FedEx Faces Grand Jury, Indicted for Shipping Illegal Drugs

FedEx Corporation FDX – one of the world's largest freight transportation companies – is once again under the radar for dealing in shipments of illegally operated online pharmacies. The company is facing indictment for shipping dangerous prescription drugs ordered via illegal Internet pharmacies.

If found guilty, FedEx can be fined up to $1.6 billion, double the amount of $820 million which the regulators estimate FedEx has gained from such illegal transactions. According to reports, the company has been summoned to court in San Francisco on July 29.

Going by the share price movement, investors seemed unfazed by the news as FedEx's stock traded upward closing at $152.87 on Friday. 

This legal battle has been on for many years. Back in 2012, the federal grand jury had initiated a criminal investigation on illegal drug shipments by FedEx. United Parcel Service, Inc. UPS had also come under the scrutiny of the Department Of Justice for the same reason.

According to reports, the case dates back further to 2005, when an investigation done by the U.S. Drug Enforcement Administration (DEA) exposed approximately 4600 online pharmacies that were operated illegally.

The disclosure was followed by an immediate shutdown of these online stores. Several arrests and further investigations threw light on the involvement of shipping companies. While these illegal online pharmacies have gradually seen the end, according to the indictment, FedEx continues to be involved in the delivery of illegal drugs.

In July 2006, UPS and FedEx both served subpoena from grand jury as a part of the investigation by the Antitrust Division of the U.S. Department of Justice. The subpoena required them to furnish records that could provide an insight into possible antitrust violations in transportation of packages for online pharmacies.

Regulatory issues are not new to the parcel industry. In 2012, the European Union EU commission's antitrust regulators had slapped charges worth $225 million against 14 international freight forwarding companies for pursuing price fixing activities for freight transactions in Europe. Companies like UPS and Expeditors International of Washington Inc. EXPD have also been in the news for price fixation.

In respect to this case, UPS has already paid a fine of $40 million to conclude federal probe against shipping of illegal online drugs and has also agreed to adhere to online pharmacy compliance programs. However, FedEx stands to take a different approach and expects to plead not guilty, defending against the charges.

FedEx currently holds a Zacks Rank #3 (Hold).

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