'MEDICAL USE PROHIBITED': Silicon Valley investor had non-medical KN95 masks repackaged so he could sell them to Texas hospitals

Lucas Rensko was making money through a popular handyman-for-hire app called TaskRabbit, doing odd jobs and delivering groceries, when he picked up a task that led him to a leaky-roofed warehouse on a tattered road in northwest San Antonio.

Inside, a man named Jaime Rivera had set up long tables where five or six other “Taskers” earning about $20 an hour were ripping Chinese masks out of plastic bags and stuffing them into new ones that were identical but for one potentially deadly difference. The old packages were labeled in all caps “MEDICAL USE PROHIBITED,” meaning not to be used by doctors and nurses who need the strongest protection from tiny particles carrying the novel coronavirus. The new bags, intended to make their way to Texas hospitals, simply omitted that warning.

This seemingly small deception highlights a huge problem for medical workers whose best defense against a virus that ravages the body with horrifying complexity is a simple, but trustworthy, mask. That trust has eroded as Chinese-made masks claiming, sometimes falsely, to be 95% effective at filtering virus-laden particles made their way into hospitals and now local convenience stores. You might have bought them: KN95s.

Texas officials have tried to block ineffective masks from making their way to hospitals with screenings and by rejecting anything labeled as non-medical, yet at the same time, the mysterious brokers sourcing millions of masks were working hard to evade those safeguards. The operation Rensko witnessed had the potential to push faulty masks into the Texas supply chain just as Gov. Greg Abbott eased lockdown restrictions and COVID-19 infections began to soar.

“He kind of takes us on this tour of his facility, which is essentially a shelled out warehouse,” Rensko, 36, told me over the phone, detailing how Rivera described the work at the warehouse. “He was saying they were designated for personal or residential use, not for medical. 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.”

Rensko knew something wasn’t quite right and walked away from the TaskRabbit gig. He told his wife, who told a friend, who told another friend, who told me.

Over weeks of reporting, I’d learn that Rensko had scratched the surface of a larger scheme involving a Silicon Valley investor named Brennan Mulligan to sell what Texas health officials later flagged as “fraudulent” masks to the agency directing protective equipment to hospitals. Mulligan had enlisted Rivera, who was desperate for money after the pandemic had sapped his primary source of income, building furniture and manual labor via TaskRabbit. As countless others have, the two had a chance to make money off of the country’s public health nightmare.

When I caught up with Mulligan, he emphasized that he didn’t break any U.S. laws in his mask business. Rivera would acknowledge it was a gray area that had caught the attention of federal investigators. Both would defend their actions as simply cutting through onerous red tape put up by the Chinese and U.S. governments to get masks to those desperate for them.

The absurdity, greed and incompetence surrounding the distribution of coronavirus-era masks has taken me to Chicago, California and, now, Texas. The federal government’s efforts to get protective equipment out quickly to essential workers had failed spectacularly, and the supply chain that normally moves products from producers to vendors to end users had almost completely broken down. Counterfeit masks were flooding the market, and prices for even unreliable masks had skyrocketed.

I did what due diligence I could from my Washington, D.C., apartment before buying a plane ticket. I researched Rivera and saw on Facebook that he was a father of six who danced in his driveway and camped on the beach with the kids.

But his Facebook page also told part of the supply-chain story. Rivera had posted several photos in late April of beaten up boxes bursting at the seams with masks labeled as KN95s, similar to the American-made N95 masks produced by 3M and other manufacturers. But the Chinese masks often don’t pass muster with U.S. regulators, who screen for effectiveness in blocking small particles and certify masks that meet their standards.

The masks Rivera posted photos of were face masks with earloops that don’t fit securely around the head, as the U.S. Food and Drug Administration recommends. While the earloop-masks might offer some protection, the FDA warns that they’re not effective enough to be used in a medical setting.

The 6-foot stack of boxes were labeled as coming from a Chinese manufacturer, Guangzhou Aiyinmei Co. Ltd., which had been identified by the FDA as one of the companies producing ineffective KN95s. The masks filter as little as 39% of particles, according to testing by the Centers for Disease Control and Prevention. They’re so ineffective that Canada issued a recall. The FDA had hastily approved them and others for health care use at the beginning of the pandemic, but it changed its mind last month, even as millions of the masks circulated in the U.S.

Rivera also posted an intriguing screenshot of a $2,000 payment he had received via Venmo, the person-to-person payment app, from a sender with the initials BM.

The payment memo read: “4/17 kn95 37.5 drop off and 50k hand-off …”

“A day’s work!” Rivera boasted about April 17, the day he used a U-Haul rental truck to deliver nearly 100,000 masks to two buyers.

Beneath his Facebook post, a friend commented, “Looks like code for a drug deal.”

Back when I had friends and could go places, I used Venmo to split restaurant and bar tabs, sometimes offering cheeky comments that I mark as private so random people can’t see. But Rivera left all of his transactions and comments public, allowing anyone to see them on a smartphone. Venmo showed that Rivera’s payments from Mulligan, aka BM, included one for “131 boxes to TDEM,” an acronym for the Texas Division of Emergency Management, the state’s version of the Federal Emergency Management Agency. TDEM supplies lifesaving gear to hospitals coping with COVID-19 cases.

Mulligan, the investor, also left his payments public. They showed that he and Rivera had paid several other people for services including deliveries of masks and “repackaging.”

Mulligan turned up in an internet scrub as a successful San Francisco businessman. He founded a company whose proprietary software allowed brands like Reebok and Nike to customize products, then sold that enterprise. He is now the CEO of SKYOU Inc., a “manufacture on demand” business whose online 3D design software allows companies to create unique shirts and hoodies and have them shipped from China.

At first, it seemed odd that a tech entrepreneur would wade into mask trading, but it jibed with my previous reporting, which found that behind every mask sale, there’s a mystery investor.

After the mask supply crisis first surfaced, federal agencies and states went into business with nearly anyone who said they could deliver protective equipment. Masks were the first priority. Here and abroad, textile factories switched to stitching masks. Hundreds of new companies popped up and won government contracts, including some with shady records. My reporting found a high-end juicer salesman, a former state attorney general and dozens in the marijuana business who had become mask brokers.

Thus was born an unregulated market fueled by unprecedented scarcity and unending demand.

The Lone Star State

I met Rensko at a Starbucks around the corner from the warehouse where the mask operation went down. It was only 96 degrees, but it felt hotter, that first day Texans know that the weak spring is turning to summer scorch.

He said Rivera had called him the day after he walked away from the TaskRabbit gig. Rivera “apologized, so he knew something was up.”

Sweaty and caffeinated, we hopped into a Dodge minivan and whipped around the corner to the warehouse. Rivera wasn’t there, but two men stood outside talking — one peeking out of a blue taxi, the other gesturing emphatically with a bottle of cologne in one hand.

They told me they knew Rivera and had watched his mask repackaging operation come and go.

“They just disappeared,” said the man with the cologne, who wouldn’t provide his name. He said he had seen the mask operation in the warehouse next door for about two weeks, with U-Haul trucks coming in and out. The operators didn’t want him to come inside, he said.

The man said he met Mulligan and tried to set him up with a private buyer he knew, a guy named Sam. He wouldn’t give Sam’s last name, but I asked him to pass along my business card.

Lamenting the heat, the man spritzed the neckline of his blue Burberry shirt with the cologne he’d been holding, “Obsession For Men.”

“It’s because I’m sweaty,” he quipped, pointing next to his hands. “Look, it works as hand sanitizer, too.”

“We’re Taking Off Anything That Says ‘Non-medical’”

Rivera took my calls and originally agreed to meet in person, but he cut off communication as I asked more questions. In our first encounter, he said he met Mulligan innocuously on TaskRabbit in April and the two forged a business relationship.

After a few successful mask deliveries, Brennan and Rivera cut out the digital middleman and went into business directly, using Venmo as their money exchange.

“So I went from picking up packages in San Antonio to Houston to Dallas to Austin, bringing them back over for processing and that’s pretty much it,” he explained. By early May, Rivera said he was in charge of hiring workers and monitoring their hours.

Mulligan shipped boxes on a Southwest cargo jet for Rivera to pick up. Rivera shared some receipts: 94 boxes and 2,444 pounds of masks came in from Los Angeles on April 29, an additional 52 boxes and 1,300 pounds on May 4. Mulligan ships a few different brands, none of which were approved by the FDA for medical use, according to pictures Rivera shared.

Rivera described the repackaging operation as common sense. “All we’re doing is we’re just omitting,” he said. “We’re taking off anything that says ‘non-medical.’”

He blamed China for the confusion. Mulligan told him that China was requiring that some mask batches be labeled non-medical, while other batches of the very same mask cleared export inspections without the disclaimer. Rivera said his workers were just clearing up the mess so states like Texas could buy masks without worry.

Without repackaging, state inspectors would simply see the warning and reject the shipment, he said.

“Before it gets to the hospital level it has to get past the red tape,” he said.

Rivera said he delivered more than a million SKYOU masks to Texas’ emergency agency. Receipts Rivera shared also showed he was delivering to private companies that resell KN95s.

Rivera spoke of his work as a noble pursuit, that he was helping to deliver lifesaving gear to the front lines despite the federal government. The reason he was traversing Texas to meet cargo jets was because Mulligan had the shipments coming from different routes each time, through Minneapolis and Atlanta to Dallas or Houston for example, to evade FEMA, which was seizing masks to stop counterfeits and to shore up the national stockpile.

“These masks are being taken and are being denied for arbitrary reasons,” he said. “Those are lives that are being impacted.”

By mid-May the repackaging had stopped, Rivera said, in part because the warehouse was too small and “there were leaks everywhere.”

Rivera couldn’t explain why anyone needed to repackage masks if it weren’t to hide the medical use disclaimer. There seemed to be nothing stopping SKYOU from selling the masks to general consumers for non-medical uses, just the same as the patterned or branded cloth masks that are becoming a fashion statement.

It wasn’t until our fourth and final phone call that Rivera mentioned he and Mulligan had been contacted by the U.S. Department of Homeland Security.

“His analogy was you’re telling somebody you have a Ferrari but you’re selling a Honda,” Rivera said of his face-to-face chat with an investigator.

The investigator’s visit had led him to wonder if repackaging masks for sale to unsuspecting customers was not kosher.

That’s when I asked, “Are you worried you were complicit in a crime?”

“The more we talk about it, yes,” he said.

Before he hung up and cut off communication, he added: “I’m not the brains of the operation, and I’m definitely not the wallet for it.”

Whiplash in the Mask Market

When I first contacted the Texas emergency agency, it said it hadn’t purchased any masks from either SKYOU or Mulligan. But when I sent over photos of KN95s that Rivera had shared with me and posted on Facebook, the agency recognized them.

A purchase order number on those beaten up boxes tracked to a different company, Eminent Commercial LLC, which landed a deal in mid-April to hunt down KN95s for as much as $6 a piece, more than six times what they cost before the pandemic. Eminent was essentially a master contractor, working with about a dozen subcontractors, including SKYOU, to ship in masks quickly.

TDEM canceled its deal with Eminent and its cadre of subcontractors May 20 “because the products we were receiving were fraudulent,” spokesman Seth Christensen said.

Christensen said TDEM weeds out bad masks during inspections at its San Antonio warehouse. It tests the filtration rate of sample masks from each shipment, a scientific safeguard many government agencies and hospitals lack.

Vendors with subpar products are turned away, he said, and don’t get paid. Anything labeled as non-medical use is instantly rejected, he said.

Brokers I talked with for this story described TDEM’s vetting process as far more rigorous than some federal agencies and many other states, raising concerns that faulty masks might be flowing freely elsewhere.

The agency shared a photo of a packaged mask SKYOU attempted to sell, which is identical to a photo Rivera shared, only with the medical disclaimer removed. The brand, Wentianchang, was never on the FDA’s list of masks approved for emergency use, according to the agency’s database.

Ted Coleman, Eminent’s owner, confirmed that Mulligan’s company had repeatedly tried to sell masks that didn’t pass the TDEM test. But SKYOU wasn’t alone.

“We have had millions and millions of masks that were rejected by the state of Texas,” Coleman said. “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.”

Coleman said he tried to be “the interceptor,” making sure only masks that would pass testing got through. But he said Mulligan and Rivera went “above and beyond” to work around him and bring ineffective masks to the warehouse under Eminent’s deal.

Eminent was paid about $14.8 million for masks that TDEM accepted, according to Texas purchasing data, before the agency stopped ordering from the company. Coleman blames Mulligan for losing Texas’ business.

He said Mulligan caused “a very large scene” with officials at the agency’s Austin headquarters after SKYOU masks were rejected.

Mulligan did not return calls, but in a few brief emails he expressed the same frustration I had heard from numerous importers, brokers and government agencies: The FDA inadvertently created a glut of subpar Chinese masks, which investors can’t sell and most governments can’t buy, by first permitting use of some Chinese masks, then reversing itself.

Meanwhile, Chinese officials required that some masks have disclaimers that they’re not for medical use — an attempt, brokers say, to avoid liability if bad masks allowed wearers to become sick.

Mulligan said companies like his got caught in limbo. Masks that Texas had accepted in April were suddenly rejected by May. Repackaging, he said, was the “only solution,” and he had been told other vendors were doing the same. He did not believe that the company broke U.S. laws, but that it probably broke Chinese customs law.

By the time Mulligan got all the masks repackaged, TDEM was no longer interested in buying from him.

While many of the masks that lost the FDA’s initial approval were purchased, including by the federal government, mask importers and brokers tell me millions more are collecting dust in storage.

As Mulligan would, investors with ineffective mask stockpiles are likely trying to find other ways to unload their product, potentially getting them to hospitals.

A Techie, an Embroiderer and a Tasker Walk Into an IHOP

I had to go to Houston to look into a guy who got a $10 million contract to supply COVID-19 testing tubes to FEMA and was instead delivering unusable tiny soda bottles. But before I left San Antonio, I wanted to follow up on what Mulligan’s warehouse neighbor, the guy with the cologne, said about another potential buyer: a guy named Sam.

Mulligan’s neighbor had alluded that Sam wasn’t far away, so I went to the warehouse and typed “Sam” into Google Maps and eventually came upon Samy’s Embroidery Club, just 8 miles away. It was worth checking out, since so many people in this trade seem to be either connected to apparel and textiles or the marijuana industry.

When I entered the shop, it was alive with the thrum of industrial sewing machines that stitched together baseball team jerseys, biker gang hats and, lately, face masks.

When I mentioned Mulligan, Sam, whose true name is Bassam Hasan, said through the noise that he had a strong vibe that something was off.

“The guy, you could tell from the first minute he was hiding something,” Hasan said.

Hasan said he had become a modest personal protective equipment supplier for the city of San Antonio and the local jail, and he was trying to find medical-grade masks to potentially sell to a hospital system in Illinois. His cousin, the guy with the cologne, hooked him up with Mulligan.

“If they are 100% approved, I said why not,” he said.

According to text messages Hasan showed me, Mulligan offered a couple different brands of mask. “... they were on the CDC [Emergency Use Authorization] list before,” one text from Mulligan’s number reads. “They’ve since been removed so we can’t say whether they will meet the KN95 standard.”

Mulligan “wanted to do the deal immediately,” Hasan said. “This was like a million dollars, and I said you can’t do that.”

Instead, on Memorial Day, Hasan met Mulligan and Rivera at an IHOP a couple blocks from the mask warehouse.

“When he told me he was repackaging them, I was out,” Hasan said. “I’m not a little kid. I’ve been in business for 27 years. C’mon, man. This guy — I can tell you he’s not doing it right.”

Hasan said he left the IHOP and stopped responding to Mulligan’s calls and texts.

In the end, Mulligan told me all the effort and expense of repackaging the masks was a waste. He shared photos of scores of boxes outside a self-storage locker, millions of masks he says he’s stuck with. He has since made his Venmo transactions private.

“We did not sell ANY repackaged KN95s to TDEM or any other customers in the U.S.,” he said.

If true, then the only people who made money on the repackaging shenanigans were Rivera and other Taskers he paid over a couple weeks.

Mulligan said SKYOU continues to sell hand sanitizer and fabric masks, but he’s given up on selling KN95s because they’re “not worth the headaches.”

A spokesperson with Homeland Security Investigations, HSI, responded to my inquiry about SKYOU and Rivera’s operation with a comment that left more questions than answers.

“At this time, HSI, along with its law enforcement partners, is assessing these allegations in an effort to determine if any violations exist and/or if mishandling occurred,” the statement said.