UPDATE 1-What FedEx knew of online pharmacies is key issue in drug case -judge

Tue Jul 29, 2014 3:14pm EDT

(Adds Fedex share price)

By Dan Levine

SAN FRANCISCO, July 29 (Reuters) - The U.S. judge overseeing a criminal drug prosecution against FedEx Corp said one of the core issues will be what FedEx executives knew about illegal online pharmacies whose packages it shipped.

At a hearing on Tuesday in San Francisco federal court, U.S. District Judge Charles Breyer also said he would like the complex case to proceed to trial quickly.

"I have a couple of goals. One is to try this case in my lifetime," Breyer said.

FedEx was indicted earlier this month on 15 criminal counts, including conspiracy to distribute controlled substances. Senior company managers were repeatedly warned that online pharmacies which had been the subject of criminal prosecutions for supplying drugs without prescriptions were using its services, the indictment said.

Instead of stopping the conduct, FedEx devised policies so it could continue, the filing said.

FedEx had said it is innocent, and general counsel Christine Richards appeared before a magistrate judge on Tuesday to formally enter a not guilty plea. After the hearing, FedEx attorney Cristina Arguedas said the company has cooperated with U.S. prosecutors throughout their investigation.

"FedEx will continue to defend its conduct and its people," Arguedas said. Assistant U.S. attorney Kyle Waldinger declined to comment after court.

If convicted, FedEx could face fines of up to roughly $1.6 billion.

In court on Tuesday, Breyer said it should be easy for both sides to focus on the core issues and quickly move through pretrial document exchanges.

"The real issue is, what were the duties of FedEx?" Breyer said. "What did they know and what did they not know? What were they told and what were they not told?"

Arguedas said the company also wanted to move "expeditiously" to trial.

Another court hearing is scheduled for September 24.

FedEx shares fell 1.2 percent to $147.70 late Tuesday afternoon.

The case in U.S. District Court, Northern District of California is United States of America vs. FedEx Corp et al, 14-cr-380. (Reporting by Dan Levine; Editing by Richard Chang)

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