Category Archives: Consumer Protection Branch

District Court Enters Permanent Injunction Against Tennessee Company and Its CEO to Stop Distribution of Unapproved and Misbranded Drugs

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Thursday, July 27, 2017

The U.S. District Court for the Eastern District of Tennessee entered a consent decree of permanent injunction against Crown Laboratories Inc. and the firm’s Chief Executive Officer, Jeffrey Bedard, to stop the distribution of unapproved and misbranded drugs, the Department of Justice announced today. The products at issue include urea creams and lotions intended to treat a variety of skin ailments.

The Department filed a complaint in the Eastern District of Tennessee on March 1, at the request of the U.S. Food and Drug Administration (FDA). The complaint alleged that the defendants violated the federal Food, Drug and Cosmetic Act by, among other things, introducing unapproved and misbranded drugs into interstate commerce. Specifically, the complaint alleges that defendants sold a series of dermatological creams, despite the absence of FDA approval or a sufficient showing that these products were safe and effective.

“The public has a right to assume that drugs in the marketplace are safe, effective, have obtained proper approvals, and are labeled with the information necessary to allow for proper use,” said Acting Assistant Attorney General Chad Readler of the Justice Department’s Civil Division. “Where drug manufacturers violate these fundamental requirements, the Department of Justice will continue to work aggressively with the FDA to ensure that the pharmaceutical industry follows the rules. Doing so is necessary to protect American consumers.”

As detailed in the complaint, Crown manufactures a variety of prescription and OTC drugs including prescription urea cream and lotion. The products referenced in the complaint include Rea Lo (Urea 40 percent) Cream, Rea Lo (Urea 40 percent) Lotion, Rea Lo 39 (Urea 39 percent) Cream, Dermasorb XM Complete Kit (Urea 39 persent cream and moisturizer), and Sodium Sulfacetamide 10 percent and Sulfur 5 percent (Sodium Sulfacetamide).

As noted in the complaint, the various urea based products were sold as products intended to treat a series of dermatological conditions, such as dry, rough skin, xerosis, ichthyosis, skin cracks and fissures, dermatitis, eczema, psoriasis, keratosis, and calluses. Sodium Sulfacetamide is intended to treat acne vulgaris, acne rosacea, and seborrheic dermatitis. As products designed to provide dermatological treatment, these drugs required FDA approval for their intended uses – approval that was lacking for all of these products. Distributing unapproved drugs in interstate commerce is a violation of the federal Food, Drug, and Cosmetic Act.

In conjunction with the filing of the complaint, the defendants agreed to settle the case and to be bound by a permanent injunction. The injunction requires Crown to stop the manufacturing, selling and introducing into interstate commerce any Rea Lo (Urea 40 percent) Cream, Rea Lo (Urea 40 percent) Lotion, Rea Lo 39 (Urea 39 percent) Cream, Dermasorb XM Complete Kit, Sodium Sulfacetamide, or any drug labeled similarly to such drugs and containing the same active ingredient(s), unless and until an application has been filed with the FDA and approved by the agency.

In addition, within 20 days after the district court’s order, the defendants are required, among other things, to give FDA written notice that they are prepared to destroy all Rea Lo (Urea 40 percent) Cream, Rea Lo (Urea 40 percent) Lotion, Rea Lo 39 (Urea 39 percent) Cream, Dermasorb XM Complete Kit, Sodium Sulfacetamide, and any unapproved drug labeled similarly to such drugs and containing the same active ingredient(s).

The government is represented by Trial Attorney Mary M. Englehart of the Civil Division’s Consumer Protection Branch, with the assistance of Associate Chief Counsel for Enforcement Susan Williams of the Department of Health and Human Services’ Office of General Counsel’s Food and Drug Division.

Additional information about the Consumer Protection Branch and its enforcement efforts may be found at http://www.justice.gov/civil/consumer-protection-branch.

Senior Executives Of Medical Drug Re-Packager Plead Guilty To Defrauding Healthcare Providers

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Friday, July 14, 2017

President and Pharmacist-in-Charge Distributed Cancer Drugs Contaminated With Mold

Earlier today, in federal court in Brooklyn, Gerald Tighe, the president and owner of Med Prep Consulting Inc. (Med Prep), and Stephen Kalinoski, its director of pharmacy and registered pharmacist-in-charge, pleaded guilty to wire fraud conspiracy in connection with their operation of the now-defunct Tinton Falls, New Jersey-based medical drug re-packager and compounding pharmacy. The pleas were entered before United States District Judge I. Leo Glasser.

The guilty pleas were announced by Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, and Mark McCormack, Special Agent-in-Charge of the U.S. Food and Drug Administration’s Office of Criminal Investigations, Metropolitan Washington Field Office (FDA/OCI).

According to court filings and facts presented during the plea proceeding, Med Prep processed numerous drugs, including oncology and dialysis drugs, pain medications, anesthesia drugs, and operating room drugs, in purportedly aseptic conditions. In an effort to gain market share, Med Prep repeatedly misrepresented to its customers, who consisted of hospitals and other healthcare providers, that it adhered to, and in some areas exceeded, industry standards and laws applicable to sterile drug preparation. In fact, Med Prep produced drugs in a facility that fell far short of basic industry standards of cleanliness, creating a risk to the health of already ill patients. Tighe and Kalinoski lied to healthcare providers about Med Prep’s failures to comply with basic sterility practices. Med Prep halted its production of drug products in the summer of 2013, following an incident in which it had distributed intravenous drugs containing visible mold to a Connecticut hospital.

“Today’s guilty pleas mark an important step in our continuing effort to hold accountable those who pursue corporate profits over the health and safety of vulnerable patients suffering from disease,” said Acting United States Attorney Rohde. In announcing the guilty plea, Ms. Rohde gratefully acknowledged the assistance and cooperation of the United States Department of Health and Human Services, Office of the Inspector General, Office of Investigations; the United States Office of Personnel Management, Office of the Inspector General; the Department of Justice, Civil Division, Consumer Protection Branch and Commercial Litigation Branch; the FDA’s Office of the Chief Counsel; the Office of the Attorney General of New Jersey; and the New Jersey Board of Pharmacy.

“Producing unsafe and contaminated drugs poses a serious threat to the U.S. public health and cannot be tolerated,” stated FDA/OCI Special Agent-in-Charge McCormack. “The FDA remains fully committed to aggressively pursuing those who place unsuspecting American consumers at risk by distributing adulterated drugs.”

The sentencing, Tighe and Kalinoski each face up to five years in prison, a fine and the forfeiture of criminal proceeds. They will also be required to make full restitution to their victims.

The case is being prosecuted by Assistant United States Attorneys Alixandra E. Smith, Ameet B. Kabrawala and Erin E. Argo.

The Defendants:

GERALD TIGHE

Age: 59

West Long Branch, New Jersey

STEPHEN KALINOSKI

Age: 53

Middletown, New Jersey

E.D.N.Y. Docket No. 15-CR-62 (ILG)

Owner of New England Compounding Center Sentenced for Racketeering Leading to Nationwide Fungal Meningitis Outbreak

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Monday, June 26, 2017
Outbreak Was the Largest Public Health Crisis Ever Caused by a Pharmaceutical Product

The owner and head pharmacist of New England Compounding Center (NECC) was sentenced today to nine years in prison in connection with the 2012 nationwide fungal meningitis outbreak, the Department of Justice announced today.

Barry Cadden, 50, of Wrentham, Massachusetts, was sentenced by U.S. District Court Judge Richard G. Stearns to serve 108 months in prison and three years of supervised release, and forfeiture and restitution in an amount to be determined later. In March 2017, Cadden was convicted by a federal jury of racketeering, racketeering conspiracy, mail fraud and introduction of misbranded drugs into interstate commerce with the intent to defraud and mislead.

“Barry Cadden put profits ahead of patients,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Under his direction, employees assured customers that they were getting safe drugs, while Cadden ignored grave environmental failures, used expired active ingredients, and took innumerable other production shortcuts that led to numerous, entirely preventable deaths. As Cadden’s sentence reflects, the Justice Department’s Consumer Protection Branch is committed to prosecuting those who put the health of Americans at risk.”

“Barry Cadden put profits over patients,” said Acting U.S. Attorney William D. Weinreb for the District of Massachusetts. “He used NECC to perpetrate a massive fraud that harmed hundreds of people. Mr. Cadden knew that he was running his business dishonestly, but he kept doing it anyway to make sure the payments kept rolling in. Now he will have to pay for his crimes.”

“Protecting Americans from unsafe and contaminated drugs is at the core of our mission,” said FDA Commissioner Scott Gottlieb, M.D. “Patients should not have to worry about the safety and sterility of the drugs they are prescribed. Since this tragedy, Congress has given the FDA important new authorities, and the agency has implemented key policies, all to provide a greater assurance of safety over compounded medicines. As part of these efforts, we will continue to hold accountable those who violate the law and put patients at risk.”

“Today, Barry Cadden was held responsible for one of the worst public health crises in this country’s history, and the lives of those impacted because of his greed, will never be the same,” said Special Agent in Charge Harold H. Shaw of the FBI, Boston Field Division. “This deadly outbreak was truly a life-changing event for hundreds of victims, and the FBI is grateful to have played a role, alongside our law enforcement partners, in bringing this man to justice.”

In 2012, 753 patients in 20 states were diagnosed with a fungal infection after receiving injections of preservative-free methylprednisolone acetate (MPA) manufactured by NECC. Of those 753 patients, the U.S. Centers for Disease Control and Prevention (CDC) reported that 64 patients in nine states died. The outbreak was the largest public health crisis ever caused by a pharmaceutical product.

Specifically, Cadden directed and authorized the shipping of contaminated MPA to NECC customers nationwide. In addition, he authorized the shipping of drugs before test results confirming their sterility were returned, never notified customers of nonsterile results, and compounded drugs with expired ingredients. Furthermore, certain batches of drugs were manufactured, in part, by an unlicensed pharmacy technician at NECC. Cadden also repeatedly took steps to shield NECC’s operations from regulatory oversight by the FDA by claiming to be a pharmacy dispensing drugs pursuant to valid, patient-specific prescriptions. In fact, NECC routinely dispensed drugs in bulk without valid prescriptions. NECC even used fictional and celebrity names on fake prescriptions to dispense drugs, such as “Michael Jackson,” “Freddie Mae” and “Diana Ross.”

“Today’s sentencing demonstrates the ongoing commitment of the Defense Criminal Investigative Service (DCIS) to protect the integrity of TRICARE, the U.S. Defense Department’s health care program,” stated Special Agent in Charge Leigh-Alistair Barzey of DCIS, Northeast Field Office. “DCIS will continue to work with its law enforcement partners to identify and investigate individuals who disregard pharmaceutical and drug regulations and endanger the health and safety of U.S. military members and their families.‎”

“No veterans receiving VA care were harmed by the fungal meningitis outbreak,” said Special Agent in Charge Donna L. Neves for the Department of Veterans Affairs, Office of Inspector General (VA-OIG). “The VA Office of Inspector General, together with its law enforcement partners, will persist in working drug adulteration cases to ensure veterans continue to receive safe and effective medications for the purpose of healing their ailments.”

“Today’s sentencing is an example of the dedicated work of law enforcement, along with the U.S. Attorney’s Office Health Care Fraud Unit in their steadfast pursuit of justice in the largest public health crisis caused by a pharmaceutical product in this nation’s history,” said Inspector in Charge Shelly Binkowski of the U.S. Postal Inspection Service. “The U.S. Postal Inspection Service will continue to be vigilant in investigating cases where the U.S. mail is used to put our nation’s citizens at risk.”

Assistant U.S. Attorneys George P. Varghese and Amanda P.M. Strachan of Weinreb’s Health Care Fraud Unit and Trial Attorney John W.M. Claud of the Justice Department’s Consumer Protection Branch prosecuted the case.

 

Six Convicted on Business Opportunity Fraud Charges

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Verdict Brings Total of 22 Individuals Convicted in Scheme 

A jury in Central Islip, New York, convicted six men yesterday on felony charges of conspiracy and fraud in the sale of candy vending machine business opportunities, the Department of Justice announced.

Edward Morris “Ned” Weaver, 42, of Perrysburg, Ohio, and Lawrence A. Kaplan, 57, of Brooklyn, New York, were convicted of conspiracy, six counts of fraud and one count each of making false statements to federal agents during a related criminal investigation.  Scott M. Doumas, 43, of East Setauket, New York, was convicted of one count of conspiracy and one count of mail fraud.  Richard R. Goldberg, 43, of Bay Shore, New York, and Richard Linick, 73, of Coram, New York, were each convicted of conspiracy and one count of wire fraud.  Paul E. Raia, 64, of Brookhaven, New York, was convicted of conspiracy and two counts of wire fraud.

The convictions followed a six-week trial before U.S. District Court Judge Joan M. Azrack in federal court in the Eastern District of New York.  Each of the defendants faces a statutory maximum sentence of 10 years in prison on the conspiracy count and 25 years in prison on the fraud counts.  Weaver and Kaplan face a statutory maximum sentence of five years in prison on the false statements charges.

“These defendants promised their victims the American dream, but knew that what they in fact were offering was a worthless business opportunity,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to prosecute those who seek to scam out of everyday Americans the hard-earned money in their retirement accounts and life savings.”

According to evidence presented at trial, managers, sales representatives and operators of “locating companies” associated with Multivend LLC, d/b/a Vendstar, made material misrepresentations about the profits customers would make from bulk candy vending machines. During the telemarketing calls, Vendstar’s sales representatives falsely claimed to operate their own profitable vending machine businesses.

Additional evidence at trial described how Vendstar advertised nationwide in newspapers and on the Internet.  Vendstar sales representatives promised to provide consumers with everything they needed to operate a successful business, including vending machines, an initial supply of candy, assistance in finding locations for the vending machines, training and ongoing customer assistance.  The locating companies who worked with Vendstar to close deals had no special skills, tools or expertise in finding locations and generally placed consumers’ machines wherever they could as quickly as they could, often in businesses that had not consented to housing the machines and that soon demanded that the machines be removed.  The vending machines generated little business and Vendstar’s customers lost all or nearly all of their investments.  The typical customer paid about $10,000 for the business opportunity.

Prior to this trial, 16 other Vendstar managers, Vendstar sales representatives and locating company operators pleaded guilty to federal felony charges for related conduct at Vendstar.  Evidence presented at trial established that from 2005 to 2010, the Vendstar scheme cost consumers $60 million.

Principal Deputy Assistant Attorney General Mizer commended the U.S. Postal Inspection Service for their investigative efforts.  The case was prosecuted by Trial Attorneys Patrick Jasperse and Alan Phelps of the Civil Division’s Consumer Protection Branch.

Two New York Salesmen Sentenced to Prison in Business Opportunity Fraud Scheme

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Scheme Defrauded More than 330 Victims Across the Country

A federal judge in the Eastern District of New York sentenced two sales representatives to prison today for their roles in a vending machine business opportunity fraud scheme, the Department of Justice announced today.

Howard S. Strauss, 66, of Jericho, New York, was sentenced to serve 28 months in prison by U.S. District Court Judge Joan M. Azrack, who also ordered him to pay $2,291,844 in restitution to 230 victims.  Mark Benowitz, 68, of Midlothian, Virginia, was sentenced to serve 24 months in prison and ordered to pay $997,210 in restitution to 103 victims.

Both Strauss and Benowitz pleaded guilty last year to fraud charges in connection with Multivend LLC, doing business as Vendstar, a company based in Deer Park, New York, that sold vending machine business opportunities to consumers throughout the United States until 2010.  Strauss and Benowitz were Vendstar sales representatives who misrepresented the business opportunity’s likely profits, the amount of money that Vendstar’s prior customers were earning, how quickly customers were likely to recover their investment, the quality of locations that were available for the vending machines, and the level of location assistance that customers would receive from locating companies recommended by Vendstar.  Both Strauss and Benowitz also falsely told potential customers that they operated profitable candy vending machine routes themselves.

“These defendants promised the American dream, but knew that what they in fact were offering was a worthless business opportunity,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to prosecute those who seek to scam out of everyday Americans the hard-earned money in their retirement accounts and life savings.”

Twenty-two individuals have been charged with fraud in connection with Vendstar, including Vendstar managers and sales representatives, and the operators of locating companies recommended by Vendstar.  Three of those defendants have now been sentenced; 13 defendants are awaiting sentencing; and six defendants are scheduled to stand trial in September.

Principal Deputy Assistant Attorney General Mizer commended the U.S. Postal Inspection Service for its thorough investigation.  The case is being prosecuted by Trial Attorneys Patrick Jasperse and Alan Phelps of the Civil Division’s Consumer Protection Branch.

Virginia Resident Sentenced to Prison in Connection with Lottery Scheme Based in Jamaica

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A Jamaican citizen residing in Virginia was sentenced to prison today for his role in an international lottery scam, the Justice Department and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) announced.

Carlos O’Brien Ricketts, 32, was sentenced by U.S. District Court Judge Michael F. Urbanski of the Western District of Virginia to serve 10 months in prison to be followed by three years of supervised release, and ordered him to pay $74,450 in restitution to his victims.

Ricketts was indicted on Nov. 6, 2014, by a federal grand jury in Harrisonburg, Virginia, in connection with a fraudulent lottery scheme based in Jamaica that induced elderly victims to send thousands of dollars to cover fees for lottery winnings that the victims had not in fact won.  On March 24, Ricketts pleaded guilty to one count of conspiracy to commit mail fraud and wire fraud.

“The masterminds of lottery fraud from Jamaica use co-conspirators in the United States not only to help collect money from innocent victims, but also to make their scheme appear less suspicious,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to prosecute those who direct or facilitate these international lottery schemes.”

As part of his guilty plea, Ricketts acknowledged that, had the case gone to trial, the government would have proved beyond a reasonable doubt that from May 2010 through April 2011, he was a middleman in the United States for a fictitious sweepstakes operating from Jamaica.  According to the indictment, a co-conspirator induced elderly victims in the United States to send thousands of dollars to Ricketts to cover fees for purported lottery winnings that, in fact, the victims had not won.

This case is part of the government’s crackdown on international fraudulent lottery schemes that target elderly individuals in the United States.  The indictment alleged that the co-conspirator instructed the victims to send their payments to Ricketts in the form of cash and checks via mail and as wire transfers.

As part of his guilty plea, Ricketts acknowledged that, had the case gone to trial, the government would have proved beyond a reasonable doubt that he received payments at his home address in Stephens City, Virginia, and at another address in Winchester, Virginia, sometimes using his own name and at other times used the name “Kevin Brown” to receive the money.  Ricketts further acknowledged that had the case gone to trial, the government would have proved that he kept part of the money for himself and then sent the remainder of the money in wire transfers to Jamaica, sometimes using the “Kevin Brown” name and addresses other than his own in order to evade detection.

“Fraud schemes like this one that prey on senior citizens will not be tolerated,” said Acting U.S. Attorney Anthony P. Giorno of the Western District of Virginia.  “Our office will provide whatever resources and assistance may be required in order to identify and bring these criminals to justice.”

“Homeland Security Investigations is committed to disrupting and combatting these international lottery schemes,” said Special Agent in Charge Clark E. Settles of HSI Washington, D.C., which oversees the agency’s Harrisonburg office.  “While fraudulent schemes of any kind are despicable, targeting vulnerable populations is especially depraved and will not be tolerated.”

Principal Deputy Assistant Attorney General Mizer and Acting U.S. Attorney Giorno commended HSI’s investigative efforts.  The case was prosecuted by Trial Attorney Kathryn Drenning of the Civil Division’s Consumer Protection Branch and Assistant U.S. Attorney Grayson Hoffman of the Western District of Virginia.

Two Individuals Plead Guilty to Conspiring to Defraud Consumers through Fraudulent Debt Relief Services Firms

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Two individuals pleaded guilty today for their roles at fraudulent debt relief services companies that offered to settle credit card debts but instead took victims’ payments as undisclosed up-front fees, the Justice Department and U.S. Postal Inspection Service (USPIS) announced.

Athena Maldonado, 30, and Christopher Harati, 31, both of Orange County, California, pleaded guilty to a one-count information alleging conspiracy in connection with debt relief companies known as Nelson Gamble & Associates (Nelson Gamble) and Jackson Hunter Morris & Knight LLP (Jackson Hunter).  According to the information filed in the case, the defendants and their co-conspirators portrayed the debt relief companies as law firms and attorney-based companies that would negotiate favorable settlements with creditors.  Clients made monthly payments expecting the money to go toward settlements.  The companies instead took an amount equal to at least 15 percent of clients’ total debt as company fees, with the first six months of payments going almost entirely toward undisclosed up-front fees.

“Debt relief service scams prey on vulnerable consumers trying to climb out of tough financial situations,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will aggressively pursue the criminals who operate these schemes.”

Maldonado admitted that she acted as the “legal department” for both companies, and used multiple aliases when responding to complaints submitted by state attorney general offices, the Better Business Bureau and private attorneys.  Maldonado admitted that, after Nelson Gamble changed its name to Jackson Hunter, she responded to consumer complaints by falsely stating, among other things, that the two companies were not related and that Jackson Hunter could not refund money paid to Nelson Gamble.

Harati admitted that he worked as a client relations manager for the companies and handled complaint calls from clients.  He admitted he told customers that Nelson Gamble and Jackson Hunter were separate companies, falsely stated that Jackson Hunter was a nationwide law firm with years of experience and made other misrepresentations designed to convince customers to stay with the company.

The defendants each face a statutory maximum sentence of five years in prison and a $250,000 fine, or an alternate fine of twice the loss or twice the gain, whichever is greater, along with mandatory restitution.  Their sentencing dates have not been set.

On Dec. 3, 2014, a grand jury in Santa Ana, California, returned a 22-count indictment charging Jeremy Nelson, Elias Ponce and John Vartanian, all of Orange County, for mail fraud, wire fraud, and conspiracy to commit mail and wire fraud in the same fraudulent scheme.  The trial in that case is scheduled to begin on Feb. 16, 2016, in Los Angeles.

The Federal Trade Commission (FTC) brought a civil case against Nelson Gamble, Jackson Hunter and other defendants in September 2012, alleging that the defendants falsely claimed they would reduce consumers’ unsecured debt by 50 percent or more, made unauthorized charges to their bank accounts and called phone numbers listed on the National Do Not Call Registry.  For more information about debt relief firms, the FTC encourages consumers to review this page on their website.

Principal Deputy Assistant Attorney General Mizer commended the USPIS team assigned to the Civil Division’s Consumer Protection Branch for their investigative efforts, and thanked the U.S. Attorney’s Office of the Central District of California for their contributions to the case.  The case is being prosecuted by Trial Attorney Alan Phelps of the Consumer Protection Branch.

Seller of “Miracle Mineral Solution” Convicted for Marketing Toxic Chemical as a Miracle Cure

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A federal jury in the Eastern District of Washington returned a guilty verdict yesterday against a Spokane, Washington, man for selling industrial bleach as a miracle cure for numerous diseases and illnesses, including cancer, AIDS, malaria, hepatitis, lyme disease, asthma and the common cold, the Department of Justice announced.

Louis Daniel Smith, 45, was convicted following a seven-day trial of conspiracy, smuggling, selling misbranded drugs and defrauding the United States. Evidence at trial showed that Smith operated a business called “Project GreenLife” (PGL) from 2007 to 2011.  PGL sold a product called “Miracle Mineral Supplement,” or MMS, over the Internet.  MMS is a mixture of sodium chlorite and water.  Sodium chlorite is an industrial chemical used as a pesticide and for hydraulic fracking and wastewater treatment.  Sodium chlorite cannot be sold for human consumption and suppliers of the chemical include a warning sheet stating that it can cause potentially fatal side effects if swallowed.

“This verdict demonstrates that the Department of Justice will prosecute those who sell dangerous chemicals as miracle cures to sick people and their desperate loved ones,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “Consumers have the right to expect that the medicines that they purchase are safe and effective.”  Mizer thanked the jury for its service and its careful consideration of the evidence.

The government presented evidence that Smith instructed consumers to combine MMS with citric acid to create chlorine dioxide, add water and drink the resulting mixture to cure numerous illnesses. Chlorine dioxide is a potent agent used to bleach textiles, among other industrial applications.  Chlorine dioxide is a severe respiratory and eye irritant that can cause nausea, diarrhea and dehydration.  According to the instructions for use that Smith provided with his product, nausea, diarrhea and vomiting were all signs that the miracle cure was working.  The instructions also stated that despite a risk of possible brain damage, the product might still be appropriate for pregnant women or infants who were seriously ill.

According to the evidence presented at trial, Smith created phony “water purification” and “wastewater treatment” businesses in order to obtain sodium chlorite and ship his MMS without being detected by the U.S. Food and Drug Administration (FDA) or U.S. Customs and Border Protection.  The government also presented evidence that Smith hid evidence from FDA inspectors and destroyed evidence while law enforcement agents were executing search warrants on his residence and business.

Before trial, three of Smith’s alleged co-conspirators, Chris Olson, Tammy Olson and Karis DeLong, Smith’s wife, pleaded guilty to introducing misbranded drugs into interstate commerce.  Chris Olson, along with alleged co-conspirators Matthew Darjanny and Joseph Lachnit, testified at trial that Smith was the leader of PGL.

In all, the jury convicted Smith of one count of conspiracy to commit multiple crimes, three counts of introducing misbranded drugs into interstate commerce with intent to defraud or mislead and one count of fraudulently smuggling merchandise into the United States.  The jury found Smith not guilty on one out of four of the misbranded drug counts. He faces a statutory maximum of 34 years in prison at his Sept. 9 sentencing.

The case was investigated by agents of the FDA’s Office of Criminal Investigations and the U.S. Postal Inspection Service.  The case was prosecuted by Christopher E. Parisi and Timothy T. Finley of the Civil Division’s Consumer Protection Branchin Washington, D.C.

Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013

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The Justice Department secured $3. 8 billion in settlements and judgments from civil cases involving fraud against the government in the fiscal year ending Sept. 30, 2013, Assistant Attorney General for the Civil Division Stuart F. Delery announced today.    This dollar amount, which is the second largest annual recovery of its type in history, brings total recoveries under the False Claims Act since January 2009 to $ 17 billion – nearly half the total recoveries since the Act was amended 27 years ago in 1986.

The Justice Department’s fiscal year 2013 efforts recovered more than $3 billion for the fourth year in a row and are surpassed only by last year’s nearly $5 billion in recoveries.    As in previous years, the largest recoveries related to health care fraud, which reached $2. 6  billion.    Procurement fraud (related primarily to defense contracts) accounted for another $ 890  million – a record in that area.

“It has been another banner year for civil fraud recoveries, but more importantly, it has been a great year for the taxpayer and for the millions of Americans, state agencies and organizations that benefit from government programs and contracts,” said Assistant Attorney General Delery.    “The $3. 8 billion in federal False Claims Act recoveries in fiscal year 2013, plus another $443 million in recoveries for state Medicaid programs, restores scarce taxpayer dollars to federal and state governments.    The government’s success in these cases is also a strong deterrent to others who would misuse public funds, which means government programs designed to keep us safer, healthier and economically more prosperous can do so without the corrosive effects of fraud and false claims.”

The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans benefits, federally insured loans and mortgages, transportation and research grants, agricultural supports, school lunches and disaster assistance.    In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government, which has led to more investigations and greater recoveries.

Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions, which allow private citizens to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, known as a relator, receives up to 30 perc  ent of the recovery.    The number of qui tam suits filed in fiscal year 2013 soared to 752 –100 more than the record set the previous fiscal year.    Recoveries in qui tam cases during fiscal year 2013 totaled $2. 9 billion , with whistleblowers recovering $345 million.

Health Care Fraud

The $2. 6 billion in health care fraud recoveries in fiscal year 2013 marks four straight years the department has recovered more than $2 billion in cases involving health care fraud.    This steady, significant and continuing success can be attributed to the high priority the Obama Administration has placed on fighting health care fraud.    In 2009, Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius announced the creation of an interagency task force, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement.    This coordination has yielded historic results:   From January 2009 through the end of the 2013 fiscal year, the department used the False Claims Act to recover $12 .1 billion in federal health care dollars.    Most of these recoveries relate to fraud against Medicare and Medicaid.    Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.

Some of the largest recoveries this past fiscal year involved allegations of fraud and false claims in the pharmaceutical and medical device industries.    Of the $2. 6 billion in federal health care fraud recoveries, $1.8 billion were from alleged false claims for drugs and medical devices under federally insured health programs that, in addition to Medicare and Medicaid, include TRICARE, which provides benefits for military personnel and their families, veterans’ health care programs and the Federal Employees Health Benefits Program.    The department recovered an additional $443 million for state Medicaid programs.

Many of these settlements involved allegations that pharmaceutical manufacturers improperly promoted their drugs for uses not approved by the Food and Drug Administration (FDA) – a practice known as “off-label marketing.”    For example, drug manufacturer Abbott Laboratories Inc. paid $1.5 billion to resolve allegations that it illegally promoted the drug Depakote to treat agitation and aggression in elderly dementia patients and schizophrenia when neither of these uses was approved as safe and effective by the FDA.    This landmark $1.5 billion settlement included $575 million in federal civil recoveries, $225 million in state civil recoveries and nearly $700 million in criminal fines and forfeitures.    In another major pharmaceutical case, biotech giant Amgen Inc. paid the government $762 million, including $598.5 million in False Claims Act recoveries, to settle allegations that included its illegal promotion of Aranesp, a drug used to treat anemia, in doses not approved by the FDA and for off-label use to treat non-anemia-related conditions.  For details, see Abbott, Abbott sentencing, and Amgen.

The department also settled allegations relating to the manufacture and distribution of adulterated drugs.    For example, generic drug manufacturer Ranbaxy USA Inc. paid $505 million to settle allegations of false claims to federal and state health care programs for adulterated drugs distributed from its facilities in India.  The settlement included $237 million in federal civil claims, $118 million in state civil claims and $150 million in criminal fines and forfeitures.    For details, see Ranbaxy.

Adding to its successes under the False Claims Act, the Civil Division’s Consumer Protection Branch, together with U.S. Attorneys across the country, obtained 16 criminal convictions and more than $1. 3 billion in criminal fines, forfeitures and disgorgement under the Federal Food, Drug and Cosmetic Act (FDCA).  The FDCA protects the health and safety of the public by ensuring, among other things, that drugs intended for use in humans are safe and effective for their intended uses and that the labeling of such drugs bears true, complete and accurate information.

In other areas of health care fraud, the department obtained a $237 million judgment against South Carolina-based Tuomey Healthcare System Inc., after a four-week trial, for violating the Stark Law and the False Claims Act.  The Stark Law prohibits hospitals from submitting claims to Medicare for patients referred to the hospital by physicians who have a prohibited financial relationship with the hospital.    Tuomey’s appeal of the $237 million judgment is pending.  If the judgment is affirmed on appeal, this will be the largest judgment in the history of the Stark Law.    For the court’s opinion, see Tuomey.

The department also recovered $26.3 million in a settlement with Steven J. Wasserman M.D., a dermatologist practicing in Florida, to resolve allegations that he entered into an illegal kickback arrangement with Tampa Pathology Laboratory that resulted in increased claims to Medicare.    Tampa Pathology Laboratory previously paid the government $950,000 for its role in the alleged scheme.    The $26.3 million settlement is one of the largest with an individual in the history of the False Claims Act.    For details, see Wasserman.

Procurement Fraud

Fiscal year 2013 was a record year for procurement fraud matters.    The department secured more than $887 million in settlements and judgments based on allegations of false claims and corruption involving government contracts.  Prominent among these successes was the department’s $664 million judgment against Connecticut-based defense contractor United Technologies Corp. (UTC).    A federal court found UTC liable for making false statements to the Air Force in negotiating the price of a contract for fighter jet engines.    In 2004, the department had won a smaller judgment after a three-month trial.  Both sides appealed, but the government’s arguments prevailed, resulting in the case being returned to the trial court to reassess damages.   The $664 million judgment, which UTC has appealed, is the largest judgment in the history of the False Claims Act and, if the appellate court affirms, will be the largest procurement recovery in history.    For details, see UTC.

The department also settled allegations of false claims with two companies in connection with their contracts with the General Services Administration (GSA) to market their products through the Multiple Award Schedule (MAS) program.    To be awarded a MAS contract, and thereby gain access to the broad government marketplace, contractors must provide GSA with complete, accurate and current information about their commercial sales practices, including discounts afforded to their commercial customers.    The government alleged that W.W. Grainger Inc., a national hardware distributor headquartered in Illinois, and Ohio-based RPM International Inc. and its subsidiary, Tremco Inc., a roofing supplies and services firm, failed to disclose discounts given to their commercial customers, which resulted in government customers paying higher prices.  The department recovered $70 million from W.W. Grainger in a settlement that also included allegations relating to a U.S. Postal Services contract and $61 million from RPM International Inc. and Tremco.  For details, see Grainger, RPM/Tremco.

Other Fraud Recoveries

A $45 million settlement with Japan-based Toyo Ink S.C. Holdings Co. Ltd. and its Japanese and United States affiliates (collectively Toyo) demonstrates the breadth of cases the department pursues.  This settlement resolved allegations that Toyo misrepresented the country of origin on documents presented to the Department of Homeland Security’s U.S. Customs and Border Protection to evade antidumping and countervailing duties on imports of the colorant carbazole violet pigment into the United States.    These duties protect U.S. businesses by offsetting unfair foreign pricing and foreign government subsidies.    For details, see Toyo.

The False Claims Act also is used to redress grant fraud.    In a significant case involving a grant from the Department of Education, Education Holdings Inc. (formerly The Princeton Review Inc.) paid $10 million to resolve allegations that the company fabricated attendance records for thousands of hours of afterschool tutoring of students that was funded by the federal grant.  For details, see Education Holdings.

Recoveries in Whistleblower Suits

Of the $3. 8 billion the department recovered in fiscal year 2013, $2. 9 billion related to lawsuits filed under the qui tam provisions of the False Claims Act.    During the same period, the department paid out more than $345 million to the courageous individuals who exposed fraud and false claims by filing a qui tam complaint.    (The average share paid to whistleblowers in fiscal year 2013 cannot be determined from these numbers because the awards paid to whistleblowers in one fiscal year do not always coincide with the fiscal year in which the case was resolved, and the fiscal year’s recoveries may include amounts to settle allegations outside the whistleblower’s complaint.)

Whistleblower lawsuits were in the range of three to four hundred per year from 2000 to 2009, when they began their climb from 433 lawsuits in fiscal year 2009 to 752  lawsuits in fiscal year 2013.    Due to the complexity of fraud investigations generally, the outcomes of many of the qui tam cases filed this past fiscal year are not yet known, but the growing number of lawsuits filed since 2009 have led to increased recoveries.    Qui tam recoveries exceeded $2 billion for the first time in fiscal year 2010 and have continued to exceed that amount every year since.    Qui tam recoveries this past fiscal year bring the department’s totals since January 2009 to $13.4 billion.    During the same period, the department paid out $1.98 billion in whistleblower awards.

“These recoveries would not have been possible without the brave contributions made by ordinary men and women who made extraordinary sacrifices to expose fraud and corruption in government programs,” said Assistant Attorney General Delery.    “We are also grateful to Congress and its continued support of strengthening the False Claims Act, including its qui tam provisions, giving the department the tools necessary to pursue false claims.”

In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud.  In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes.    And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.

Assistant Attorney General Delery also expressed his deep appreciation for the dedicated public servants who investigated and pursued these cases.    These individuals include attorneys, investigators, auditors and other agency personnel throughout the Justice Department’s Civil Division, the U.S. Attorneys’ Offices, the Departments of Defense and Health and Human Services, the various Offices of Inspector General and the many other federal and state agencies that contributed to the department’s recoveries this past fiscal year.

“The department’s continued success in recovering fraudulent claims for taxpayer money this past fiscal year is a product of the tremendous skill and dedication of the people who worked on these cases and investigations and continue to work hard to protect against the misuse of taxpayer dollars,” said Delery.

Wyeth Pharmaceuticals Agrees to Pay $490.9 Million for Marketing the Prescription Drug Rapamune for Unapproved Uses

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Wyeth Pharmaceuticals Inc., a pharmaceutical company acquired by Pfizer, Inc. in 2009, has agreed to pay $490.9 million to resolve its criminal and civil liability arising from the unlawful marketing of the prescription drug Rapamune for uses not approved as safe and effective by the U.S. Food and Drug Administration (FDA), the Justice Department announced today.  Rapamune is an “immunosuppressive” drug that prevents the body’s immune system from rejecting a transplanted organ.

 “FDA’s drug approval process ensures companies market their products for uses proven safe and effective,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division.  “We will hold accountable those who put patients’ health at risk in pursuit of financial gain.”

The Federal Food, Drug and Cosmetic Act (FDCA) requires a company such as Wyeth to specify the intended uses of a product in its new drug application to the FDA.  Once approved, a drug may not be introduced into interstate commerce for unapproved or “off-label” uses until the company receives FDA approval for the new intended uses.  In 1999, Wyeth received approval from the FDA for Rapamune use in renal (kidney) transplant patients.  However, the information alleges, Wyeth trained its national Rapamune sales force to promote the use of the drug in non-renal transplant patients.  Wyeth provided the sales force with training materials regarding non-renal transplant use and trained them on how to use these materials in presentations to transplant physicians.  Then, Wyeth encouraged sales force members, through financial incentives, to target all transplant patient populations to increase Rapamune sales.

“The FDA approves drugs for certain uses after lengthy clinical trials,” said Sanford Coats, U.S. Attorney for the Western District of Oklahoma.  “Compliance with these approved uses is important to protect patient safety, and drug companies must only market and promote their drugs for FDA-approved uses.  The FDA approved Rapamune for limited use in renal transplants and required the label to include a warning against certain uses.  Yet, Wyeth trained its sales force to promote Rapamune for off-label uses not approved by the FDA, including ex-renal uses, and even paid bonuses to incentivize those sales.  This was a systemic, corporate effort to seek profit over safety.  Companies that ignore compliance with FDA regulations will face criminal prosecution and stiff penalties.”

Wyeth has pleaded guilty to a criminal information charging it with a misbranding violation under the FDCA.  The resolution includes a criminal fine and forfeiture totaling $233.5 million.  Under a plea agreement, which has been accepted by the U.S. District Court in Oklahoma City, Wyeth has agreed to pay a criminal fine of $157.58 million and forfeit assets of $76 million.

The resolution also includes civil settlements with the federal government and the states totaling $257.4 million.  Wyeth has agreed to settle its potential civil liability in connection with its off-label marketing of Rapamune.  The government alleged that Wyeth violated the False Claims Act, from 1998 through 2009, by promoting Rapamune for unapproved uses, some of which were not medically accepted indications and, therefore, were not covered by Medicare, Medicaid and other federal health care programs.  These unapproved uses included non-renal transplants, conversion use (switching a patient from another immunosuppressant to Rapamune) and using Rapamune in combination with other immunosuppressive agents not listed on the label.  The government alleged that this conduct resulted in the submission of false claims to government health care programs.  Of the amounts to resolve the civil claims, Wyeth will pay $230,112,596 to the federal government and $27,287,404 to the states.

“Wyeth’s conduct put profits ahead of the health and safety of a highly vulnerable patient population dependent on life-sustaining therapy,” said Antoinette V. Henry, Special Agent in Charge, Metro-Washington Field Office, FDA Office of Criminal Investigations.  “FDA OCI is committed to working with the Department of Justice and our law enforcement counterparts to protect public health.”

Pfizer is currently subject to a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services’ Office of Inspector General that it entered in connection with another matter in 2009, shortly before acquiring Wyeth.  The CIA covers former Wyeth employees who now perform sales and marketing functions at Pfizer.  Under the CIA, Pfizer is subject to exclusion from federal health care programs, including Medicare and Medicaid, for a material breach of the CIA, and the company is subject to monetary penalties for less significant breaches.

“We are committed to enforcing the laws protecting public health, taxpayers and government health programs, and to promoting effective compliance programs,” said Daniel R. Levinson, Inspector General, Department of Health and Human Services.  “Our integrity agreement with Pfizer, which acquired Wyeth, includes required risk assessments, a confidential disclosure program, and auditing and monitoring to help prospectively identify improper marketing.”

The civil settlement resolves two lawsuits pending in federal court in the Western District of Oklahoma under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the government and share in any recovery.  The first action was filed by a former Rapamune sales representative, Marlene Sandler, and a pharmacist, Scott Paris.  The second action was filed by a former Rapamune sales representative, Mark Campbell.  The whistleblowers’ share of the civil settlement has not been resolved.

“The success obtained in this case is an excellent example of how we address the threats to our nation’s health care system; the importance of the public reporting of fraud, waste, or abuse; and the significant results that can be obtained through multiple agencies cooperating in investigations,” said James E. Finch, Special Agent in Charge of the Oklahoma City Division of the FBI.

The criminal case was handled by the U.S. Attorney’s Office for the Western District of Oklahoma (USAO) and the Justice Department’s Civil Division, Consumer Protection Branch.  The civil settlement was handled by USAO and the Justice Department’s Civil Division, Commercial Litigation Branch.  The Department of Health and Human Services’ (HHS) Office of Counsel to the Inspector General; the HHS Office of General Counsel, Center for Medicare and Medicaid Services; the FDA’s Office of Chief Counsel; and the National Association of Medicaid Fraud Control Units.  These matters were investigated by the FBI; the FDA’s Office of Criminal Investigation; HHS’ Office of Inspector General, Office of Investigations and Office of Audit Services; the Defense Criminal Investigative Service; the Office of Personnel Management’s Office of Inspector General and Office of Audit Services; the Department of Veterans’ Affairs’ Office of Inspector General; and TRICARE Program Integrity.

Except for conduct admitted in connection with the criminal plea, the claims settled by the civil agreement are allegations only, and there has been no determination of civil liability.  The civil lawsuits are captioned United States ex rel. Sandler et al v. Wyeth Pharmaceuticals, Inc., Case No. 05-6609 (E.D. Pa.) and United States ex rel. Campbell v. Wyeth, Inc., Case No. 07-00051 (W.D. Okla.).