Man sentenced to eight years in prescription drug scheme

A man who prosecutors say made millions of dollars from a prescription drug scam in which he recruited destitute people with HIV to serve as straw patients was sentenced Monday to eight years in prison by a federal judge in Los Angeles.

Prosecutors accused Nathaniel Newhouse and his longtime girlfriend of laundering his illicit drug income by claiming $3 million in gambling winnings, then writing off that same amount in gambling losses and other tax deductions.

Despite his conviction on drug possession and conspiracy charges in May, Newhouse, 55, told U.S. District Judge Dean D. Pregerson that he was trying to help people by ferrying them to pharmacies to pick up prescriptions such as OxyContin, a powerful pain reliever likened to heroin that can sell for as much as $80 a pill on the black market.

“They’re trying to make like I’m this big ol’ villain, but I’m not,” said Newhouse, who wore dark framed glasses and a brown ski jacket as he addressed the judge. “I’m a respectable man, as yourself.”

Newhouse was arrested two years ago after a surveillance operation in which he was caught with 29 bottles of highly addictive painkillers that had been prescribed to other people. The drugs, which included OxyContin and Dilaudid, are popular on the black market and had a street value of $40,000 to $80,000, according to authorities.

Prosecutors told jurors that Newhouse arranged for the HIV patients to meet with conspiring doctors who prescribed the drugs even though the patients did not need them. The patients, who had Medicare or Medi-Cal insurance, were charged only a couple of dollars for a bottle of OxyContin, but the insurers were billed nearly $1,000.

Newhouse would pay the patients $300 per trip to the pharmacy but planned to sell the drugs they obtained for many times that amount, prosecutors alleged. In court papers, they accused him of operating a “mobile pharmacy” out of the trunks of multiple cars he either owned or rented. Two of the recruited patients were granted immunity by prosecutors and testified against him at trial.

Though Newhouse was not charged with money laundering, Assistant U.S. Atty. Benjamin R. Barron told Pregerson that Newhouse tried to hide the source of his drug income by using drug money to buy chips at Hollywood Park Casino from bribed employees who would not record the transactions. Newhouse would then turn in the chips and claim the money as winnings. Newhouse was eventually banned from the casino because of the alleged practice, according to court papers filed by prosecutors.

Newhouse’s attorney, Deputy Federal Public Defender Raul Ayala, told Pregerson that Newhouse and his girlfriend were professional gamblers and that there was no evidence that the $3 million the couple claimed in winnings was actually derived from drug sales. He accused prosecutors of bringing up the money-laundering allegation to make the case “seem more nefarious than it is.”

But Pregerson seemed skeptical.

“So he made $3 million gambling and was just selling OxyContin from his trunk as a hobby,” the judge shot back. “It seems a stretch the money was from gambling.”

Ayala also argued for a more lenient sentence than the 10 years prosecutors were seeking based on the notion that Newhouse did not organize the scheme, which allegedly involved at least two doctors who have not been charged.

“This scheme wouldn’t have worked without the doctors,” Ayala said.

scott.glover@latimes.com