Amid nationwide PPE shortages, one Silicon Valley investor and his business partner apparently found the most ridiculously shady way to profit off medical facilities’ scramble for medical-grade face masks in the wake of the coronavirus. The two would leverage popular gig economy apps like Venmo and TaskRabbit to pay workers to repackage thousands of non-medical KN95 masks from China that would then be sold to Texas health officials, hospitals, and re-sellers, according to a Thursday ProPublica report.
Federal screenings by the U.S. Food and Drug Administration and the Centers for Disease Control and Prevention have found that KN95 masks are often less effective than American-made N95 masks at filtering out the kinds of small and potentially virus-laden air particles that health officials need protection from while working on the frontlines of the crisis.
As part of this scheme, workers would remove Chinese masks out of bags marked with labels reading “MEDICAL USE PROHIBITED” and then place them into new packages that were nearly identical minus the warning label, one independent contractor, Lucas Rensko, told ProPublica. After responding to a gig request on the handy-man-for-hire app TaskRabbit, he met one of the brains behind the operation, Jaime Rivera, and was given a tour of “essentially a shelled out warehouse” in San Antonio where roughly half a dozen other “Taskers” were repackaging masks for $20 an hour.
“[Rivera] was saying they were designated for personal or residential use, not for medical,” Rensko told the outlet. “And so what he was doing was basically putting them into other packaging where the city of San Antonio and the state of Texas are able to look at them and then sell them for medical purposes.”
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Rensko understandably ended up walking away from the gig. But it turned out to be only the tip of the iceberg in a much larger and legally dubious enterprise.
Per the report, Rivera was enlisted in the venture by Brennan Mulligan, a start-up investor and CEO of the online design and manufacturing platform SKYOU, after the two met on TaskRabbit as well. The two purportedly shipped several brands of face masks from China that do not meet the FDA’s standards for medical use and sold them to private re-sellers and Texas officials charged with distributing them to hospitals.
One photo of a shipment that Rivera shared on Facebook showed masks with improperly fitting earloops, which would not offer enough protection to meet the FDA’s recommendations for use by health professionals in a medical setting, according to the report. Another picture showed a 6-foot stack of boxes labeled as coming from Guangzhou Aiyinmei Co. Ltd., a Chinese manufacturer whose masks have been recalled in Canada for their ineffectiveness. These masks filter as little as 39 percent of particles, according to CDC screenings, and while the FDA briefly approved them for healthcare use in its rush to fill demand at the pandemic’s onset, the agency’s since reversed that decision.
In other posts reviewed by ProPublica, Rivera detailed how he rented a U-Haul truck to deliver nearly 100,000 masks to two buyers and shared a screenshot of a $2,000 Venmo payment with a memo that described a “kn95 37.5 drop off and 50k hand-off” to someone with the initials BM, a.k.a. Mulligan. According to the team’s Venmo transaction histories, which were left public, the two sold thousands of masks in April and May, including “131 boxes to TDEM,” an acronym for the Texas Division of Emergency Management, as well as payments to workers for services like deliveries and “repackaging” of masks.
In an interview with the outlet, Rivera said the masks had been labeled non-medical in error, and that China’s confusing regulations led to other batches of the same type of masks being cleared in export inspections even without the warning label. “All we’re doing is we’re just omitting. We’re taking off anything that says ‘non-medical.’”
“Before it gets to the hospital level it has to get past the red tape,” he continued. “These masks are being taken and are being denied for arbitrary reasons. Those are lives that are being impacted.”
However, while he described the enterprise as a legal gray area and Mulligan explicitly said in a statement to ProPublica that the team had broken no laws, Rivera later told the outlet that a U.S. Department of Homeland Security investigator had contacted them about their mask sales.
“His analogy was you’re telling somebody you have a Ferrari but you’re selling a Honda,” Rivera said of his chat with an investigator per the report.
When ProPublica reached out to TDEM, the agency recognized shipments of masks that Rivera had shared with the outlet but said their purchase had been through a $14 million contract with a third-party seller, Eminent Commercial LLC. According to the report, Eminent worked with a dozen contractors throughout April and May, including SKYOU, to track down desperately needed face masks for healthcare use. TDEM canceled its contract with Eminent on May 20 “because the products we were receiving were fraudulent,” an agency spokesperson told ProPublica.
The CEO of Eminent, Ted Coleman, confirmed with the outlet that SKYOU had tried to sell them masks that failed to meet the agency’s standard. And Mulligan’s company was far from the only one.
“We have had millions and millions of masks that were rejected by the state of Texas,” Coleman told ProPublica. “Probably a total of 10 to 15 different vendors that were just sending us anything that they could send us in hopes of getting it accepted through TDEM.”
However, Mulligan and Rivera went “above and beyond” trying to circumvent regulations and sell him ineffective masks under their contract, he continued, and Mulligan in particular caused “a very large scene” with officials at TDEM’s Austin headquarters after his company’s masks were rejected.