PROVIDENCE -- Former House Majority Leader Gerard M. Martineau has agreed to plead guilty to two charges related to steering legislation on behalf of a health insurer and pharmacy company while receiving hundreds of thousands of dollars to make plastic and paper bags for the companies.

Journal file photo

Former House Majority Leader Gerard M. Martineau at the Assembly in 2002.

Martineau arranged to sell paper bags to the health insurance company for use as promotional items and to sell plastic and paper bags to a pharmacy company for use in its merchandising. In the case of the health company, millions of bags were never manufactured.

Martineau is alleged to have been paid more than $900,000 in the two schemes, the U.S. Attorney's Office in Rhode Island said this afternoon.

In return, according to U.S. District Attorney Robert Clark Corrente, Martineau used his position in the legislature to affect the outcomes of legislation for the two companies.

When asked by reporters today if the companies were Blue Cross & Blue Shield of Rhode Island and the CVS chain, Corrente did not say yes or no. Instead, he explained that under federal rules, he could not name the companies in the information.

The case is the latest development in a federal probe called Operation Dollar Bill, which is looking into corruption at the Rhode Island State House.

After first being in favor of the pharmacy freedom of choice legislation -- which the companies opposed -- in 1999 Martineau announced that he was changing his position to oppose it. That was after a business entity Martineau created, The Upland Group, starting selling bags to the health insurer and the pharmacy, the U.S. Attorney's Office said.

“In reality, this was not a group at all – it was just Martineau,” the U.S. Attorney’s Office said.

Martinueau has not entered a guilty plea, but has signed an agreement to waive indictment with the intent of pleading guilty. He will have a chance to formally enter a plea at a U.S. District Court hearing that is not yet scheduled.

He faces two counts of "honest services mail fraud." Each carries a maximum five years in prison and several hundred thousand dollars in fines.

The health insurer had contracted with the pharmacy company for a network that required insured clients to use that network for prescriptions. Legislation would have opened the network to other pharmacies.

In a two-part series that ran in The Journal in 2004, investigative reporter Mike Stanton reported that two of Martineau's customers were CVS and Blue Cross & Blue Shield of Rhode Island, companies that regularly lobbied the General Assembly on health-care legislation.

The Journal investigation found that Martineau, while he was in a position to influence legislation affecting CVS and Blue Cross, was profiting from his private business with those companies, according to the 2004 story.

Martineau was selling bags to CVS, including the familiar white plastic bags with the red CVS logo, when he voted against pharmacy-choice legislation in 1995, the series reported.

Later, as majority leader, Martineau was instrumental in the passage of laws regulating health care and Blue Cross, the state's largest health insurer.

According to the U.S. Attorney's Office this afternoon, Martineau, through the Upland Group, periodically billed the insurance company for bags in lots of 1 million and 3 million, at $19,500 per million.

In December 1998, December 2000 and in December 2001, he billed the company just days or weeks before the start of a legislative session.

Martineau billed the health insurer $195,000 for 10 million bags and was paid $175,500, but fewer than 2 million were ever manufactured, according to the information filed by the U.S. Attorney's Office.

Between 1999 and the end of the 2002 legislative session, Martineau also worked for or against legislation on the insurance company’s agenda, including a 1999 bill that would have helped with the sale of the insurer to a for-profit company.

Before 1999, Martineau had a "long-standing business relationship with the pharmacy, selling commodities to it for commission."

After forming The Upland Group, between 1999 and the end of 2002 he received a total of $716,435 in commission payments on contracts with the pharmacy for bags. Martineau worked for or against other legislation on the pharmacy’s agenda.

Martineau never disclosed to the public "his conflicts of interest with the pharmacy and the health insurer," the U.S. Attorney's Office said. He "even took steps to conceal the relationships, by such devices as not signing his name to invoices, and writing business letters from the Upland Group to the health insurer over the signature of another person who had no relationship to the Upland Group."

The allegations against Martineau are the latest in Operation Dollar Bill, a wide-ranging investigation of corruption at the State House by a task force that includes the FBI, the state police, the IRS, U.S. Department of Labor, and the the U.S. Attorney's Office in Providence.

In March, John Celona, the former North Providence state senator convicted of using his public office for private gain, began serving a 2 1/2-year prison term. In August, he was quietly moved from a federal prison in western Pennsylvania to the Donald W. Wyatt Detention Center in Central Falls.

Sen. Stephen Alves, D-West Warwick, is reported to be under investigation by the FBI. It's alleged he killed a resolution that sought a tax break for Pennsylvania trucking company A. Duie Pyle, which is looking to build a distribution center in Johnston, to punish Johnston Mayor Joseph M. Polisena for not investing Johnston's pension funds with Alves, a stockbroker.

Alves has denied any wrongdoing.