TALLAHASSEE ― The company that makes the coveted N95 masks needed by healthcare workers during the coronavirus pandemic has taken notice of the frenzied scramble by unconventional companies to become suppliers of the masks in Florida. This week 3M filed the first in what it says will be a series of lawsuits in the state against what it calls fake vendors.
“3M will continue to take action against those who exploit the demand for N95 respirators used by healthcare workers on the frontlines of the COVID-19 fight,” said Denise Rutherford, senior vice president for corporate affairs for 3M, the maker of the popular masks, in a statement. “We will continue to work with state, federal and international law enforcement to root out illegal behavior and put a stop to it.”
The company filed a lawsuit in federal district court in Orlando this week against Orlando-based Geftico, LLC, which it says fraudulently claimed it had access to 3M masks and attempted to sell them to the federal stockpile at 500% above the average list prices.
It is the fourth such lawsuit in four states in a week, and the company told the Times/Herald it won’t be the last in Florida.
“We will investigate any price gouging, fraud, counterfeit product and fake web sites,’’ Rutherford said.
As the state’s stockpile of the protective masks dropped to a dangerously low level last month, Florida’s Division of Emergency Management embarked on a frantic attempt to sign $600 million in no-bid purchase orders with dozens of vendors, many of whom were not authorized by 3M to sell the N95 masks.
Only a fraction of the 90 million masks the state sought have actually materialized, and Jared Moskowitz, the director of the Division of Emergency Management, conceded on Friday that “many people were duped.”
An updated analysis shows that nearly $180 million of the $305 million in mask deals the state entered into have been canceled, while another $125 million remain active, although Moskowitz said most of the deals have died and the website has not been updated.
The state was forced to turn to unfamiliar suppliers because the normal 3M distributors couldn’t meet the massive need to outfit workers in hospitals, emergency services, long-term care facilities and conducting coronavirus tests, he said. And Moskowitz was willing to pay any price.
“We were putting eggs in a lot of baskets to see if we could get lucky,’’ he said. “Three weeks ago we didn’t know what we know now, and we were so desperate that anyone reputable ... we were willing to work with them.”
That led to contacts with dozens of unlikely vendors who may have been seizing an opportunity. The top ones on the state’s site as of Thursday were:
▪ Liquidus 5, a company that advertises itself as “one of Miami’s Premier Real Estate Developers,” for example, added a new line of work: “Medical Product Suppliers.” It signed a $40 million purchase order for 6 million surgical and N95 masks at a unit price of $6.77 each from its “partners in Mexico, Latin America and China.”
▪ CDR Maguire, a Miami-based transportation and engineering firm, which signed purchase orders totaling $123 million in masks but they were canceled and only $130,000 in orders remains active.
The masks typically sell for less than $2 a piece, Rutherford said, and the price the vendors are asking has caught the company’s attention.
“We have been absolutely adamant we have not raised our prices and we will not,’’ she said. The prices the state was willing to pay — from $4 to $7.50 per mask — were “too high,’’ she said.
Florida attorney general involved
Attorney General Ashley Moody “has been in contact with 3M to discuss the issue of fraudulent and counterfeit products,’’ said Lauren Cassedy, Moody’s spokesperson. “We are communicating with the company, as well as with appropriate law enforcement agencies, about any instances of this criminal behavior. “
3M sells masks through a list of certified distributors and retail chains, and some masks sold legitimately could end up in the hands of resellers. The company argued it could not interrupt its contractual arrangements with its distribution chain to redirect supplies to those most in need.
If there are distributors who appear to be price gouging, they will discontinue that relationship “up to and including no longer allowing them to be an authorized distributor,” Rutherford said. “We will investigate every and any accusation.”
As the shortage mounted, Moskowitz accused 3M of losing control of its supply, and conducted media interviews saying the company had allowed resellers to create a black market that was allowing profiteering in a pandemic.
Meanwhile, his office was signing deals with companies who hired middle men that included lawyers and lobbyists more accustomed to operating in the halls of the Capitol than in medical supply rooms.
“I can’t speak for the people in procurement,’’ Rutherford said. “They probably have more requests for respirators than they have been able to get.”
To respond to the shortage, 3M has increased its domestic production of the masks from 25 million a month to 35 million and is scheduled to reach 50 million by June. It has doubled its capacity overseas, bringing the total monthly production to about 100 million.
After President Donald Trump invoked the Defense Production Act against 3M two weeks ago, the company had to import nearly 167 million masks to the U.S. from its facility in China and distribute them with assistance from the Federal Emergency Management Agency. Florida this week received 832,000 of those masks obtained from FEMA, Moskowitz said, and will end up with a total of 1 million by next week.
“Now, we’re running 24/7 to increase output everywhere in the world. We’re importing from overseas and we are leveraging this global supply chain,’’ Rutherford said, adding “the capacity is not sufficient to reach the demand that’s out there.”
Rutherford told the Times/Herald that 3M is prepared to go after vendors who have attempted to profit off the crisis by entering into questionable arrangements with contractors and subcontractors to elevate the costs of the masks.
“I’m not privy to the intricate details, but we did receive claims and multiple reports of suspected fraud coming out of the Florida FEMA office, starting in early April,’’ she said. “We are actively investigating those as soon as we can.”
She won’t respond to Moskowitz’s claims made on multiple news programs accusing the company of mismanaging its product after he handed out purchase orders to dozens of dealers with no bidding only to find they were phantom suppliers.
For example, state officials arrived at one warehouse to pick up an order, and found the warehouse empty, and another time, they were told a shipment was arriving on a cargo plane but when they checked the flight details, the flight didn’t exist.
“This became a very, very visible example, and we are actively investigating it,’’ Rutherford said. “We are working with the federal investigators, FEMA and the attorney general and we will take action. There is more to come.”
One timeline starts in February
The Geftico case began in February when 3M started noticing fraudulent web sites claiming to be 3M entities and having the masks for sale.
“They are not 3M. They are not authorized to sell 3M product. They are fake distributors,’’ Rutherford said.
The U.S. Centers for Disease Control and Prevention told 3M that Geftico presented a Powerpoint and twice tried to sell millions of N95 masks to the Division of Strategic National Stockpile and unlawfully attempted to charge them for 500% over the suggested list price.
When the CDC purchasing officer asked for the lot numbers of the masks, Geftico responded: “I will ask my vendor for this information.” But it was never forthcoming because, the complaint alleges, the masks “either do not exist or are counterfeit.”
3M is asking for Geftico to pay damages for its misrepresentation and promised to donate any court-ordered payment by Geftico to coronavirus-related nonprofits. Attempts to reach Geftico and its Orlando-based attorney were not successful.
3M said this week that most of its masks are now being distributed to hospitals through about six large healthcare distributors and FEMA.
Moskowitz said he has also been working with 3M and now believes both state officials and the company have learned some lessons.
“In the future, if we try to procure a product in short supply and high demand, I think we’ll do things differently,’’ he said. “We’ve all learned how the market works now.”
Meanwhile, 3M has created a hotline to help detect fraud and avoid counterfeit products: 1-800-426-8688. To identify 3M authorized distributors and dealers go to: [www.3m.com/3M/en_US/company-us/help-center]www.3m.com/3M/en_US/company-us/help-center or call 1-888-364-3577.
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