The former No. 2 man at

Medco

(MHS)

-- accused by federal prosecutors of defrauding the government -- has landed a new job.

Robert Blyskal is filling the newly created position of co-president and operating chief at retail Web site consultant

GSI Commerce

(GSIC)

. Blyskal last served as executive vice president of operations at Medco, where he reportedly carried out "Monday-morning beatings" designed to punish employees who failed to meet aggressive performance targets. He ended his 11-year career at the $9.4 billion company -- which ranks as the nation's largest pharmacy benefits manager -- as a government investigation into Medco's business practices moved toward formal charges last year.

Blyskal now assumes control of operations at a much smaller ship. Last year, GSI failed to muster even 1% of the sales enjoyed by giant Medco. The company is instead a rare Internet survivor that still is pursuing its first full year of profitability. And it is known for indulging, rather than punishing, its employees.

In late 2001 -- when other Internet companies were busy going under -- GSI still doted on a 450-member staff that, since then, has more than doubled in size.

"Dogs are welcome to accompany their owners to the office," the

Philadelphia Inquirer

reported. "A basketball court dominates the interior. ... Employees of the Web retailer are laid-back -- not laid off."

That same year, GSI founding CEO Michael Rubin -- then barely 30 -- ranked as the highest-paid CEO in his age group, according to

Chief Executive

magazine. Rubin launched his first company when he was still a teenager and followed up with GSI, now an e-tailer for big names such as Athlete's Foot and NASCAR, when he was 25. He has run the company ever since.

But Rubin is now making room for Blyskal -- a 25-year veteran of more traditional corporate America -- to share the office of president.

"Bob is very well-versed in the operations of a multibillion-dollar company," explained Greg Ryan, director of corporate communications for GSI. "We're looking for Bob to take us to the next step."

During Blyskal's last full year at the company, Medco filled 82 million prescriptions for customers all over the country. It also found itself embroiled in a growing federal probe that was formalized in a whistleblower lawsuit filed by U.S. Attorney Patrick Meehan last September. More recently, Meehan -- a Philadelphia prosecutor known for his tough stance against health care fraud -- expanded his case against Medco by singling out Blyskal as one of only two named defendants besides the company itself.

Meehan has accused Medco of ripping off government customers and then intentionally covering its tracks. And he has portrayed Blyskal as a key player in the alleged scheme.

Blyskal "is charged with causing the submission of false claims to the United States by conducting a coverup of intentional destruction of patient prescriptions ... and making misleading statements about that coverup when questioned by the Department of Justice."

Meehan has also blamed Blyskal for approving a generous severance package for a second named defendant, Diane Collins, who was allegedly involved in the scheme.

Collins left Medco in early 2001 and has since begun exercising her Fifth Amendment right to silence when questioned by the government. Blyskal departed the company in March 2003 -- the same month he was questioned by federal authorities -- and asserted that "health concerns prevented him from providing further testimony" less than two months later.

Last month, Medco agreed to change its business practices to settle a small part of the federal government's case. But the company, which could face potentially significant fines, remains under investigation.

Medco's stock, down 33 cents to $34.97 on Thursday, has shed 11% since peaking in February.

Blyskal was traveling and wasn't available for comment. But for its part, Medco describes the whistleblower lawsuit as baseless. And GSI -- which has examined the government's case itself -- heartily agrees.

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"We have gone through due diligence on this," Ryan said. "We believe the case is without merit. ...

And we don't think it will impact Bob's ability to perform."

Ryan said that Blyskal himself immediately brought the lawsuit to GSI's attention. He said the company then thoroughly reviewed the case -- and heard "15 people stand up" for Blyskal -- before finally reaching a decision. He said that GSI is "very satisfied" with its choice.

To be sure, GSI directors have a decent track record of success. They have graduated with honors from places like Columbia and Harvard and the Wharton School of Business. One board member, Harvey Lamm, made a name for himself as a big automobile importer who brought the first four-wheel-drive passenger car to America. Another, Jeffrey Rayport, developed the first e-commerce course ever taught at a top-tier business school in the U.S. Rayport's students at Harvard developed a business plan that would later evolve into

Yahoo!

(YHOO)

.

But Rayport's record, at least, could wind up with a smudge. Currently, he also serves as a director at

Marketwatch.com

(MKTW)

, a financial Web site whose senior executives are being questioned by government authorities about their stock trades.

Two other GSI directors, Ronald Fisher and Michael Perlis, are top guns at Softbank. The investment company, which owns a big stake in GSI, has been known to pour money into such losing ventures as K3Media -- a big tech conference producer that went bankrupt -- and the now-defunct Japanese version of

Nasdaq

. (Softbank was an early investor in

TheStreet.com Inc.

(TSCM)

, operator of this Web site, but has since sold that position.)

Fisher also personally fills board seats at several struggling Internet companies. He is a director at

E*Trade

(ET) - Get Report

, where he served on the executive committee until shareholders screamed for changes last year following the board's approval of an $80 million compensation package for the company's now-departed CEO. More recently, Fisher saw a number of his fellow directors depart from ailing Vie Financial.

"As a result of such resignations, the company's board of directors will have no independent directors and the audit committee will have no members," Vie Financial announced in February. "The company does not presently intend to fill all the vacancies on its board of directors, as the company believes that a smaller board will be more appropriately aligned with the size of the company."

Vie trades for 55 cents a share on the OTC Bulletin Board.

GSI has fared a lot better. To be sure, it no longer fetches the $30 it saw as a young start-up in 1999. But it has recovered from the sub-$2 lows it hit last year.

Still, the stock -- which tumbled 6% to $8.16 on Thursday -- has lost some ground since Blyskal's appointment was first announced on Monday.

The company itself remains confident, however. It expects to generate a profit this year and soon go on to triple its annual revenue.

"This company started in a basement," Ryan said. "And we expect it to be a billion-dollar company in the not-too-distant future."