Coronavirus supplies: How Feds uncovered fraud involving 39 million N95 masks

SAN FRANCISCO (KGO) -- We're learning more about exactly how federal investigators intercepted fraud involving 39 million N95 masks. Millions of them were set to be purchased by hospitals right here in the Bay Area. The scheme could have cost hospitals and government entities 78 million dollars.

In a pandemic where Personal Protective Equipment is especially scarce, the discovery and supposed availability of 39 million N95 masks raised suspicion.

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"It seemed unlikely," said Scott Brady who is the US Attorney for the Western District of Pennsylvania. He says when federal investigators heard SEIU United Healthcare Workers West had located the exorbitant number of masks they got involved.

"The presidential directive under the Defense Production Act authorizes the department of justice and other federal agencies to engage people that are either hoarding scare materials or engaging in price gouging. In this case we thought that there was hoarding potentially," said Brady.

Millions of masks were supposedly in a Georgia warehouse.

A Pittsburgh businessman acting as a broker communicated to the healthcare workers union that he was speaking with a broker nearly 10,000 miles away in Sydney, Australia who claimed to be talking to a mask supplier in Kuwait.

"We and the FBI engaged the Pittsburgh middleman, we went looking for the warehouse, we started the investigation into who these people were in Australia and Kuwait as well," said Brady.

"As it turns out there was no warehouse," he continued.

No warehouse and no masks.

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Another tip-off was that the 39 million masks were supposedly manufactured by 3M, a company already helping the Federal Coronavirus Task Force looking into problems with PPE.

"They told us that they only produced 20 million total last year and so they were skeptical, we were very skeptical and that's where we begin to pivot from a potential hoarding situation to possible fraud," said Brady.

The State of California, Dignity Health, Kaiser Permanente, Stanford Health Care, Sutter Health and Santa Clara County were among those planning to purchase the masks.

Kaiser Permanente had placed orders for 6 million masks. A spokesperson tells the I-Team, "Despite multiple requests, the supplier repeatedly failed to provide reliable information about where we could verify and inspect the shipment."

"What the scam was, was that they wanted a 40% up-front payment," said Brady.

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Five dollars a mask multiplied by 6 million masks for Kaiser -- "A possible defrauding of 12 million dollars of Kaiser," said Brady.

Kaiser withdrew and no money exchanged hands.

Brady says investigators do not believe the Pittsburgh businessman or the healthcare workers union were part of the fraud allegedly orchestrated by the broker in Australia and supplier in Kuwait.

"The Department of Justice has a long memory and a very long reach and if you are attempting to victimize American citizens that at some point in the not too distant future you will receive a knock on the door and you will meet someone from the American government," said Brady.

Investigators say they've identified the broker in Australia and supplier in Kuwait. Both could face wire fraud charges.

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