As mask manufacturers direct sales of vital supplies to healthcare workers, scammers are luring states into fake deals in order to obtain legitimate purchase orders so they can buy masks for the black market, sources tell Business Insider.

Florida's top emergency management official railed against a "Ponzi scheme" full of empty warehouses and "phantom planes."

The Sunshine State was ready to pay $13 million to Mexican businessmen for two million masks that may have never existed.

Well-connected political operatives are using their relationships to make money on medical supplies for coronavirus response.

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Florida's top emergency management official Jared Moskowitz raised eyebrows earlier this week at a press conference when, with Gov. Ron DeSantis at his side, he vented his frustrations at the Wild West facing states trying to procure desperately needed medical supplies.

In blistering terms, Moskowitz described state governments chasing after ghost caches of protective masks and other critical medical equipment dangled by under-the-radar political operatives and mysterious middlemen who seem to be taking advantage of the biggest global health crisis in a century.

"The N95 private market right now is like a Ponzi scheme," Moskowitz told reporters on Monday, using the technical term for respirator masks that filter 95 percent of airborne particles. "All day long we try to find these masks. We're talking to brokers. We're talking to distributors. We're talking to medical salespeople. We're chasing down warehouses only to get there to find out that they're empty."

"We're being told these supplies are on planes only to see that they're phantom planes, chasing ghosts when they don't appear on FlightAware," the former Democratic state legislator continued. "We're constantly engaging in bidding wars, being asked to wire money to accounts that were set up that very same day with email addresses that were created only a couple of days ago."

Moskowitz didn't offer more specifics. But Business Insider has uncovered details of a scheme that he may have been referring to: Just a few days before the press conference, Moskowitz's office had become ensnared in what insiders say was an attempt by a mysterious broker to trick Florida into agreeing to buy two million of the highly-prized masks for the exorbitant price of $13 million.

Various N95 respiration masks at a laboratory of 3M, that has been contracted by the U.S. government to produce extra marks in response to the country's novel coronavirus outbreak, in Maplewood, Minnesota, U.S. March 4, 2020. Reuters/Nicholas Pfosi

"It's just madness"

There were no masks — a broker representing the state at one point rushed to the alleged seller's headquarters only to find an empty and abandoned warehouse — and Florida never ended up paying any money. But the state did sign a $13 million purchase agreement.

In the wild, highly speculative pop-up market for masks, sources involved in procurement efforts tell Business Insider, such agreements have become a currency in their own right. Because 3M, the largest maker of N95 masks, is prioritizing mask orders bound for hospitals or states, these sources say, official state purchase orders have become golden tickets, granting whomever obtains one access to the lucrative 3M supply chain.

As a result, the sources say, some scammers have been luring states into fake deals just to secure purchase agreements, which they can either sell upstream to medical equipment distributors or use to buy masks for the black market.

The states don't lose any money on these phantom deals, but they end up left in a lurch, wasting the valuable time and attention of emergency response officials.

"It's just madness," Moskowitz said on Wednesday during an appearance on a talk radio show hosted by Jay Sekulow, the Trump personal lawyer who served as key defense counsel for the president during his Senate impeachment trial earlier this year.

Another challenge for states

Florida isn't alone. Governors across the country have been sounding the alarm about the slapdash wheeling and dealing which has left them competing with each other and countless international players in a bid to find masks and other equipment to help care for their sick and protect healthcare workers and other vulnerable populations.

New York Gov. Andrew Cuomo has repeatedly bemoaned price-gouging, noting that medical supplies which would typically cost 58 cents a piece now run up to $7.50 each.

Trump's government is also taking steps to address the situation. Attorney General William Barr last month created task forces that are investigating medical supply hoarders, price gougers, and anyone else looking to use the coronavirus pandemic to make a fast buck.

On Thursday, DOJ and the Department of Health and Human Services announced the confiscation of more than a half million medical supplies from price gougers, including nearly 200,000 masks that are being distributed to the front lines of the coronavirus response.

MIAMI GARDENS, FLORIDA - MARCH 22: Jared Moskowitz, Director of Florida's Division of Emergency Management speaks at the opening of a drive-thru coronavirus testing facility at Hard Rock Stadium in Miami Gardens, Florida. MPI10 / MediaPunch /IPX A $13 million deal that never happened

The demand for masks in Florida is real — and urgent. COVID-19 cases have begun doubling every three days in most parts of the state, matching spikes in areas like the Northeast and New Orleans, according to The New York Times' case-tracker.

After weeks of criticism for keeping the state's beaches open through Spring Break, and in the face of clear evidence that Florida will be among the hardest hit states, DeSantis on Wednesday issued a mandatory stay-at-home order, following the lead of almost 40 other governors, according to a New York Times analysis.

Behind the scenes, the Republican governor's officials were already racing to find medical supplies.

A week ago, former D.C. Beltway Republican operative John Plishka and Dallas-based investor Jacob Watters teamed up with a prominent GOP lobbyist in Florida in an effort to secure two million masks for the Sunshine State. The trio made contact with people in Mexico claiming to be representatives for 3M.

It sounded like a networking home run: Plishka's team knew an operative in Texas, who knew an operative in Mexico City, who said he knew the 3M reps for Latin America.

For Plishka and Watters, creators of a new company, Critical Supply, the stars were starting to align. The two men had been working for nearly a year connecting with medical equipment manufacturers in China, as part of a major e-commerce effort to build a direct supply line to hospitals. By the time coronavirus hit at the start of 2020, Plishka's team had plenty of experience in navigating the markets for masks and other medical supplies.

Last Thursday, Plishka's Florida-based partners met with a state-approved pre-purchase inspector to pick up the masks from the people who said they were connected to 3M. The state had $13 million ready for the deal, which works out to an exorbitant unit price of $6.50 per mask, an 800 percent markup.

But as soon as Plishka and his team sent the alleged 3M representatives a copy of the purchase order, along with a letter of intent signed by Moskowitz on Florida Division of Emergency Management letterhead, the sellers went silent. Plishka's team recalled the business address and name of the company that the alleged reps had used and darted to its South Florida warehouse, hoping to find the two million masks.

But the warehouse was abandoned and empty.

A worker wearing personal protective equipment builds a splash guard during a mass manufacturing operation to supply New York City government with protection to distribute against COVID-19 transmission, Friday, March 27, 2020, at the Brooklyn Navy Yard in New York. The new coronavirus causes mild or moderate symptoms for most people, but for some, especially older adults and people with existing health problems, it can cause more severe illness or death AP Photo/John Minchillo The new coronavirus commodity: Purchase orders

A few hours later, the supposed 3M representatives resurfaced. They apologized for disappearing and explained that the masks had already been sold to another buyer. But they had a path to get another line of masks if Plishka's team could provide another purchase order from the state.

Plishka and Watters told Business Insider that they came to believe the people his team was talking to didn't want money. They were after the purchase orders.

In an effort to stem the tide of fraud and profiteering, on March 20, 3M announced that it would work with "governments, medical officials, customers and distributors around the world to help get supplies where they are needed most." It later clarified that it was directing more than 90 percent of its respirator production to healthcare and public health. The new guidelines, Plishka and Watters told Business Insider, had the unintended consequence of creating a black market for purchase orders — just the piece of paper — from states or other authorized buyers.

Now, anyone who wants to get into the lucrative 3M supply chain needs to have such a purchase order to demonstrate that the ultimate recipient of the masks is a priority. Potential scammers, Watters and Plishka told Business Insider, can "flip" the orders by selling them to other middlemen, who use them to buy masks from 3M that they can sell on the black market.

The paper-flipping scheme, they said, is wasting crucial time and keeping masks from getting to hospitals. "What they are doing is using people like us, who have the relationships," Watters said. "They then fraudulently issue that letter to their 3M distributor to get on the supply line."

Ordinarily, a source familiar with the process says, brokers send such letters of intent through intermediaries to 3M, which then sends an engagement letter and certificates authorizing the purchase directly to the entity that issued the letter — in this case, the state of Florida. The process is designed to keep scammers out of the supply chain. But the chaos of the current market appears to have short-circuited those safeguards in some cases.

Enter Mark Cuban

As word got out that Plishka was trying to buy masks for Florida, other alleged suppliers approached his team. Each claimed to have photos of stockpiles of N95 masks ready for immediate delivery. Different alleged suppliers sent him copies of an identical grainy video of cardboard boxes stamped with "3M" on wooden pallets. One supplier said the video was from a warehouse in London; a different person sent the same video but claimed it came from a warehouse in Miami. Both alleged suppliers said all they needed was a purchase order from a state or hospital.

In one call, someone purporting to have 10 million masks in Texas quickly hung up the phone after Watters said he could be at the warehouse to check the inventory in 20 minutes.

The state of Florida didn't lose any money in the scam that Moskowitz was caught up in, and it's unclear if there's an obvious victim, as in traditional fraud cases. But Plishka and Watters said the damage is nonetheless still life-threatening.

Florida isn't alone in facing phantom mask sellers. This week, according to the Los Angeles Times, a federal task force in charge of clamping down on COVID-19 medical supply fraud launched an investigation into a strikingly similar case in California, in which a seller claiming to have 39 million masks disappeared before money changed hands.

Moskowitz's office declined an interview request and did not respond to detailed questions from Business Insider about his efforts to secure masks. But the once-obscure Florida official hasn't held back on social media and interviews with conservative media outlets since making his initial remarks on Monday.

On Twitter, Moskowitz appeared to trash one of the deals that fell through by blaming 3M for the foul-up. "Hi @3M. I'm your new Troll," he wrote. "How many brokers and distributors do we have to negotiate with only to find empty warehouses?"

That blast went viral, and caught the attention of Dallas Mavericks owner Mark Cuban, who replied on Twitter, "Great question, Jared. Have you been able to get in contact with anyone @3M or their distributors?"

Moskowitz's media blitz continued Wednesday on Sekulow's radio program, which is carried by about 1,000 mostly conservative stations around the country. Asked by the Trump lawyer if he'd flagged the shady market dealings to the federal government, Moskowitz replied that he'd been in touch with the Federal Emergency Management Agency and praised the creation of several Trump administration initiatives to address the medical product supply chain.

President Donald Trump listens as Attorney General William Barr speaks about the coronavirus in the James Brady Press Briefing Room of the White House, Wednesday, April 1, 2020, in Washington. AP Photo/Alex Brandon Feds are aware of the issue, 3M CEO says

On Thursday, Moskowitz told Fox News' Tucker Carlson that for the last several weeks his staff had been working from a "boiler room" to identify any way to get masks and supplies to the state. "What's even more troubling is what we expected, is that the system is completely broken," Moskowitz complained. "And that the authorized distributors who right now can't tell me a timeline when I'm going to receive my masks orders that I put in a month ago. And, by the way, the terms and conditions are I gotta pay for my masks and can't cancel my order."

Moskowitz also complained that 3M-authorized distributors were engaged in "criminal" activity by prioritizing foreign buyers. "They're specifically saying, 'Listen, we are sorry that your order got pushed down, but there are folks showing up to the factories, there are folks showing up to us, calling us, paying cash.'" he recalled. "And when I said, 'What do you mean there are folks?' They said, 'Well, listen there are foreign countries that do business differently and they're showing up with cash."

Plishka said 3M's dominance in the respirator mask market is part of the problem. "The end result is an increasing black market of immoral traders of 3M products — hellbent on making money off of dying Americans," Plishka told Business Insider. "All while healthcare providers, first responders, and the vulnerable are lacking the proper protection they need."

For its part, 3M has been scrambling to address the issue. CEO Mike Roman on March 24 in a letter to Barr and key state leaders referenced the "many reports of fraudulent activity and price-gouging involving medical devices" and described outreach with logistics providers and large e-marketplace operators "on a coordinated strategy and action plan to ensure products rapidly get to where they are needed most.

A week later, Roman said 3M was pledging to "take decisive action against those seeking to take illegal and unethical advantage of the COVID-19 outbreak."

"We are working with law enforcement authorities around the world on this matter, including federal, state, and local authorities in the US," he added.

On Thursday, Trump's administration invoked the Korean War-era Defense Production Act with an order to 3M to put U.S. orders first ahead of foreign demand. The company responded by noting the "significant humanitarian implications" for Canada and Latin American markets and raised the prospect of international retaliation from other countries.

Representatives for 3M did not respond to multiple requests for comment from Business Insider.

A DeSantis spokesman deferred questions to Moskowitz's office.

Political operatives seize opportunity in medical supplies

In any normal medical transaction, hospitals would purchase goods like N95 masks through group purchasing organizations, which are bulk wholesalers who buy from manufacturers and sell to hospitals in large quantities. But that supply chain fell apart early in the coronavirus pandemic, leaving doctors and nurses pleading on social media for equipment as they treat nonstop waves of sick people in hot zones from coast to coast.

That's where the likes of Plishka and Watters have stepped in.

Amid the dire demand and the broken supply lines, political operatives who would otherwise be working to elect federal, state, and local candidates in the 2020 election have rushed into the void — with mixed results.

Longtime Republican fundraiser Mike Gula announced in late March that he'd abruptly shut down his practice to enter the medical supply business, POLITICO reported. And a Republican candidate for Congress mired in the Trump impeachment probe frantically tweeted earlier this week that he was looking for buyers for 10 million masks. On Monday, Trump even welcomed Mike Lindell to the lectern at the Rose Garden, where "the My Pillow Guy" promised he could manufacture 50,000 masks a day to the federal government. (Lindell later attacked those mocking him on Twitter, telling Yahoo News they were angry at him for referencing God.)

A longtime lobbyist for Indiana's hospitals told Business Insider he's been bombarded with calls from political operatives claiming to have access to masks. Some of the offers appear to be more serious than others.

"I don't believe there's any gold at the end of the rainbow, but I do believe they think it's legitimate," the lobbyist said, adding that he has been able to ignore the overtures for now because Indiana is suffering less than others and can rely on the limited federal supply.

Congressional candidate Robert Hyde of Simsbury, Conn., displays campaign phone-grips under the Genius of Connecticut statue in the Connecticut State Capitol in Hartford, Conn., on Friday, Jan. 17, 2020. Mark Mirko/Hartford Courant/TNS An impeachment player makes a cameo

Another entry into the market is Rob Hyde, a long-shot GOP candidate for Congress from Connecticut who said he started getting unsolicited offers of millions of masks while calling around Tuesday for donations for local hospitals.

Hyde, who gained fame last year after texts emerged between him and Rudolph Giuliani associate Lev Parnas indicating that he had been spying on U.S. Ambassador to the Ukraine Marie Yovanovitch, said he is working with suppliers in Florida, Pennsylvania, and Israel. In an interview with Business Insider, he explained that he can get masks to hospitals within four days in some cases or a week if they want them shipped from the Middle East.

The masks housed in Florida, Hyde said, were from a supplier who had stockpiled them after Hurricane Maria hit Puerto Rico in September 2017. He declined to say who his suppliers were, if he had actually seen the masks in person, or whether he even had proof of their existence. He also said he had access to the Arizona governor's office and other officials ready to buy from him.

"Literally, in 24 hours my life has gone from donations for local hospitals, to I'm selling to the biggest hospitals in New York," Hyde said Thursday. "I've got like three solid contacts, they're all solid — in Florida, Pennsylvania, and out of Israel, and I've got huge purchasing power."

But Hyde struggled to explain how he got into the supply chain, and how he could prove he had access to the hard-to-find masks. When asked about the apparent rise of a speculative market that's causing consternation among state and federal officials, Hyde briefly paused and went silent. He said he wasn't aware of the controversy but added that it sounded scandalous.

Hyde appeared to mistake an Business Insider reporter for a buyer. After figuring out the journalist was not interested in buying masks from him, Hyde asked if he could call him back.

That call never came.