* Walgreen cited over prescription painkiller distribution

* Regulator: Drugs were diverted to abusers, black market

By Jonathan Stempel and Jessica Wohl

June 11 (Reuters) - Walgreen Co, the largest U.S.

drugstore chain, has agreed to pay $80 million in civil

penalties to resolve allegations that it violated federal rules

governing the distribution of prescription painkillers.

The U.S. Drug Enforcement Administration on Tuesday said the

settlement is the largest in its history.

The DEA accused Walgreen of committing an "unprecedented"

number of record-keeping and dispensing violations of the

Controlled Substances Act.

As a result, the DEA said, Walgreen negligently allowed

controlled substances such as the narcotic oxycodone and other

prescription painkillers to be distributed to abusers and sold

illegally on the black market.

"National pharmaceutical chains are not exempt from

following the law," Mark Trouville, special agent in charge in

the DEA's Miami field division, said in a statement. "All DEA

registrants will be held accountable when they violate the law

and threaten public health and safety."

Kermit Crawford, Walgreen president of pharmacy, health and

wellness, in a statement said the company has taken and will

take further steps to improve oversight and training "to ensure

the appropriate dispensing of controlled substances and to

improve collaboration across the industry."

The settlement with the Deerfield, Illinois-based company

also resolves a probe by U.S. Attorney Wifredo Ferrer in Miami.

Walgreen operates more than 8,000 drug stores in all 50 U.S.

states, the District of Columbia, and Puerto Rico.

As part of the settlement, Walgreen admitted that it failed

to uphold its obligations as a DEA registrant.

Six Walgreen pharmacies in Florida and a distribution center

in Jupiter, Florida were given a two-year ban from dispensing

various controlled substances, the DEA said.

Walgreen also agreed to enhance training and compliance

programs, and set up a Department of Pharmaceutical Integrity to

help prevent similar violations.

Florida has long been considered a center of prescription

drug abuse, and the DEA has dismantled dozens of sham clinics

known as "pill mills" where doctors have written prescriptions

for drug dealers and addicts.

The Centers for Disease Control and Prevention said the U.S.

death rate from drug overdoses has more than tripled since 1990.

It said prescription painkillers, also known as opioid or

narcotic pain relievers, were involved in more than 15,500

overdose deaths in the United States in 2009.

Walgreen said it previously set aside $80 million for a

settlement, including $25 million in its fiscal third quarter,

which ended May 31. It said it expects the accord to reduce that

quarter's earnings by 4 to 6 cents per share.

Shares of Walgreen closed Tuesday down 11 cents at $49.54 on

the New York Stock Exchange.

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