(FORTUNE Magazine) – HOW'S THIS FOR AN IDEA? TO discourage Americans from buying inexpensive drugs from Canada, maybe the drug industry should raise the specter of terrorists killing U.S. citizens with poison pills from north of the border. Sound like a strange piece of fiction? The truth is even stranger, featuring a cast of characters that includes an employee of the Pharmaceutical Research and Manufacturers of America (PhRMA, a trade group representing Big Pharma), Larry King's attorney, and Jayson Blair, the ex--New York Times reporter famous for making stuff up.

The story--parts of which have been reported in the New York Daily News and elsewhere--started last spring with divorce lawyer Mark Barondess, who represents King and is also a consultant to PhRMA. A friend of his had the idea that a thriller about terrorists meddling with drugs passing through Canada would be a good thing for the American drug industry. Barondess shared the idea with a PhRMA employee (whom a spokesman calls "lower level" and a "rogue" with "limited budgetary authority") and then took it to Michael Viner, the president of Phoenix Books, which has just published Barondess's own hardback, What Were You Thinking?? $600-Per-Hour Legal Advice on Relationships, Marriage & Divorce.

Before long, Barondess brokered a deal with the lower-level rogue with limited budgetary authority to have PhRMA sponsor a book. Barondess, who says his contract with PhRMA provides "discretionary funds" for projects, paid $100,000 to Phoenix, and the publisher hired writer Julie Chrystyn to produce a manuscript. She delivered a story that had Croatian terrorists scheming to destroy Americans with toxic bargain prescriptions purchased from Canada via the web.

Phoenix also recruited someone to edit it: fact fabricator and plagiarist Blair, whose Burning Down My Masters' House was also published by Viner. Blair lasted four days before getting the boot. The draft went through several rewrites, and a media and telecom entrepreneur named Kenin Spivak, who had been helping Chrystyn, came on as co-author.

The deal fell apart in July. Barondess says he killed the project before PhRMA's top execs even knew it existed. He didn't like the writing. And he decided that it wasn't appropriate after all for the pharmaceutical industry to sponsor such a book.

"This was a screwball idea," says Ken Johnson, a spokesman for PhRMA. "An underhanded and sneaky attempt to scare people. We have credible safety-based arguments supporting our position against importation. We don't have to resort to pulp fiction and Looney Tunes."As for Barondess and the lower-level rogue with limited budgetary authority? "I cannot comment on personnel issues," he says. "But we are acting decisively in this matter."

Though PhRMA has washed its hands of the whole affair, the book is still moving forward. It will show up in bookstores in December under the title The Karasik Conspiracy, with an afterword detailing the bizarre truth behind the bizarre fiction. A cover was prepared featuring a plug from Larry King: "A dazzling tour de force," it gushes. "Surefire bestseller!" But Barondess (who, remember, is King's lawyer) complained, and the quote is being removed.