John and Thomas Sher, Broccoli, “and other conspirators,” according to the U.S. Attorney’s Office.

The health-care fraud and wire-fraud conspiracy counts carry a maximum penalty of 20 years in prison and a $250,000 fine, or twice the value of the property involved in the transaction.

Staff writer Julie Shaw contributed to this article.