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Six Defendants Found Guilty After 6-Week Trial in $60 Million Vending Fraud Case
United States v. Edward Weaver, et al.

Press Release
Docket Number: 2:13-CR-120 (E.D.N.Y.)(JMA)

On November 5, a jury in Central Islip, New York, found the CEO of Multivend, LLC, d/b/a/ Vendstar, two other Vendstar managers, and three Vendstar sales representatives guilty of fraud. A total of 22 individuals have now been convicted in connection with Vendstar, a company based in Deer Park, New York, that until July 2010 sold vending machine business opportunities. Sixteen other Vendstar managers, sales representatives, and operators of “locating” companies that worked with Vendstar pled guilty before trial. Evidence introduced during trial showed that Vendstar defrauded approximately 7,000 consumers of $60 million from 2005-2010.

Costa Rica Based Fraudster Sentenced to 70 Months in Prison in Connection with Business Opportunity Fraud Ventures
United States v. John White

Press Release
Docket Number: 1:11-CR-20815 (S.D. Fla.)

On August 12, 2015, John White was sentenced to 70 months in prison and five years of supervised release following his conviction on charges of conspiracy to commit mail and wire fraud. He was also ordered to pay $6,412,006.19 in victim restitution. White was charged in a 2011 with conspiracy to commit mail and wire fraud, five counts of mail fraud, and 13 counts of wire fraud, based on the sale of fraudulent beverage and greeting card business opportunities. He was arrested in Costa Rica on February 9, 2012, and extradited to Miami where he ultimately agreed to plead guilty to one count of the pending indictment. White is one of 12 defendants charged in connection with a series of business opportunity fraud ventures that operated in Costa Rica. Nine of those other defendants have been convicted in the United States with sentences ranging from three to 16 years in prison.

Consent Decree Entered Against Company That Processed Victim Payments for Two Psychic Mail Fraud Schemes
United States v. Metro Data Management, et al. and United States v. CLGE, Inc., et al.

Docket Number: 2:14-CV-6791 (E.D.N.Y.)

On July 23, 2015, the district court approved consent decrees in two related cases — United States v. Metro Data Management, et al. and United States v. CLGE, Inc., et al. — to resolve claims against Metro Data Management, Inc. d/b/a Data Marketing Group, Ltd. (“DMG”) and company president Keitha Rocco. DMG provided caging services, consisting of processing victim orders and payments, for two separate mail fraud schemes. Both mail fraud schemes involved the sending of letters from alleged world-renowned psychics, offering purportedly personalized psychic predictions and services for a fee. In reality, identical letters were sent to hundreds of thousands of consumers identified through the purchase of lead lists. The permanent injunction entered by the court enjoins DMG and Rocco from making various claims in any advertisements, solicitations, or promotional materials sent through the mail, including a ban on any advertisements on behalf of any actual or fictional individual or entity purporting to offer psychic, clairvoyant or astrological items or services for a fee. The injunction also bans DMG and Rocco from performing caging services with regard to such advertisements or solicitations.

Owner of California Payment Processing Company Pleads Guilty to Fraud
United States v. Neil Godfrey

Press Release
Docket Number: 2:15-CR-285 (E.D. Pa.)

On July 16, 2015, the operator of a payment processing company that was involved in the unauthorized withdrawal of millions of dollars from consumers’ bank accounts pled guilty to wire fraud. Neil Godfrey operated Check Site, Inc., which from 2006-2010 enabled fraudulent merchants to withdraw money from consumers’ bank accounts without the consumers’ knowledge or consent. Godfrey worked with at least two merchants who operated websites that purportedly offered payday loans. Instead of providing consumers with payday loans, the merchants operating the websites used the information provided by the consumers in loan applications to withdraw money from the consumers’ bank accounts. Using Check Site, Godfrey knowingly processed the merchants’ fraudulent withdrawals and provided the merchants access to the banking system. The banks through which Godfrey facilitated the fraud included one located in Irvine, California, and one located in Philadelphia. Godfrey is scheduled to be sentenced at 9 a.m. on October 30, 2015, by U.S. District Court Judge Eduardo C. Robreno at the James A. Byrne U.S. Courthouse, 601 Market Street, Courtroom 15A, Philadelphia, Pennsylvania 19106.

Defendant Sentenced in Connection with a Lottery Scam Based in Jamaica
United States v. Carlos O’Brian Ricketts

Press Release
Docket Number: 5:14-CR-46 (W.D. Va.)

On July 1, 2015, Carlos O’Brian Ricketts was sentenced to 10 months in prison and 3 years’ supervised release for his role as a middleman in Virginia for a lottery scheme based in Jamaica. Ricketts was also ordered to pay restitution to the victims totaling $74,450. Ricketts conspired with other individuals to defraud elderly victims in the United States by leading them to believe they had won a lottery. Ricketts’ co-conspirator contacted victims claiming to represent the Publisher’s Clearing House Sweepstakes, and falsely telling them they had won thousands or millions of dollars in a lottery. The co-conspirator told the victims to make payments of several thousand dollars in order to collect their purported prize winnings and instructed the victims to send and wire this money to Ricketts in Virginia. Ricketts received the money, kept a portion for himself and sent the remainder to individuals in Jamaica.


Jamaican Citizen Sentenced in Connection with International Lottery Scam
United States v. Damion Bryan Barrett

Press Release
Docket Number: 0:12-CR-60186 (S.D. Fla.)

On June 26, 2015, Damion Bryan Barrett was sentenced to 46 months in prison and 5 years’ supervised release for his role in an international lottery scheme based in Jamaica. Barrett was extradited from Jamaica in connection with a scheme that fraudulently induced elderly victims in the U.S. to send Barrett and others thousands of dollars to cover fees for lottery winnings that victims had not in fact won. Barrett and co-defendant Oneike Barnett were indicted on August 9, 2012. In January of 2015, Barrett was arrested in Jamaica based on the United States’ request that he be extradited. Like Barnett, Barrett pled guilty to one count of conspiracy to commit wire fraud. Victims were fraudulently induced to send money via wire transfer directly to Barrett and Barnett, and victims also sent money to middlemen in Florida and Michigan, who then forwarded the money to Barrett and Barnett. The victims never received cash or prizes. In order to convince victims that they had won a lottery, the conspirators sent victims letters about the lottery winnings on letterhead purporting to be from the IRS and the Federal Reserve.


Two to Plead Guilty in Connection With Fraudulent Debt Scheme
United States v. John White et al.

Press Release
Docket Number: 1:11-CR-20815 (S.D. Fla.)

On April 29, 2015, John White pleaded guilty to conspiracy to commit mail and wire fraud in connection with a business opportunity scam that operated out of Costa Rica.  White was arrested in Costa Rica on Feb. 9, 2012, and subsequently extradited to the United States.  He was charged in a 2011 indictment in the Southern District of Florida. 

The indictment charged that White and his co-conspirators fraudulently sold beverage and greeting card business opportunities to victims in the United States.  In addition to White, 11 other defendants have been charged in connection with related business opportunity fraud ventures that operated in Costa Rica.  Nine of those other defendants have been convicted in the U.S. with sentences ranging from three to 16 years in prison.  Two remaining defendants are not yet in the custody of the United States. 

White admitted that the conspiracy used various means to make it appear to potential purchasers that the businesses were located entirely in the U.S.  The companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.  In reality, White and his co-conspirators operated out of call centers in Costa Rica.

Two to Plead Guilty in Connection With Fraudulent Debt Scheme
United States v. Harati et al.

Docket Number: 8:15-CR-0041 (C.D. Cal.)

On April 13, 2015, the United States filed an Information charging two individuals in connection with a fraudulent debt relief services scheme. Christopher Harati and Athena Maldonado were charged with conspiracy for their roles at companies known as Nelson Gamble & Associates and Jackson Hunter Morris & Knight LLP. Both defendants have agreed to plead guilty. The case is related to United States v. Nelson et al., in which three defendants were indicted in December 2014 on conspiracy, mail fraud, and wire fraud charges.

The indictment alleges that the co-conspirators in both cases portrayed Nelson Gamble and Jackson Hunter 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 indictment alleges that the defendants instead took at least 15 percent of the total debt as company fees, with the first six months of payments going almost entirely towards undisclosed up-front fees.

Trial in the main case is set for February 2016.

Sixteen Defendants Have Pled Guilty to the Fraudulent Sale of Vending Machine Business Opportunities Fraud; Six Defendants Accused of Fraud Are Awaiting Trial
Vendstar (Multivend, LLC) (United States v. Edward Morris “Ned” Weaver, Lawrence A. Kaplan, Scott M. Doumas, Mark Benowitz, Richard R. Goldberg, Richard Linick, Paul E. Raia, Howard S. Strauss, Wallace W. “Wally” DiRenzo, and James P. Ellis, a/k/a “Max Braddock,” a/k/a “Patrick Cosgrove,” a/k/a “Todd Parker," Theodore D. Heyman, Adam Abzug, Jeffrey T. Baird, a/k/a “Jay Baird,” Dennis Daniele, Jay A. Friedman, Steven Gralnick, a/k/a “Robert Gralnick,” Mark L. Harris, a/k/a “Harris Marks,” Iris Jumper; Michael C. Minotto, a/k/a “Dean Minotto,” Steven Rosenberg, Anthony Joseph Spinelli, and Barry Stern)

Press Release
Docket Numbers: 13-CR-120; 13-CR-500; 13-CR-501 (E.D.N.Y.)

Twenty-two individuals have been charged with fraud in connection with Multivend, LLC, d/b/a Vendstar, a Long Island-based company that sold vending machine business opportunities until 2010.

The charges allege that Vendstar’s managers, sales representatives, and the operators of “locating companies” recommended by Vendstar conspired to defraud consumers by, among other things, misrepresenting profits, the availability of high-traffic locations, the success of Vendstar’s previous customers, the ease of operating the business, and the services Vendstar would provide its customers. 

In three separately filed cases in the Eastern District of New York: 

  • Vendstar’s president, another manager, and four sales representatives are scheduled to stand trial beginning September 28, 2015.

  • Three defendants have been sentenced to prison:  Vendstar salesman Howard S. Strauss (28 months), Vendstar salesman Mark Benowitz (24 months), and locating company operator Wallace W. DiRenzo (12 months).

  • Thirteen other defendants have pled guilty and are awaiting sentencing.

Learn more.

CommerceWest Bank Admits Bank Secrecy Act Violation and Reaches $4.9 Million Civil and Criminal Settlement
United States v. CommerceWest Bank

Press Release
Docket Number: 8:15-CV-00379 (C.D. Cal.); 8:15-CR-25 (C.D. Cal.)

On March 10, 2015, the United States filed a criminal information and a civil complaint against CommerceWest Bank in U.S. District Court in the Central District of California. The criminal information charges CommerceWest with a felony violation of the Bank Secrecy Act for willfully failing to report suspicious transactions. The civil complaint alleges that CommerceWest – knowingly or with deliberate ignorance – facilitated consumer fraud schemes by a third-party payment processor and two merchants. The complaint alleges that CommerceWest ignored major red flags indicative of fraud, including incredibly high rates of returned transactions and explicit warnings from other banks that consumers were being defrauded.

To settle the civil and criminal charges, CommerceWest agreed to a total monetary resolution of $4.9 million, including payment of $2 million ($1 million to the U.S. Treasury as a civil monetary penalty and $1 million forfeited to the US Postal Inspection Service Consumer Fraud Fund) and giving up any claim to more than $2.9 million the government seized from bank accounts at CommerceWest. To resolve the criminal case, CommerceWest admitted its conduct then agreed to a deferred prosecution agreement that can be dismissed in 2 years if not violated. To resolve the civil case, CommerceWest has agreed to a permanent injunction that includes a strict routine of underwriting and monitoring designed to prevent future consumer fraud by third-party payment processors.

Peruvian Man Sentenced for Defrauding and Extorting Spanish-Speaking U.S. Residents through Fraudulent Call Centers
United States v. Maria Luzula, Juan Rodriguez Cuya, Angeluz Florida Corporation and Angeluz Miami, LLC

Press Release
Docket Number: 14-CR-20221 (S.D. Fla.)

On January 27, 2015, U.S. District Judge Patricia Seitz sentenced Juan Alejandro Rodriguez Cuya to 210 months in prison for his operation of Angeluz Florida Corporation in Miami and call centers in Peru that lied to and threatened Spanish-speaking victims into paying fraudulent settlements for nonexistent debts.  According to evidence presented at trial, Rodriguez Cuya’s employees in Peru used Internet-based telephone calls to Spanish-speaking victims in the United States, threatened lawsuits, arrest, deportation, and forfeiture of property for refusing delivery of certain products and claimed the victims owed thousands of dollars in fines.  In reality, the victims had never ordered these products and nothing had been delivered, but Rodriguez Cuya’s employees claimed that the consumers could resolve the threatened fines if they immediately paid a “settlement fee.” A phone room in Miami collected the fees from thousands of victims.  Rodriguez Cuya was convicted of twenty-six counts of conspiracy, mail fraud, wire fraud, and extortion following a two week trial in October.  Rodriguez Cuya’s co-defendant Maria Luzula pled guilty halfway through trial and was sentenced to serve 165 months in federal prison. Learn more.

Summary Judgment Briefing on Landmark Telemarketing Case
United States v. Dish Network

Press Release
Docket Number: 3:09-CV-3073 (C.D. Ill.)

On December 12, 2014, the district court (Judge Sue E. Myerscough) granted partial summary judgment to the United States in the government’s long-running litigation against Dish Network.  In March 2009, the United States brought suit against Dish, one of the country’s largest satellite-television providers, for violating the Federal Trade Commission’s Telemarketing Sales Rule (TSR); co-plaintiffs the States of California, Illinois, North Carolina, and Ohio brought similar federal and state law claims.  The United States’ TSR claims related to the telemarketing calls placed between 2003 and 2011 by Dish and its “retailers,” large direct-marketing entities authorized to market Dish nationwide. 

In a comprehensive 238-page opinion, the court ruled for the United States on the vast majority of the contested legal issues in the case.  Among the highlights: Dish is liable under the TSR for “causing” its retailers’ TSR violations regardless of whether the retailers were Dish’s agents; Dish was not entitled to the TSR safe harbor because it failed to present evidence about how it complied with the TSR; and the Court found admissible over 1,000 consumer complaints collected by FTC’s Consumer Sentinel system over Dish’s hearsay objections.  All told, the court found Dish liable for placing some 57,704,663 illegal telemarketing calls in violation of the TSR: to our knowledge, the largest judicial adjudication of do-not-call violations in history.  Because the Court found factual disputes precluded summary judgment on a number of contested issues, including civil penalties and injunctive relief, the case will proceed to trial on those remaining matters, most likely in separate liability and remedies phases.  A status conference is scheduled for January 9, 2015.

Three Indicted in Fraudulent Debt Relief Scheme  
United States v. Nelson, Ponce, and Vartanian

Press Release
Docket Numbers: 2:14-CR-198 (C. D. Cal.)

On December 3, 2014, a grand jury in Santa Ana, California, indicted three individuals in connection with a fraudulent debt relief services scheme. Jeremy Nelson, Elias Ponce, and John Vartanian were charged with conspiracy, mail fraud, and wire fraud for their roles at companies known as Nelson Gamble & Associates and Jackson Hunter Morris & Knight LLP. The defendants 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 defendants instead took at least 15 percent of the total debt as company fees, with the first six months of payments going almost entirely towards undisclosed up-front fees. All three defendants are scheduled to be arraigned in Santa Ana on December 29, 2014.

Government Files Enforcement Actions to Shut Down Psychic Mail Fraud  
United States v. CLGE, Inc., et al. and United States v. Metro Data Management, Inc., et al. 

Press Release

On November 19, 2014, the United States filed civil complaints and  motions seeking a temporary restraining order and a preliminary injunction to immediately put a stop to two related multi-million dollar mail fraud schemes, known as Destiny Research Center and CLGE.  The defendants operate two mail fraud schemes in which they send solicitation letters purportedly written by world-renowned psychics to consumers through the U.S. mail.  In the letters, the psychics recount a vision revealing that the consumer has the opportunity to dramatically improve his or her financial circumstance.  The solicitation letters, targeted at the elderly, ill, and those in perilous financial condition, appear personalized but are actually identical, mass-produced form letters.  The solicitations urge victims to purchase various products and services in order to ensure that the foreseen good fortune comes to pass.  Metro Data Management Inc., doing business as Data Marketing Group Ltd., a company on Long Island, New York, along with its president, Keitha Rocco, performed “caging” services on behalf of both mail fraud schemes.  These services consisted of processing victim payments and maintaining databases of consumers who responded to the fraudulent solicitations.  Data Marketing Group processed victim payments for the Destiny Research Center scheme, resulting in annual gross receipts of at least $13 million.  The CLGE scheme brought in annual revenue of $1.5 to $2 million. 

The government is seeking an injunction under the Anti-Fraud Injunction Statute immediately shutting down the fraudulent schemes in order to protect victims from further harm.  The injunctions would enjoin the defendants from using the mail to distribute the fraudulent solicitations or to collect victim payments, and from selling lists of consumers who have responded to the solicitations.  The injunctions would also authorize the U.S. Postal Service to detain any outgoing solicitations mailed by the defendants and any incoming responses to solicitations.

Defendant Indicted in Connection with a Lottery Scam Based in Jamaica
United States v. Carlos O’Brian Ricketts

Press Release
Docket Number: 5:14-CR-46 (W.D.Va.)

On November 6, 2014, Carlos O’Brian Ricketts was indicted by a federal grand jury in Harrisonburg, Virginia based on his participation in a fraudulent lottery emanating from Jamaica.  Ricketts was charged with conspiracy to commit mail fraud and wire fraud, four counts of mail fraud, three counts of wire fraud, conspiracy to commit money laundering and 18 counts of money laundering.  He has been arrested.  As alleged in the indictment, beginning in May 2010, Ricketts’ co-conspirator contacted elderly victims in the United States, claimed to represent a known sweepstakes, and falsely informed the victims that they had won thousands or millions of dollars in a lottery.  The co-conspirator told the victims to make payments of several thousand dollars in order to collect their purported prize winnings and instructed the victims to send this money to Ricketts in Virginia.  Ricketts received the money, kept a portion for himself and sent the remainder to individuals in Jamaica.  As part of the money laundering conspiracy, Ricketts sometimes sent the victims’ money to Jamaica in smaller, separate payments to the same person in Jamaica during a short period of time.  Ricketts sometimes used the alias Kevin Brown when receiving money from victims and sending money to Jamaica, and he used different addresses to conceal his identity.  The victims never received any lottery winnings.

Business Opportunity Fraudster Sentenced in Houston
United States v. Robert D. King

Docket Number: 4:12-CR-87 (TXS)

On July 2, 2014, Robert King, the proprietor of Mark Five, a business opportunity firm in Houston, was sentenced to 63 months of imprisonment after pleading guilty to one count of conspiracy to commit mail and wire fraud. From the mid-1990s through 2010, King offered consumers the opportunity to purchase, at a typical purchase price of $10,000, a business opportunity consisting of jewelry display racks and jewelry. King falsely told prospective purchasers from across the country that the business opportunity was a lucrative venture that would earn substantial profits. King admitted as part of his plea that he paid false references—including three people who also pleaded guilty and have been sentenced—to take reference calls and make misrepresentations to consumers about the potential success they might experience from purchasing a Mark Five business opportunity. King was also ordered to pay restitution in an amount that will be determined by the Court within 90 days.

Two Florida Residents Sentenced in Connection with Fraudulent International Lottery Scheme
United States v. Althea Angela Peart and Charmaine Anne King

Press Release
Docket Number: 1:13-CR-20834 (S.D. Fla.)

On April 29, 2014, Charmaine Anne King was sentenced to 57 months in prison and 5 years’ supervised release in connection with her role in a fraudulent international lottery scheme that targeted U.S. citizens. Co-defendant Althea Angela Peart was sentenced on March 20, 2014 to 33 months in prison and 5 years’ supervised release. A hearing on restitution is scheduled for June 5, 2014. King was convicted by a federal jury in Miami on Feb. 5, 2014, of one count of conspiracy, three counts of mail fraud and two counts of wire fraud. Peart pled guilty to one count of conspiracy to commit mail and wire fraud. The evidence at King’s trial showed that a co-conspirator sent letters to victims purporting to be from a known sweepstakes in the United States and included counterfeit cashier’s checks made out to the victims for thousands of dollars.

Victims were instructed to call “claims agents” who were actually co-conspirators, and who informed the victims that they had to pay several thousand dollars in fees in order to collect their purported lottery winnings. The claims agents told the victims to deposit the cashier’s checks in the victims’ bank accounts to cover the money they had to pay and instructed the victims to send this money to King, Peart, and others. King and Peart each kept a percentage of the money they received from victims and sent the rest to a co-conspirator. Both King and Peart continued to participate in this scheme even after the U.S. Postal Inspection Service verbally informed each of them that they were participating in unlawful activity, and after they each signed a Cease and Desist Order requiring that they stop receiving money from victims of fraud. The cashier’s checks that victims received from the fraudulent lottery had no value and ultimately bounced. Victims never received any lottery winnings.

Three Convicted in Coffee Display Rack BizOpp Scheme
United States v. Mitchell Berman, Robert Gallo, and Steven Axelrod

Press Release
Docket Number: 1:13-CR-60156 (S.D. Fla.)

On February 13 and 14, 2014, Mitchell Berman, Robert Gallo, and Steven Axelrod pleaded guilty to conspiracy to commit mail fraud based on their fraudulent and deceptive conduct in selling business opportunities. Berman and Gallo owned and operated a series of five companies that sold coffee display rack business opportunities from 2000 to 2011. The defendants sold the business opportunities by misrepresenting profits and available customer service to potential purchasers. Sentencing before Judge William J. Zloch in Ft. Lauderdale is set for May 8 (Axelrod) and May 9, 2014 (Gallo and Berman).

Corporation Pleads Guilty to Fraud and Pays Full Restitution
United States v. Vend Three, LLC

Docket Number: 1:14-CR-20009 (S.D. Fla.)

On January 29, 2014, Vend Three, LLC, a Long Island, New York, based corporation, pled guilty to conspiracy to commit mail fraud, was sentenced to five years of probation, and paid $1 million in restitution. Vend Three’s sales representatives made misrepresentations about profits and locations to entice 130 consumers across the country to buy worthless business opportunities involving bulk candy vending machines. The restitution payment made at the time of the sentencing represents the full amount the 130 victims paid Vend Three. As a condition of probation, the corporation’s president, Doug Cooper, and vice president, Michele Cooper, are prohibited from being involved in any way in the sale of business opportunities and franchises. Learn more.


Two Sentenced for Operating Fraudulent Telemarketing Business Targeting Spanish-Speaking Consumers
United States v. Daniel Carrasco and Federico Martin Gioja

Press Release
Docket Number: 1:13-CR-20542 (S.D. Fla.)

On January 9, 2014, Daniel Carrasco was sentenced to serve 121 months in federal prison, and Federico Martin Gioja was sentenced to serve 108 months in federal prison, for their operation of telemarketing companies in Argentina whose representatives consistently lied to consumers about products they would receive and threatened consumers with consequences of failure to pay for their shipments. Companies belonging to Carrasco and Gioja falsely claimed an affiliation with Univision and purported to sell products such as dietary supplements, lotions, girdles, and English-language training products. However, the companies frequently did not have the products they promised to send to consumers, and so consumers received other products instead. Their companies also promised consumers free gifts such as expensive watches and perfumes, gift cards, and medical insurance, which were not delivered as promised. After consumers refused delivery of the companies’ shipments, employees of Carrasco and Gioja in an Argentinian phone room called and falsely threatened the consumers with arrest, deportation, or fines on their gas and electric bills. The court ordered Carrasco and Gioja to forfeit numerous properties bought with illegal proceeds.

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Medical Device Manufacturer CEO Gets Two-Year Sentence for Distributing FDA-Rejected Surgical Device 

United States v. Chi

Press Release
Docket Number: 2:14-CR-687 (D.N.J)

On June 26, 2015, Charlie Chi, the former president, chairman, and chief executive officer of OtisMed Corporation (now a subsidiary of Stryker Corporation) was sentenced after pleading guilty last December to three misdemeanor counts of introducing adulterated medical devices in interstate commerce. OtisMed marketed the OtisKnee cutting guide as a tool to assist surgeons in making accurate bone cuts during knee replacement surgery. After FDA notified OtisMed and Chi that the distribution of the OtisKnee device was prohibited due to safety and effectiveness concerns, Chi ordered the shipment of approximately 218 devices to surgeons nationwide. The district court rejected the defendant’s request for probation and instead sentenced Chi to eight months imprisonment on each count, to be served consecutively (24 months total), to be followed by one year of supervised release. The court also fined Chi $75,000.

Supplier Pleads Guilty in Nationwide Prescription Drug Diversion Scheme
United States v. Nguyen

Press Release
Docket Number: 1:15-CR-60 (S.D. Ohio)

On June 22, 2015, Vin Nguyen pled guilty to one count of conspiracy to commit mail and wire fraud for his role in a massive prescription drug diversion scheme. Nguyen supplied illegally diverted prescription drugs to David Miller and his company, Minnesota Independent Cooperative (MIC). Nguyen obtained prescription drugs from illegal suppliers in Southern California and Florida and sold the drugs to Miller. Miller and MIC then sold the drugs obtained from Nguyen – along with five other illicit suppliers – to pharmacies and wholesalers throughout the United States. To hide the true sources of the drugs, Miller and MIC created fraudulent pedigrees that falsely identified a Puerto Rico company as the source of the drugs. On May 6, Miller and MIC, along with two other individuals, were indicted in the Southern District of Ohio. The indictment charges the defendants with conspiracy to commit mail and wire fraud, multiple counts of mail fraud, and conspiracy to distribute prescription drugs without a license and to make false statements.

Consent Decree Filed in Enforcement Action Against New Jersey Drug Manufacturer and Owner
United States v. Acino Products, LLC, and Ravi Deshpande

Docket Number: 3:15-CV-3769 (D.N.J.)

On June 5, 2015, the United States filed an injunction action in the District of New Jersey against Acino Products, LLC (“Acino”) and its owner, Ravi Deshpande, to prevent the distribution of unapproved and misbranded drugs.  Acino manufactures hydrocortisone acetate 25 mg suppositories, which it labels and sells as prescription drugs.  Because Acino has never submitted an application for FDA approval of the drugs, they have never been found to be safe and effective.  Further, because they are prescription drugs, their labels by definition cannot bear adequate directions for use by a layperson.  Thus, they are misbranded within the meaning of the Food, Drug, and Cosmetic Act (“FDCA").  In conjunction with the filing of the complaint, the defendants agreed to settle the litigation and be bound by a consent decree of permanent injunction that prohibits them from committing violations of the FDCA.  Once entered by the court, the consent decree will require Acino to cease all manufacture and distribution of the unapproved and misbranded suppositories, and to destroy any such suppositories already in existence.


Court Enters Consent Decree Against Medical Device Manufacturer Medtronic and Two Top Executives for FDCA Violations
United States v. Medtronic Inc., Thomas Tefft, and S. Omar Ishrak

Press Release
Docket Number: 15-CV-2168 (D. Minn.)

On April 29, 2015, the district court entered a consent decree against Medtronic and two of its top executives, including the company’s CEO, Omar Ishrak. The decree resolves allegations that the world’s largest standalone medical device manufacturer repeatedly failed to correct violations of the Food, Drug, and Cosmetic Act (“FDCA”) with regard to its SynchroMed II infusion pump system, an implantable infusion system that delivers medication directly into the spines of patients with chronic pain or spasticity from conditions such as cancer. FDA regulators conducted a series of inspections at Medtronic’s manufacturing facilities between 2006 and 2013 that revealed significant violations of FDA regulations relating to design controls, complaint handling, and corrective and preventative action.

Medtronic repeatedly failed to correct these violations despite multiple warnings from FDA. The problems that FDA observed could result in over- or under-infusion of medication that could result in death. Under the terms of the consent decree, Medtronic must stop manufacturing and distributing the SynchroMed II except in extraordinary cases and upon a physician certification that a SynchroMed II is medically necessary. Medtronic may not resume distribution until it receives permission from FDA.


Three Indicted in Texas Prescription Drug Smuggling Ring
United States v. Tom Giddens, Wanda Hollis, and Catherine Nix

Press Release
Docket Number: 6:14-CR-49 (E. D. TX.); 6:14-CR-0061 (E.D. Tex.) 

On April 8, 2015, Wanda Hollis, Tom Giddens, and Catherine Nix all pleaded guilty in Tyler, Texas, to a charge of conspiracy under 18 U.S.C. § 371 for their roles in a prescription drug smuggling ring.  All three were indicted in August 2014 for smuggling imitation, unapproved, and misbranded prescription drugs from China. 

The defendants conspired to smuggle at least 40 known shipments, totaling approximately 100,000 pills, from China to Texas.  The shipments contained bogus imitations of Xanax®, Valium®, sibutramine, Cialis®, Viagra® and Stilnox® (marketed in the United States as Ambien®).  The defendants attempted to conceal their smuggling by using shipping labels that misidentified the contents of their shipments.  Additionally, the defendants instructed others to destroy evidence once they became aware that they were under investigation. 

No sentencing date has been set.  A cooperating defendant, Kyle Giddens, also pleaded guilty on April 8 to a violation of 21 U.S.C. § 331(a), and is also awaiting sentencing.

Ninth Circuit Affirms Civil Contempt Finding Against Seller of Purported Cancer Cures
United States v. Toby Carl McAdam and Greta Armstrong

Docket Number: 1:10-CV-128 (District of Montana)

On March 20, 2015, the Ninth Circuit affirmed the December 4, 2013, civil contempt finding issued by the U.S. District Court for the District of Montana against Toby McAdam, owner/operator of Risingsun Health in Livingston, Montana, due to McAdam’s violations of a consent decree. In addition, the Ninth Circuit upheld the district court’s award to the U.S. of $80,000 in liquidated damages and just under $5,000 in attorney’s fees.

The U.S. sued McAdam, as well as co-defendant Greta Armstrong, for violations of the Federal Food, Drug, and Cosmetic act for selling, among other things, unapproved new drugs, including topically applied bloodroot and graviola plant salves that defendants claimed could cure skin cancer. In November 2010, per agreement of the parties, the court entered a consent decree against McAdam and Armstrong to enjoin them from introducing into interstate commerce unapproved drugs; however, McAdam continued to sell those products, as well as other dietary supplements, in violation of the court’s order.

Drug Manufacturer Pleads Guilty to Violating Federal Food, Drug, and Cosmetic Act
United States v. McNeil-PPC, Inc. 

Press Release
Docket Number: 2:15-CR-82 (E.D. Pa.)

On March 10, 2015, McNeil-PPC, Inc., a wholly-owned subsidiary of Johnson & Johnson, pleaded guilty to one misdemeanor count of delivering for introduction into interstate commerce adulterated infants’ and children’s over-the-counter (OTC) liquid medicines between May 2009 and April 2010. The drugs were adulterated because McNeil did not manufacture them in compliance with current Good Manufacturing Practices (cGMP), which is required under the Federal Food, Drug, and Cosmetic Act. Among other things, McNeil received a consumer complaint regarding “black specks” in its Children’s Tylenol (later identified as nickel/chromium-rich inclusions, which were not intended ingredients in the OTC liquid drug).

In addition to this consumer complaint, McNeil discovered other OTC batches with particulates. However, McNeil did not initiate or complete a Corrective Action Preventive Action (CAPA) plan as required by its Standard Operating Procedures. Consequently, McNeil was not in compliance with cGMP in connection with the manufacturing of certain OTC liquid drugs. As part of the plea, McNeil agreed to pay a $20 million fine and forfeit $5 million in substitute assets. The district court imposed the agreed fine and forfeiture during the hearing.

Florida Man Pleads Guilty in Prescription Drug Diversion Scheme
United States v. Gomez

Press Release
Docket Number: 1:15-CR-00007 (S.D. Ohio)

On February 19, 2015, Yusef Yassin Gomez (Yassin) pled guilty in U.S. District Court in the Southern District of Ohio to one count of conspiracy to commit an offense against the United States in the distribution of prescription drugs without a license. In pleading guilty, Yassin admitted that he conspired with others to distribute diverted prescription drugs throughout the United States, including in the Southern District of Ohio, while concealing the true illicit sources of the drugs. Yassin’s conspirators sold the illegally acquired drugs to U.S. pharmacies and wholesalers after purchasing them from a network of unlicensed and illicit suppliers who also purchased from sources, including street sources, Medicaid patients, and healthcare entities who were prohibited from re-selling the drugs. Yassin collected 0.5%-0.75% of all drug sales as commission since conspirators falsely represented the required pedigree documents in their sales, claiming the source of the drugs was one of two Puerto Rican companies, including Yassin’s former company, B&Y Wholesale.

District Court Enters Permanent Injunction Against Medical Device Manufacturer
United States v. Atrium Medical Corp., et al.

Press Release
Docket Number: 1:15-CV-41 (D.N.H.)

On February 3, 2015, the U.S. District Court of New Hampshire ordered a consent decree of permanent injunction against Atrium Medical Corporation (Atrium), Maquet Holding B.V. & Co. KG (Maquet), Maquet Cardiovascular, LLC (Maquet CV), Maquet Cardiopulmonary AG (Maquet CP), Heinz Jacqui, and Gail Christie to prevent future distribution of adulterated and misbranded medical devices in violation of the Food, Drug, and Cosmetic Act (FDCA). Atrium manufactures cardiovascular-related medical devices at its Hudson, New Hampshire facility, including chest drains, surgical meshes, vascular grafts, and stent systems. Maquet CV has a manufacturing facility in Wayne, New Jersey; Maquet CP’s manufacturing facilities are in Hechingen and Rastatt, Germany. The individual defendants, Heinz Jacqui and Gail Christie, are Maquet’s Chief Executive Officer and Corporate Chief Quality Assurance/Regulatory Affairs Compliance Officer respectively.

FDA inspections of Atrium’s New Hampshire facility revealed deviations from current good manufacturing practice requirements for medical devices, including a failure to establish and maintain procedures for implementing corrective and preventive action. In addition, FDA inspectors learned Atrium did not timely submit reports of adverse events within the mandatory 30-day time period required under the FDCA. FDA inspectors found similar violations at Maquet CV’s New Jersey facility, and Maquet CP’s Germany facilities. The consent decree requires that Atrium’s facility in New Hampshire be shut down until corrective actions described in the decree are completed. However, medical devices the FDA deemed medically necessary can continue to be distributed subject to certain provisions in the decree. Finally, the decree also requires the corporate defendants to pay the United States $6 million in equitable disgorgement within 28 days after entry of the decree.

Consent Decree Entered Against Manufacturer of Over-the-Counter Feminine Hygiene Products
United States v. Laclede, Inc., and Michael A. Pellico

Press Release
Docket Number: 2:14-CV-4948 (C.D. Cal.)

On January 29, 2015, a U.S. District Court judge entered a consent decree of permanent injunction against Laclede, Inc., a Rancho Dominguez, California-based pharmaceutical company, and its president, Michael A. Pellico, settling a lawsuit that was filed in June 2014. The decree prohibits Laclede from distributing unapproved or misbranded drugs and devices in interstate commerce.

The decree’s prohibition includes the feminine hygiene products that were identified in the complaint as the “Luvena Prebiotic Products” and as to which the complaint alleged that Laclede had made unapproved claims on its websites, Facebook page, and Twitter feed, including that the products would “rebalance” vaginal bacterial flora, correct pH, and reduce or minimize vaginal infections. For five years following the entry of the decree, Laclede must notify the FDA before it markets any new Luvena product and before it modifies Luvena product labeling. Laclede may not market such products until the FDA notifies the company that it complies with the law and the terms of the decree.

Pharmacist Sentenced in Internet Pharmacy Case
United States v. Charles G. Schultz

Docket Number: 1:14-CR-89 (W. D. Wis.)

On November 18, Charles G. Schultz, was ordered to forfeit $250,000 for his role in connection with his ownership of two Wisconsin pharmacies that unlawfully dispensed prescription drug orders to Internet customers.  On April 21, Schultz entered a guilty plea to one count of conspiracy to violate both the Controlled Substances Act by unlawfully distributing controlled substances (butalbital) and the Food, Drug and Cosmetic Act, by introducing misbranded drugs into interstate commerce, with intent to defraud or mislead.  Schultz owned and operated pharmacies affiliated with the RX Limited Internet pharmacy organization, which unlawfully sold prescription drugs over the Internet through a network of its own websites and affiliates. 

Between 2006 and 2012, Schultz’s pharmacies dispensed over 700,000 drug orders without valid prescriptions.  He and Schultz Pharmacy, Inc., also paid $100,000 to the United States to settle civil claims for his involvement with a different Internet pharmacy organization in 2007, for which his pharmacy in Oshkosh, Wisconsin, dispensed controlled substances, including hydrocodone.  Schultz, who recently turned 83, is in failing health, and as part of the plea agreement, the government agreed not to seek a custodial sentence. 

Related: See Information Complaint and Settlement

Vascular Solutions Inc. and its CEO Charged with Selling Unapproved Medical Devices and Conspiring to Defraud the United States
United States v. Vascular Solutions, Inc.

Press Release
Docket Number: 1:10-CV-883 (W. D. TX.)

On November 13, 2014, an indictment was filed charging Vascular Solutions, Inc. (VSI) and its chief executive officer, Howard Root, with selling medical devices without U.S. Food and Drug Administration (FDA) approval and conspiring to defraud the United States by concealing the illegal sales activity.  The devices at issue are from VSI's “Vari-Lase” product line, a system designed to treat varicose veins by burning or “ablating” them with laser energy.  Root and VSI are each charged with one count of conspiracy and eight counts of introducing adulterated and misbranded medical devices into interstate commerce.  The case is pending in the U.S. District Court for the Western District of Texas.


Government Files Complaint for Permanent Injunction Against New Jersey Maker of Ultrasound Gels
United States v. Pharmaceutical Innovations Inc. et al.

Press Release
Docket Number: 2:14-CV-1156 (D.N.J.)

On October 2, 2014, the United States filed a complaint for a permanent injunction against Pharmaceutical Innovations Inc. and its founder, owner, and chairman, Gilbert Buchalter, for violations of the Federal Food, Drug and Cosmetic Act (FDCA). The company makes gels that hospitals and other caregivers use to take ultrasound scans. The complaint alleges that the defendants are in violation of current good manufacturing practice and quality-system requirements, and are marketing medical devices without either clearance or approval. In February 2012, a Michigan hospital traced infections among 16 surgical patients to a specific gel made by Pharmaceutical Innovations. FDA testing on samples of the gel tested positive for bacterial contamination. The relevant lots of that particular gel were seized in a seizure lawsuit the United States filed in 2012; the company is actively contesting that lawsuit. In a third lawsuit, the company sued the FDA in early 2014 for denying it an export certificate attesting that it is in full compliance with the FDCA.


Endo Pharmaceuticals Agrees to Pay $192.7 Million for Marketing the Prescription Drug Lidoderm for Unapproved Uses
United States v. Endo Health Solutions and Endo Pharmaceuticals, Inc.

Press Release
Docket Number: 1:14-CR-66 (N.D.N.Y.) (Criminal); 05-CV-3450, 10-CV-2039, 11-CV-7767 (E.D.P.A.) (CIVIL)

On February 21, 2014, Endo Pharmaceuticals, Inc. and its parent company, Endo Health Solutions (collectively, “Endo”), agreed to pay $192.7 million to resolve its criminal and civil liability arising from the unlawful marketing of the prescription drugs Lidoderm for uses not approved as safe and effective by the U.S. Food and Drug Administration (“FDA”). The Federal Food, Drug, and Cosmetic Act requires a company 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. Lidoderm is a topical drug that is only FDA-approved for the relief of pain associated with post-herpetic neuralgia (“PHN”), a complication of shingles. During the period of 2002 to 2006, however, Endo marketed Lidoderm for the treatment of non-PHN related pain, including low back pain, diabetic neuropathy and carpal tunnel syndrome, uses which were never approved by the FDA. Endo agreed to a deferred prosecution agreement and to pay a total of $20.8 million in monetary penalties and forfeiture. The resolution also includes civil settlements with the federal government and the states totaling $171.9 million based on false claims stemming from Endo’s promotion of Lidoderm for unapproved uses from 1999 through 2007, some of which were not medically accepted indications and, therefore, were not covered by the federal health care programs.

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Justice Department and Federal Partners Announce Enforcement Actions of Dietary Supplements Cases
Criminal Charges Brought Against Bestselling Supplement Manufacturer

United States v. USP Labs  

Press Release
Docket Number: 3:15-CR-496  (N.D. Tex.)

As part of a nationwide sweep, on November 17, 2015, the Department of Justice and its federal partners announced that they have pursued civil and criminal cases against more than 100 makers and marketers of dietary supplements.  The actions resulted from a year-long effort, beginning in November 2014, to focus enforcement resources in an area of the dietary supplement market that is causing increasing concern among health officials nationwide.  In each case, the department or one of its federal partners allege the sale of supplements that contain ingredients other than those listed on the product label or the sale of products that make health or disease treatment claims that are unsupported by adequate scientific evidence.
Among the cases announced as part of the sweep was a criminal case charging USPlabs LLC, a Dallas firm, and several of its corporate officers.  USPlabs was known for its widely popular workout and weight loss supplements, which it sold under names such as Jack3d and OxyElite Pro.  The indictment charges USPlabs, S.K. Laboratories Inc., based in Anaheim, California, and their operators with a variety of charges related to the sale of those products.  The indictment alleges that USPlabs engaged in a conspiracy to import ingredients from China using false certificates of analysis and false labeling and then lied about the source and nature of those ingredients after it put them in its products.  According to the indictment, USPlabs told some of its retailers and wholesalers that it used natural plant extracts in products called Jack3d and OxyElite Pro, when in fact it was using a synthetic stimulant manufactured in a Chinese chemical factory.

Criminal Information Filed Against ConAgra Subsidiary
United States v. ConAgra Grocery Products, LLC

Press Release
Docket Number: 1:15-CR-24 (M.D. Ga.)

On May 20, 2015, the United States filed a criminal Information against ConAgra Grocery Products LLC, a subsidiary of ConAgra Foods Inc., alleging that the company introduced peanut butter contaminated with salmonella into interstate commerce in 2006. 
View more updates.

District Court Enters Consent Decree of Permanent Injunction Against California Fish Processor
United States v. L.A. Star Seafood Company, Inc., Sima Goldring, and Sam Goldring

Press Release
Docket Number: 2:15-CV-34 (C.D. Cal.)

On March 27, 2015, a federal district court entered a consent decree of permanent injunction against L.A. Star Seafood Company, Inc. of Los Angeles, and its corporate officers Sima Goldring and Sam Goldring to prevent the distribution of adulterated seafood products. The injunction requires L.A. Star and the Goldrings to cease all operations and requires that, in order for the defendants to resume distributing seafood products, the FDA must first determine that its manufacturing practices have come into compliance with the law. In January, the United States filed a complaint and proposed consent decree against the defendants to prevent them from distributing adulterated fish products in interstate commerce. L.A. Star processed and distributed a variety of ready-to-eat fish products. The complaint alleged that the company’s fish products were manufactured under conditions that were inadequate to ensure their safety. FDA inspections performed in 2013 and 2014 documented a pattern of insanitary conditions resulting in the presence of Listeria monocytogenes. The government alleged that the company’s fish products were adulterated pursuant to the Food, Drug, and Cosmetic Act. The entry of the permanent injunction resolves the litigation.

Hawaiian Sprout Manufacturer Agrees to Consent Judgment
United States v. William H. Oshiro d/b/a RZM Food Factory

Docket Number: 1:14-CV-553 (D. Haw.)

On December 10, 2014, the United States filed a civil action against William H. Oshiro d/b/a RZM Food Factory to enjoin him from violating the Federal Food, Drug and Cosmetic Act, including violations of current Good Manufacturing Practice standards.  Oshiro has an extensive history of growing, processing, and packaging ready-to-eat mung bean, alfalfa, clover, and radish sprouts under grossly insanitary conditions.  Prior to the filing of the complaint, Oshiro shuttered his business and agreed to a consent judgment wherein he will be required to obtain FDA approval before re-opening.  The United States will file the consent decree with the court upon assignation of the case.

Two Sellers of Miracle Cure Plead Guilty
United States v. Smith, DeLong, Olson, and Olson

Docket Number: 2:13-CR-14 (E. D. Wash.)

On December 1, 2014, defendants Karis Delong and Tammy Olson each entered guilty pleas to four counts of introducing a misbranded drug into interstate commerce.  Olson and Delong, along with co-conspirators Chris Olson and Daniel Smith, were arrested for defrauding regulators and suppliers in a scheme to manufacture and sell industrial bleach as a cure for numerous diseases, including Malaria, Cancer, and the common cold.  Smith and DeLong operated “Project GreenLife,” a Spokane company that sold the “Miracle Mineral Supplement” (“MMS”) over the internet.  MMS was a combination of sodium chlorite, an industrial chemical, and water. 

The defendants claimed MMS would cure numerous diseases when mixed and consumed according to instructions provided by the defendants.  In reality, the resulting mixture created Chlorine Dioxide, a chemical used in the textile and industrial water treatment industries.  Smith hired Chris and Tammy Olson to assist in the production and sale of MMS.  Tammy Olson was responsible for customer service at Project GreenLife, while Chris Olson manufactured and bottled MMS in a warehouse on property he owned outside of Spokane.  Chris Olson previously pleaded guilty on May 29, 2014.  Defendant Smith, who is representing himself, is scheduled to be tried separately in March 2015.  Karis Delong, Chris Olson, and Tammy Olson will be sentenced in March 2015.

Court Enters Injunction Against Seafood Manufacturer in California
United States v. Neptune Manufacturing, Inc., et al.

Press Release
Docket Numbers: 2:14-CV-9028 (C. D. CA.)

On December 1, 2014, the U.S. District Court for the Central District of California entered a consent decree of permanent injunction against Neptune Manufacturing Inc. of Los Angeles and its corporate officers, Alexander Goldring, Peter Oyrekh and Semyon Krutovsky, to prevent the distribution of adulterated seafood products.  The department filed a complaint in the U.S. District Court for the Central District of California on Nov. 21 alleging that Neptune’s seafood products are produced under conditions that are inadequate to ensure the safety of its products.  The complaint alleged that Neptune prepares, processes, packs, holds and distributes ready-to-eat smoked and salt-cured seafood including pickled herring, smoked steelhead trout, smoked halibut, smoked whitefish, smoked salmon and smoked mackerel.  The complaint also alleged that defendants Goldring, Oyrekh and Krutovsky are Neptune’s corporate officers with the authority and responsibility for preventing and correcting violations of federal law at the company.  

In conjunction with the filing of the complaint, the defendants agreed to settle the litigation and be bound by a consent decree of permanent injunction that prohibits them from committing violations of the federal Food, Drug, and Cosmetic Act.  The consent decree requires Neptune to cease all manufacturing operations and requires that, in order for defendants to resume distributing seafood products, the FDA first must determine that Neptune’s manufacturing practices have come into compliance with the law.  The district court entered the proposed consent decree.

Complaint Filed Against Sandwich Maker for Insanitary Conditions
United States v. Scotty’s, Inc., et al.

Press Release
Docket Number: 2:14-CV-14450 (E.D. Mich.)

On November 21, 2014, the United States filed a complaint against Scotty’s Incorporated and Sandra J. Jackson in the Eastern District of Michigan alleging violation of the federal Food, Drug, and Cosmetic Act (FDCA).  According to the complaint, Scotty’s Incorporated, which does business as Bruce Enterprises and Bruce’s Fresh Products, prepares and distributes ready-to-eat (RTE) sandwiches, including RTE tuna sandwiches.  The complaint alleges that the company’s sandwiches are manufactured in insanitary conditions, and that the company’s procedures are inadequate to ensure the safety of its products.  Moreover, the company has failed to implement a written Hazard Analysis and Critical Control Point (HACCP) plan for handling seafood and minimizing the potential for harmful contamination in the company’s RTE tuna sandwiches.  According to the complaint, the FDA has performed five inspections of the defendants’ facility since 2006 and documented insanitary practices and/or seafood HACCP violations every time. 

According to the complaint, the FDA’s most recent inspection was conducted between January 14 and February 6, 2014.  At the inspection, according to the complaint, the FDA found that the defendants failed to have and implement an HACCP plan for food safety hazards reasonably likely to occur.  There were also no sanitation control records documenting the safety of, among other things, water used at the facility; the cleanliness of surfaces, utensils and equipment coming into contact with food; maintenance of hand-sanitizing machines and bathrooms; exclusion of pests from the facility; and control of employee health conditions such as the wearing of jewelry, hair nets or beard covers.  The complaint seeks injunctive relief requiring compliance with the FDCA and an upfront shutdown until FDA deems the defendants to be in compliance with the law.

Consent Decree Entered Against California Dietary Supplement Company 
United States v. Scilabs Nutraceuticals, Inc. and Paul P. Edalat 

Press Release
Docket Number: 8:14-CV-1759 (C. D. Cal.)

On November 12, 2014, the U.S. District Court for the Central District of California entered a consent decree of permanent injunction against Scilabs Nutraceuticals, Inc., of Irvine, California, and its board chairman and chief executive officer, Paul P. Edalat, to prevent the distribution of adulterated dietary supplements in interstate commerce.  On November 4, the United States filed an injunction action against Scilabs and Edalat seeking this relief.  Scilabs is a contract manufacturer of dietary supplements distributed under the brand name All Pro Science, including Complete Immune + capsules and various flavored powders called Complete, Recovery and Precharge. 

The government filed a complaint alleging that the company’s dietary supplements are manufactured under conditions that are inadequate to ensure the quality of its products.  According to the complaint, FDA inspections performed in 2012, 2013 and 2014 revealed that the company’s dietary supplements are adulterated within the meaning of the Food, Drug, and Cosmetic Act because the company failed to follow various requirements, including testing its dietary ingredients to verify their identity before using them.  In conjunction with the filing of the complaint, the defendants agreed to settle the litigation and be bound by a consent decree of permanent injunction that prohibits them from committing violations of the Food, Drug, and Cosmetic Act.  The permanent injunction requires Scilabs and Edalat to cease all operations connected to the company, and not to resume until FDA determines that their manufacturing practices have come into compliance with the law.


All Defendants Convicted in Trial of Former Peanut Company Officials
United States v. Stewart Parnell, Michael Parnell, Samuel Lightsey, and Mary Wilkerson

Press Release
Docket Number: 1:13-CR-12 (M.D. Ga.)

On September 19, 2014, a jury convicted two former Peanut Corporation of America (PCA) officials and a PCA broker on charges relating to the distribution of salmonella-tainted peanuts and peanut products following a two-month jury trial in Albany, Georgia. Stewart Parnell, the former President and Owner of PCA, and Michael Parnell, a former PCA food broker, were convicted of mail and wire fraud, the introduction of misbranded food into interstate commerce with the intent to defraud or mislead, and conspiracy. Stewart Parnell was also convicted of introducing adulterated food into interstate commerce, and both he and Mary Wilkerson, a former PCA Quality Assurance Manager, were convicted of obstruction of justice.

The charges arose from the defendants participation in several schemes by which they and others defrauded PCA customers, misleading these customers about the existence of foodborne pathogens, most notably salmonella, in the peanut products PCA sold to them. The defendants and others fabricated certificates of analysis – documents sent to customers containing a summary of laboratory results – in order to hide the fact that the peanut products either had tested positive for salmonella, or had never been tested for pathogens at all. Two other defendants, Samuel Lightsey and Daniel Kilgore, pleaded guilty prior to trial. A sentencing date has not yet been set.


Enforcement Action Filed Against Michigan Cheese Company
United States v. S. Serra Cheese Co., et al

Press Release
Docket Number: 2:14-CV-13077 (E.D. Mi.)

On August 8, 2014, the United States filed a complaint for permanent injunction against the S. Serra Cheese Company and its owners, Stefano and Fina Serra, to prevent the distribution of adulterated cheese and to institute corrective measures to ensure compliance with good manufacturing practice requirements. S. Serra Cheese Company manufactures and distributes several varieties of Italian cheeses, such as ricotta, provolone, mozzarella, and primo sale. The complaint alleges that the company’s cheeses are manufactured in insanitary conditions, and that the company’s procedures are inadequate to ensure the safety of its products.

FDA inspections performed in 2013 revealed an absence of effective monitoring and sanitation controls in accordance with the current good manufacturing practice requirements for food and that the company repeatedly failed to reduce the risk of contamination from two potentially dangerous types of bacteria: Escherichia coli (E. coli) and Listeria innocua (L. innocua). Although the strains of E. coli found in cheese samples collected from the company’s facility were non-pathogenic, their presence indicates that the facility is insanitary and contaminated with filth. In addition, the presence of L. innocua indicates insanitary conditions and a work environment that could support the growth of L. monocytogenes, an organism that poses a life-threatening health hazard because it is the causal agent for the disease listeriosis, a serious encephalitic disease.


Complaint Filed Against Dietary Supplement Maker
United States v. Applied Polymer Systems
d/b/a/ APS Pharmaco, et al.

Press Release
Docket Number: 2:14-CV-4395 (E.D.N.Y.)

On July 23, 2014, U.S. District Court for the Eastern District of New York entered a consent decree of permanent injunction against Applied Polymer Systems d/b/a APS Pharmaco (APS) and Nuka Reddy, the firm President, based on their distribution of adulterated dietary supplement. This action stems from a series of FDA inspections of APS’ manufacturing facility beginning in 2012, which revealed, among other things, that APS failed to perform identity tests or examinations for certain dietary ingredients before using them in their products.

The defendants ceased all operations as of June 2014, and are prohibited from resuming operations until FDA determines that their manufacturing practices have come into compliance with the law. The decree also requires a recall of all dietary supplements sold by the firm sold since January 1, 2014. View Complaint.


District Court Enjoins Smoked Fish Manufacturing Company and Several Key Employees from Continuing to Violate the Food, Drug, and Cosmetic Act
United States v. New York City Fish, Inc., Maxim Kutsyk, Pavel Roytkov, and Leonid Staroseletesky

Press Release
Docket Number: 1:13-CV-2909 (E.D.N.Y.)

On March 31, 2014, the U.S. District Court for the Eastern District of New York entered an injunction against New York City Fish, Inc., a manufacturer of ready-to-eat fishery products, including smoked salmon and mackerel, and three of its employees: Maxim Kutsyk, Pavel Roytkov, and Leonid Staroseletesky. During a bench trial conducted last summer, the government presented evidence that each of the defendants had failed to comply with current good manufacturing practices, failed to keep records necessary to evaluate food safety, and processed fish in a way that could lead to Listeria monocytogenes contamination, all in violation of the federal Food, Drug, and Cosmetic Act (“FDCA”). People who eat food contaminated with the Listeria monocytogenes bacterium can contract the disease listeriosis, which can be serious—even fatal—for vulnerable groups such as newborns and those with impaired immune systems. Complications from the disease can also lead to miscarriage. The court found that each of the defendants had violated the FDCA in the past, and that the court had “scant assurance” that defendants would comply with food safety laws going forward.

A copy of the Court Order is available.

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United States Obtains Injunction to Stop Sale of Dangerous Recalled Magnets
United States v. Zen Magnets, LLC, and Shihan Qu

Press Release

Docket Number: 1:15-CV-955 (D. Colo.)

On May 14, 2015, U.S. District Court Judge Christine M. Arguello ordered a Colorado company to stop selling hazardous high-powered magnets that had been recalled by their manufacturer as part of an agreement with the Consumer Product Safety Commission (CPSC).

Judge Arguello found that Zen Magnets LLC and its owner, Shihan Qu, were violating the Consumer Product Safety Act by selling magnets that it purchased from a New Jersey company shortly before the magnets were recalled. The judge found that an injunction was necessary because Zen Magnets “has essentially turned its pledge to continue to defy the CPSC into a marketing campaign” and has “openly vowed” not to stop selling the recalled magnets absent an injunction.

The tiny, extremely strong magnets are sold in sets and marketed as desk toys. When swallowed, the magnets clamp together and can cause serious internal injuries.

Civil Penalty and Injunction Action Filed for Delay in Reporting Lawnmower Hazard
United States v. Black & Decker

Press Release
Docket Number: 1:15-CV-01239 (D. Md.)

On April 29, 2015, the United States filed a complaint alleging that Black & Decker (United States) Inc. knowingly violated the reporting requirements of the Consumer Product Safety Act with respect to cordless electric lawnmowers that started spontaneously and that continued to operate after consumers released the lawnmower handles and removed the safety keys.  The United States alleged that between 1998 and 2009, Black & Decker received more than 100 complaints about these defects.  The United States further alleged that, after consulting an outside expert, the company knew in 2004 that the lawnmowers could continue to run even if a user released the handle and removed the safety key. 
Despite knowledge of all of this information, Black & Decker failed to report to the Consumer Product Safety Commission until early 2009, even though federal law requires “immediate reporting.” 

To resolve the allegations, Black & Decker has agreed to pay a civil penalty of $1,575,000 and has also agreed to establish and maintain a compliance program with internal recordkeeping and monitoring systems to keep track of information about product safety hazards.  The proposed consent decree is awaiting judicial approval.
View Complaint and Proposed Consent Decree


United States Files Suit against Michaels Stores Inc. for Failing to Report Serious Safety Hazard to Consumer Product Safety Commission
United States v. Michaels Stores, Inc.

Press Release
Docket Number: 3:15-CV-1203 (N.D. Tx.)

On April 21, 2015, the United States filed suit against Michaels Stores Inc. and its subsidiary, Michaels Stores Procurement Co. Inc., alleging that Michaels knowingly violated the reporting requirements of the Consumer Product Safety Act with respect to glass vases that shattered in consumers’ hands, sometimes as the consumer lifted the vase from the Michaels Stores shelf.  Michaels imported and sold the vases, which caused serious injuries to consumers, including lacerations requiring stitches, permanent nerve damage and surgery to repair severed tendons. 

The complaint seeks civil penalties and permanent injunctive relief.  In addition to failing to notify the Consumer Product Safety Commission (“CPSC”) “immediately” as required by law, the government also alleges that Michaels knowingly misrepresented to the CPSC that Michaels did not import the vases.  Michaels sold the vases in its stores from 2006 to 2010.  Michaels’ report conveyed the false impression that Michaels did not import the vases, even though Michaels should have known it was the importer.

According to the Justice Department’s complaint, the vases pose a safety hazard because their walls are too thin to withstand the pressure of normal handling and, as a result, they shatter in consumers’ hands.  The complaint alleges that beginning as early as November 2007 and continuing for more than two years, Michaels received numerous consumer complaints that the vases were unsafe because they shattered during normal use and caused serious injuries.  The vases were recalled in September 2010. 

Axe Manufacturer to Pay $2.6 Million Penalty for Failing to Report Safety Hazard
United States v. Fiskars Brands, Inc.

Press Release
Docket Number: 3:14-CV-2061 (D. Or.)

On January 6, 2015, the district court (Judge Garr M. King) entered a consent decree against Gerber Legendary Blades, a division of Fiskars Brands, Inc., based on the company’s failure to immediately report to the U.S. Consumer Product Safety Commission a known safety hazard associated with Fiskars’ Gator Combo Axe. Pursuant to the decree, Fiskars will pay a civil penalty of $2.6 million and also establish and maintain a compliance program with internal recordkeeping and monitoring systems to keep track of information about product safety hazards. The government filed its complaint on December 30, 2014, alleging that as early as 2005 and continuing over the next several years, Fiskars received consumer complaints and warranty claims indicating that the knife fell out of the Axe handle while the Axe was being used to chop, pound or hammer. In several instances, the knife dislodged from the handle during use and caused injuries including lacerations requiring stitches, permanent nerve damage and surgery to repair severed tendons. Under the Consumer Product Safety Act, manufacturers, distributors and retailers are required to immediately report product hazards to the CPSC.

View Recall Announcement


Consent Decrees Filed in Toy Case
United States v. Toys Distribution, Inc., et al.

Press Release
Docket Number: 2:14-CV-1364 (C.D. Cal.)

On June 11, 2014, the United States District Court for the Central District of California entered three separate consent decrees shutting down the importation and sales activities of four California companies (Toys Distribution, Inc. dba TDI International, S&J Merchandise, Inc., BLJ Apparel, Inc., and All Season Sales, Inc.) and six individuals (Loan Tuyet Thai, Lan My Lam, Paul Phuong, Cuc T. Thai, Tom Liu, and Luan Luu) as a result of their imports of illegal children’s products. Among other things, the children’s products contained lead, phthalates, and small parts inappropriate for children under age three.

Phthalates are chemical plasticizers which make certain products flexible, and certain types of phthalates are banned from use in children’s toys and other child care products. The Consumer Product Safety Commission (CPSC) determined through an investigation that the defendants imported various items into the United States in violation of the Consumer Product Safety Act (CPSA) and the Federal Hazardous Substances Act (FHSA). The violative products that were imported included: toy cars with impermissible lead content and small parts hazards, toy musical instruments with small parts hazards, dolls containing impermissible levels of lead and phthalates, rattles that failed to meet the infant rattle standards, a toy telephone with small parts hazards, and a children’s kitchen set and police set that both exceeded the lead content limit.


Civil Penalty and Injunction Action Filed for Delay in Reporting Oven Hazard
United States v. Electrolux

Press Release
(S.D. GA.)

On May 14, 2014, the United States filed a complaint alleging that Electrolux Home Products, Inc., knowingly failed to report immediately to the U.S. Consumer Product Safety Commission a safety hazard associated with certain wall ovens sold to consumers. The complaint alleged that Electrolux became aware of incidents in which gas could build up in the oven during broiling and escape and ignite, causing burn and fire hazards to consumers. Specifically, between February 2006 and November 2007, it was alleged that Electrolux knew of 22 consumer reports of flames shooting out of the oven when the broiler was on.

The incidents resulted in consumer injuries ranging from singed hair to facial burns. Electrolux failed to immediately report hazards with the oven, despite the fact that Frigidaire Canada, Electrolux’s sister company, identified the defective and hazardous nature of the ovens in January 2005 and implemented a design change to fix the defect in March 2006. Electrolux imported and distributed approximately 7,800 of the Kenmore ovens that were sold by Sears and other stores throughout the United States. To resolve the allegations, Electrolux has agreed to pay a civil penalty of $750,000 and has also agreed to establish and maintain a compliance program with internal recordkeeping and monitoring systems to keep track of information about product safety hazards. The Court entered the agreed upon order by the parties as the final judgment in the matter.

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Car Salesman at Prominent Los Angeles Dealership Sentenced in Connection with Odometer Fraud Scheme
United States v. Jeffrey Levy; United States v. Shamai Salpeter

Press Release
2:14-CR-00533 (C.D. Cal.); 2:14-CR-00532 (C.D. Cal.)

On April 13, 2015, Shamai Salpeter was sentenced to serve two years in prison on charges related to an odometer tampering scheme.  Salpeter was also ordered to pay $421,666 in restitution to victims who purchased vehicles without knowing the odometers displayed incorrect mileages. 

In November 2014, Salpeter pled guilty to one count of conspiracy to tamper with odometers and one count of tampering with an odometer.  Salpeter altered odometers in the driveway of his residence in Woodland Hills, California.  For a fee of $100 to $300, he reset hundreds of odometers to any mileage requested by his customers.  Many of Salpeter’s customers were referred to him by Jeffrey Levy, a salesman at a Galpin Ford, one of the busiest car dealerships in the country. 

On March 16, 2015, Levy was sentenced to a year in prison for his role in the conspiracy.  Future purchasers of the vehicles were defrauded because they purchased vehicles with false odometer readings.

Used Motor Vehicle Dealers Indicted for Odometer Tampering and Money Laundering
United States v. Gali et al.

Press Release
5:14-CR-00634 (E.D.P.A.); 1:14-CR-00652 (E.D.N.Y.)

Chaim Gali, also known as Mike Gali or John Triculy, of Queens Village, was arrested January 6, 2015 in New York.  Along with Shmuel Gali, also known as Sam Gali, of Israel, indictment charges unsealed in federal courts in Philadelphia and Brooklyn relate to their long-term operation of an odometer tampering and money laundering scheme.  The Justice Department will seek the extradition of Shmuel Gali.

In the Eastern District of Pennsylvania, the defendants were charged with conspiracy, and seven counts each of securities fraud and false odometer statements.  In the Eastern District of New York, they were charged with mail and wire fraud conspiracy, and money laundering conspiracy.  The statutory maximum for each securities fraud charge in the Pennsylvania case is 10 years imprisonment; in the New York case each count carries a statutory maximum 20 years sentence.

The indictments allege that from as early as 2006, through at least June 2011, the Galis schemed to defraud vehicle buyers by using fictitious dealer names to purchase approximately 690 high-mileage vehicles, which they sold with altered odometers and fraudulent titles.  The vehicles were purchased from various locations of a national vehicle leasing company, including Florida, Maryland, and Missouri.  By altering the mileage on the vehicle titles accompanying the high-mileage vehicles, the defendants obtained new fraudulent Pennsylvania titles; in some cases a vehicle’s mileage was reduced more than 100,000 miles. The defendants sold the low mileage vehicles at auctions in Pennsylvania and New Jersey, then funneled the proceeds to Brooklyn bank accounts used to purchase additional vehicles.

Consumer information on odometer fraud prevention is available from NHTSA; a hotline for providing information on suspected odometer tampering is (800) 424-9393.

Defendant in Odometer Tampering Scheme Sentenced to 60 Months’ Imprisonment
United States v. Kyle Novitsky and Judith Aloe

Docket Number: 5:12-CR-657 (E.D.P.A.)

On October 9, 2014, Kyle Novitsky was sentenced in U.S. District Court in Philadelphia to serve 60 months’ imprisonment on charges related to an odometer tampering conspiracy. He was also ordered to pay restitution of $1,482,000 to victims. In April, 2014, the defendant pled guilty to one count of conspiracy to tamper with odometers, make false odometer certifications, and commit securities fraud, and two counts each of securities fraud and making false odometer certifications.

Novitsky rolled back odometers on used cars and trucks to make the vehicles appear more valuable. Doing business under various company names, Novitsky sold close to 250 vehicles with rolled back odometers. Novitsky’s co-defendant, Judith Aloe, is a fugitive, having failed to appear for trial in May in U.S. District Court in Philadelphia. Learn More.


Two Men Charged with Odometer Fraud
United States v. Erick Sanchez-Pulido and Israel Sanchez-Pulido

Press Release
Docket Number: 14-CR083 (E.D. Wis.)

On April 1, 2014, Erick Sanchez-Pulido and his brother, Israel Sanchez-Pulido, were indicted by a federal grand jury in the Eastern District of Wisconsin on charges of conspiracy, odometer tampering, making false odometer statements, and securities fraud. The indictment charged the defendants with buying high-mileage vehicles at Wisconsin auto auctions, rolling back the odometers, altering the mileage readings on the vehicles’ titles, and then selling the cars to consumers and car dealerships in Wisconsin and elsewhere. The indictment alleges that from October 2009 through February 2014, the defendants were involved in rolling back the odometers on at least 146 vehicles.

The defendants did not appear in court for their arraignment on April 9, 2014; arrest warrants were issued and the defendants are now fugitives.

A copy of the indictment is available.


Auto Dealer Pleads Guilty in Odometer Fraud Scheme
United States v. Edward Capicchioni

Press Release
Docket Number: 5:14-CR-71 (E.D.P.A)

On March 20, 2014, Edward Capicchioni pled guilty to one count of conspiracy to tamper with odometers and make false odometer certifications. Doing business under the name The General’s Auto Sales, Capicchioni purchased high mileage vehicles from individual sellers and worked with a co-conspirator to roll back and alter the odometers. He then resold the vehicles at a wholesale auto auction in Pennsylvania, representing that the false, low mileages were accurate. Capicchioni sold more than 50 vehicles with rolled back odometers as part of the scheme.

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Court Rejects Drug Manufacturer’s Bid to Reverse Therapeutic Equivalence Downgrade of Extended Release ADHD Product
Mallinckrodt Inc. v. U.S. Food and Drug Administration, et al.

Docket Number 8:14-CV-3607 (D. Md.)

On July 29, 2015, the district court (Deborah K. Chasanow) denied a bid by Mallinckrodt Inc. to overturn an FDA action downgrading the therapeutic equivalence (“TE”) rating that the agency published for Mallinckrodt’s generic Methylphenidate Extended Release products. These products are commonly used to treat ADHD in children over the age of 6. Although initially assigned an AB rating upon approval, thus making it automatically substitutable for brand-name Concerta, FDA became aware of reports of therapeutic inequivalence in Mallinckrodt’s generic Methylphenidate products since September 2013. Following a multidisciplinary review that included evaluation of adverse event reports, a review of data submitted by Mallinckrodt, laboratory testing and consultations with physicians, pharmacists, chemists and other agency scientists, the agency concluded that there was insufficient evidence to support Mallinckrodt’s continued status as automatically substitutable for the name brand drug. FDA notified Mallinckrodt of the TE code change and posted new draft guidance for notice and comment in an effort to help prevent therapeutic equivalency issues with similar products in the future. Mallinckrodt filed suit on November 17, 2014 and sought a TRO to restore its prior TE rating. Following a hearing, the court denied the TRO from the bench, and, on July 25, 2015, issued a 73-page opinion dismissing three of Mallinckrodt’s claims and entering judgment for the government on two additional claims. The court found that FDA’s TE reclassification was not final agency action and further found that the agency’s draft guidance was an interpretive, not a legislative rule, and that Mallinckrodt failed to show that FDA had deprived Mallinckrodt of a property interest when it reclassified the product’s TE code.

District Court Upholds FDA Exclusivity Determination for Anti-Rejection Drug; Dismisses Drug Manufacturer's Suit 
Veloxis Pharmaceuticals, Inc. v. FDA, et al.

Docket Number 1:14-CV-2126 (D.D.C.)

On June 12, 2015, the district court (Judge Reggie B. Walton) dismissed a lawsuit brought by Veloxis Pharmaceuticals, Inc., challenging an FDA decision to delay approval of Veloxis’ drug, Envarsus, pending the conclusion of a three-year exclusivity period belonging to a competing drug manufactured by Astellas Pharma US, Inc.  The drug at issue, Envarsus, is an anti-rejection medication intended for kidney transplant recipients.  In late 2014, FDA determined that Envarsus’ approval was blocked by the unexpired exclusivity of Astellas’ previously approved anti-rejection medication, Astagraf, because Envarsus and Astagraf shared at least one “condition of approval.”  After further attempts by Veloxis to overcome this determination, Veloxis filed suit on December 17, 2015, seeking preliminary and permanent injunction.  FDA issued its final decision on January 12, 2015, and thereafter the parties engaged in expedited briefing.  Veloxis argued, among other things, that Envarsus should not be subject to Astagraf’s exclusivity because the Envarsus application had not relied upon any studies conducted in support of Astagraf’s application (rather, the Envarsus application had relied upon studies conducted in support of Prograf, another anti-rejection medication).  The government argued, and the court ultimately agreed, that because Envarsus and Astagraf shared conditions that were necessary to FDA’s approval, Envarsus was subject to Astagraf’s exclusivity regardless of whether the Astagraf studies were relied upon.

District Court Rejects Bid to Overturn Approval of Generic Cancer Drug 
Spectrum Pharmaceuticals, Inc. v. Burwell, et al.

Docket Number 1:15-CV-631 (D.D.C.)

On May 27, 2015, the district court (Judge Royce C. Lamberth) granted summary judgment to the government in a case brought by Spectrum Pharmaceuticals, Inc. (“Spectrum”) challenging FDA’s approval of a competing generic cancer drug manufactured by Sandoz, Inc. (“Sandoz”).  In 2008, FDA approved Spectrum’s application to sell 50 milligram vials of levoleucovorin (brand name Fusilev), which is injected into cancer patients to ameliorate the effects of the cancer drug Methotrexate.  In 2011, Spectrum obtained approval of Fusilev in combination with another drug for the treatment of colorectal cancer, an indication that is protected by seven-year orphan drug exclusivity.  On March 9, 2015, after denying a citizen petition submitted on Spectrum’s behalf, FDA approved Sandoz’ generic version of Fusilev in 175 milligram and 250 milligram sizes for the Methotrexate-related indications.  Spectrum sued on April 27, 2015 and sought a TRO, arguing that Sandoz’ approval undermined Spectrum’s orphan exclusivity in that the approved vial sizes were appropriate only for the protected colorectal indication, despite the fact that Sandoz’s drug was only approved for the Methotrexate indications. Following a hearing, the court denied Spectrum’s application for a TRO and, on May 27, the court upheld FDA’s decision on the merits.  Notably, the court rejected Spectrum’s invitation to invalidate Sandoz’s ANDA based on the possibility that Sandoz’s generic drug could be prescribed off-label by medical professionals for the statutorily protected Colorectal Indication.  The court also credited FDA’s conclusion that Sandoz’s generic drug was, as approved and labeled, safe and effective for the Methotrexate Indication, and pointed to FDA’s careful analysis of the specific risks affiliated with Sandoz’s product in reaching its conclusion. 

District Court Rejects Bid to Overturn Approval of Generic Abilify
Otsuka Pharmaceutical Co., Ltd., et al. v. Burwell, et al.

Docket Number 8:15-CV-852 (D. Md.)

On May 27, 2015, the district court (Judge George Hazel) granted summary judgment to the government in a case brought by Otsuka Pharmaceuticals challenging FDA approval of multiple generic versions of Otsuka’s blockbuster antipsychotic drug, Abilify.  Otsuka claimed that FDA was precluded from omitting certain protected pediatric labeling from the generic labeling, and sought a TRO to preclude FDA from approving generic versions of the drug.  Otsuka argued that because the statute assertedly does not permit such information to be “carved out” of the generic labeling, no generic product can be approved – even for an unprotected indication – until after the expiration of Otsuka’s seven-year exclusivity period.  The court heard argument on April 28, and denied the TRO the following day.  On May 27, following additional briefing and argument, the court issued a written opinion upholding FDA’s decision on the merits.  In so ruling, the court held that “the [Food, Drug, and Cosmetic Act], its legislative history, the case law, and FDA’s regulations all support the FDA’s construction of the statute that allows it to carve out an indication or other information from ANDA labeling when that indication or information is protected by orphan drug exclusivity as long as the ANDA with that carved out label remains safe and effective for the remaining non-protected conditions of use.”

District Court Upholds FDA Rescission of Tentative Drug Approvals 
Ranbaxy Laboratories Ltd., et al. v. Burwell, et al.

Docket Number 1:14-CV-1923 (D.D.C.)

On February 27, 2015, the district court (Judge Beryl Howell) granted summary judgment to the government and denied a motion for preliminary injunction filed by Ranbaxy Laboratories in a bid to reinstate the tentative FDA approval of two Ranbaxy products.  Ranbaxy filed suit against FDA on November 14, 2014, seeking to overturn an FDA decision to rescind Ranbaxy’s tentative approval for generic versions of the brand drugs Valcyte® and Nexium® based on the company’s failure to adhere to good manufacturing practice requirements and, more specifically, the company’s non-compliant GMP status at the time the tentative approvals were mistakenly issued in 2008.  Once FDA became aware of its mistake (some six years later), it acted to rescind Ranbaxy’s tentative approval for generic versions of those products.  At the same time, the agency determined that Ranbaxy had forfeited its right to 180-day marketing exclusivity for Valcyte® due to its failure to timely obtain tentative approval and approved two competing generic versions of the drug.  Ranbaxy brought suit and sought a TRO to reverse FDA’s actions, arguing that FDA lacked the authority to rescind tentative approval, that it did so in an untimely manner, and that the agency’s decision reflected an impermissible change in policy.  After denying Ranbaxy’s TRO request in November for failure to establish ripeness and irreparable harm, the court addressed the merits on summary judgment, upholding both FDA’s statutory authority to rescind an erroneously issued tentative approval and its decision to do so based on Ranbaxy’s lack of CGMP compliance in this case.

Court Rebuffs Challenge to FDA Drug Approval
Takeda Pharmaceuticals v. Burwell; Elliott Associates, et al. v. Burwell

Docket Number 1:14-CV-1850 (D.D.C.)

On January 9, 2015, the district court entered summary judgment in favor of the Government and denied summary judgment motions filed by the plaintiffs in two actions challenging FDA’s approval of a new version of colchicine, a drug intended for the treatment of gout.  Following FDA’s approval in September of Mitigare, a colchicine product manufactured by Hikma Pharmaceuticals, Takeda Pharmaceuticals, the maker of Colcrys, a previously approved version of the drug, filed suit in order to prevent Hikma from distributing its new product.  Takeda took issue with the omission of certain dosing information in Mitigare’s labelling, and argued, among other things, that FDA should have required Hikma to certify to various use patents that related to the dosing information in Takeda’s Colcrys product.  A second lawsuit, filed by Elliott Associates, sought to vindicate the interests of several entities entitled to patent royalties from Takeda’s product and raised similar claims.  The court consolidated the two cases and ultimately rejected all of their claims on summary judgment.  The court’s 77-page opinion, issued on January 12, thoroughly addressed the multiple arguments put forth by the plaintiffs, concluding that FDA had properly construed the statute and regulations, and that its decision approving Hikma’s Mitigare product was not arbitrary, capricious, or otherwise unlawful.  The court subsequently denied the plaintiffs’ requests for an injunction pending appeal and the plaintiffs have indicated that they intend to seek immediate review in the D.C. Circuit.

District Court  Grants Summary Judgment In Favor of Federal Agencies In Response to Demand that Agencies Require Certain Labeling on Eggs
Compassion Over Killing v. FDA, et al.

Docket Number 3:13-CV-1385 (N.D. Cal.)

On December 23, 2014, the U.S. District Court for the Northern District of California granted summary judgment of behalf of the government, holding that USDA does not have the authority to issue the requested egg labeling regulations and that FDA and FTC appropriately exercised discretion in declining to issue the requested egg labeling regulations.  This case arose following citizen petitions filed by several animal rights organizations asking USDA, FDA, and FTC to promulgate rules requiring all eggs sold in the United States to be labeled with information regarding whether or not the chickens were caged.  All three agencies denied the petitions and plaintiffs filed this action under the Administrative Procedures Act.     

District Court Rejects Bid to Block FTC Investigation
MPHJ Technology Investments, LLC v. FTC

Docket Number 6:14-CV-11 (W.D. Tex.)

On September 16, 2014, the district court dismissed an action brought against the FTC by MPHJ Technology Investments, a Waco, Texas company that had threatened numerous small businesses with litigation if they refused to purchase licenses for certain patents owned by MPHJ.  The suit sought to halt an FTC investigation of MPHJ’s activities, which included falsely threatening imminent patent infringement litigation when it did not intend to take and did not take such action and falsely representing to potential licensees that substantial numbers of businesses had responded by purchasing licenses when, at the time of the representations, MPHJ had not sold any licenses.  Because the FTC has yet to take final agency action against MPHJ and its actions to date have not affected the company in any legally consequential way, the court ruled that MPHJ lacked standing to bring its claims, that its claims were not ripe, and that it had failed to exhaust its administrative remedies.  Accordingly, the court dismissed MPHJ’s complaint for lack of subject matter jurisdiction.

Court Reverses Temporary Injunction, Upholds Generic Drug Approvals
Hospira v. Burwell, et al.

Docket Number: 8:14-CV-2662 (D. Md.)

On September 5, 2014, the district court lifted a temporary restraining order it had entered some two weeks prior and reinstated FDA’s approval of generic versions of Precedex (dexmedetomidine), a sedative drug manufactured by Hospira, Inc. On August 18, FDA approved abbreviated new drug applications (ANDAs) filed by Mylan Institutional LLC and Par Sterile Products, Inc., which permitted those manufacturers to begin marketing generic versions of Precedex with certain patent-protected indications “carved-out” of the labeling.

On August 19, Hospira brought suit challenging FDA’s determination that the generic companies could carve out the protected indications and sought a temporary restraining order (TRO) to halt the marketing of the generic products. Although the district court initially entered a TRO prior to any responsive briefing by the government, the court ultimately reversed itself and ruled in favor of the FDA, granting the government’s motion for summary judgment and upholding the agency’s approval of the generic drugs at issue. Hospira has appealed the court’s decision to the U.S. Court of Appeals for the Fourth Circuit.


Court Enters Final Judgment in Generic Celebrex Challenge
Mylan Pharmaceuticals, Inc. v. FDA

Docket Number: 1:14-CV-75 (N.D. W.Va.)

On June 16, 2014, the district court entered final judgment for the Food and Drug Administration in an action challenging the agency’s decision that a reissued patent does not give rise to eligibility for a period of marketing exclusivity that is separate and distinct from that which arises from the original patent. The drug product at issue in this case is celecoxib, marketed by Pfizer Corporation as the blockbuster brand-name drug, Celebrex. Mylan moved for a preliminary injunction to enjoin FDA from withholding final approval, on May 30, 2014, from Mylan and other generic celecoxib applicants that Mylan claims are eligible for exclusivity based on certification that a reissued patent for Celebrex would not be infringed by generic competition.

Following a hearing on May 15, 2014, the court denied the motion, ruling that Mylan was unlikely to succeed on the merits of its case because FDA properly interpreted the relevant provisions of the Federal Food, Drug, and Cosmetic Act in concluding that a reissued patent could not give rise to a new period of marketing exclusivity distinct from the original patent. The court also found that Mylan would not be irreparably harmed in the absence of a preliminary injunction and that the balance of the equities and the public interest favored denial of preliminary relief. Mylan appealed from the denial of the preliminary injunction, and, thereafter, moved the district court to convert the preliminary injunction denial to a final judgment. On June 16, 2014, the district court granted that motion and entered final judgment in favor of FDA. On the same day, Mylan appealed the final judgment to the Fourth Circuit.


District Court Dismisses Suit Seeking to Enjoin FDA’s Approval of Generic Drug
Teva Pharmaceutical Industries LTD., Teva Neuroscience, Inc., v. Sebelius

Docket Number: 1:14-CV-786 (D.D.C.)

On May 14, 2014, the district court dismissed an action brought by Teva Pharmaceuticals seeking to enjoin FDA’s approval of generic versions of Copaxone, a blockbuster drug for the treatment of multiple sclerosis. Teva sought relief following FDA’s denial of a series of citizen petitions in which Teva requested, among other things, that the agency require clinical trials before approving any abbreviated new drug application (“ANDA”) for a generic version of Teva’s drug. Because FDA is statutorily required to respond to such petitions within 150 days, the agency denied Teva’s latest petition but declined to address the substantive scientific issues raised in the petition outside the context of the approval of a specific ANDA.

FDA has not yet approved a generic version of Copaxone. The government moved to dismiss the complaint, as well as to deny a motion for preliminary injunction, because, without any generic approval, there was no case or controversy for the court to decide. The district court agreed, denied the motion for preliminary injunction, and dismissed the case for lack of jurisdiction.


District Court Refuses to Enjoin FTC Administrative Proceedings in Data Privacy Case
LabMD, Inc., v. FTC

Docket Number: 1:14-CV-810 (N.D. Ga)

On May 12, 2014, U.S. District Judge William S. Duffey dismissed a complaint filed against the Federal Trade Commission (FTC) by LabMD, Inc., holding that the court lacked jurisdiction to hear the company’s claims. In August 2013, the FTC brought an administrative action against LabMD, a small medical laboratory, alleging that it had violated Section 5 of the FTC Act by failing to employ reasonable and appropriate data security measures to prevent unauthorized access to sensitive personal information. LabMD sought a preliminary injunction to halt the FTC’s ongoing administrative proceedings, claiming that FTC did not have authority to regulate data security, particularly with regard to medical information. Although the court questioned the FTC’s authority to “enlarge its regulatory activity in the data security area,” it declined to enjoin the Commission’s ongoing proceedings, holding that, in the absence of final agency action, none of LabMD’s claims were ripe for review. LabMD has appealed the court’s ruling to the Eleventh Circuit.


Court Dismisses Action Involving Access to Drugs in Short Supply
Carik, et al. v. United States Department of Health and Human Services, et al.

Docket Number: 1:12-CV-272 (D.D.C.)

On November 27, 2013, the district court dismissed an action asserting statutory and constitutional claims regarding two drugs in short supply. Plaintiffs claimed injury due to lack of access to full doses of Fabrazyme and Aquasol, two drugs for which there have been shortages. The government filed a motion to dismiss plaintiffs’ complaint on May 4, 2012, arguing that there was no subject matter jurisdiction because the government did not cause plaintiffs’ inability to obtain the full doses, and that there was no relief available that would redress plaintiffs’ injuries.

The district court agreed, holding that even if the plaintiffs had suffered an injury in fact, the shortages were caused by the drug manufacturers, not the government. Because the plaintiffs failed to establish that any action or inaction by the government had a sufficient causal link to their alleged injuries, their claims failed to meet the threshold requirements for Article III standing and the court, accordingly, dismissed the complaint for lack of subject matter jurisdiction.

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District Court Dismisses Constitutional Challenge to PACT Act as Moot
Gordon v. Holder

Docket Number 1:10-CV-1092 (D.D.C.)

On March 26, 2015, the district court dismissed as moot the remaining aspects of a constitutional challenge to several provisions of the Prevent All Cigarette Trafficking (PACT) Act of 2009.  The plaintiff, an internet seller of tobacco products who went out of business during the pendency of the litigation, filed suit in 2010 to challenge the Act’s requirement for delivery sellers to ensure that all state taxes are paid prior to the delivery of cigarettes, and its ban on using the U.S. mail to deliver tobacco products.  In a 2011 decision, the district court upheld the mail ban, but preliminarily enjoined the PACT Act’s tax-collection requirements on due-process grounds.  In 2013, the D.C. Circuit affirmed both aspects of the lower court’s ruling.  On remand, the district court held that the case had become moot, because the plaintiff no longer intended to return to business even if he prevailed; a consent decree he accepted in litigation brought by the City of New York barred him for life from selling tobacco products; and the ATF certified that, based on the evidence currently known to ATF, the agency had no intention of recommending or seeking enforcement against the plaintiff.  The district court further held that the prudential mootness doctrine also required dismissal, both because it was wholly speculative that invalidating the PACT Act’s tax provisions would actually relieve the plaintiff’s asserted injuries, and because the plaintiff was raising a constitutional issue of first impression as a facial challenge against a federal statute.  Finally, the district court vacated its 2011 preliminary injunction.

District Court Adopts Consent Order on Implementation Details for Tobacco Corrective Statement
United States v. Philip Morris USA, Inc., et al

Docket Number: 1:99-CV-02496 (D.D.C.)

On June 2, 2014, the district court issued a consent order containing negotiated details of the implementation of corrective statements that the tobacco companies were ordered to make following a nine-month civil racketeering trial at which they were found liable for 50 years of fraud. After many months of mediation, the parties came to agreement regarding implementation details for the corrective statements which address five topics on which the court found that the tobacco company defendants had made false and deceptive statements and which are to be disseminated via television ads, newspaper ads, cigarette pack onserts, and statements on the companies’ websites. After the parties filed their joint proposed order on January 10, 2014, numerous media outlets appeared as amici to protest that the media buy (initially prescribed by the court in 2006) under-represented minority-owned media entities and would not adequately reach minority communities. At the Court’s direction, the parties resumed negotiations to consider those issues.

On April 22, 2014, the parties submitted a revised proposed order that would spread the media buy to newspapers in more states with large African-American populations, and would add 14 African-American newspapers. During May 2014, all but two of the original amici filed further briefs contending that the revised proposal was still inadequate to reach minority communities or use African-American media. To accompany its June 2 consent order, the district court issued an 8-page opinion discussing and rejecting the amicus objections to the revised media-buy part of the agreement. Although the consent order specifies how the corrective statements will look if and when the tobacco companies disseminate the statements, it does not finally resolve matters. In 2009, the DC Circuit vacated the highly important point-of-sale channel (which would have required the corrective statements to appear at retail locations where cigarettes are sold), and remanded in the summer of 2010 for further consideration. That topic is being litigated on a separate track before the district court. Moreover, the tobacco companies have lodged a First Amendment appeal from the wording of the corrective statements which should now go forward in the D.C. Circuit.


District Court Dismisses Constitutional Challenge to PACT Act
Musser’s Inc., d/b/a Genuine Tobacco Company v. United States

Docket Number: 10-4355 (E.D. Pa.)

On February 18, 2014, the district court dismissed an action challenging the constitutionality of the Prevent All Cigarette Trafficking Act of 2009 (the “PACT Act”), a broad cigarette and smokeless tobacco tax law, which went into effect in 2010. The Act, which is largely aimed at internet tobacco sales, imposes restrictions on the sale of cigarettes and smokeless tobacco which are delivered to the purchaser (rather than “in-person” sales), making it unlawful to deliver cigarettes and smokeless tobacco through the United States Postal Service, and prohibiting remote sales of these products unless applicable state and local taxes are paid in advance. The plaintiff operated an online retail store selling tobacco products via the internet and by telephone to customers in all fifty states. Some 10-15 % of the company’s online sales were to military personnel stationed on bases all over the world and who could only receive delivery by U.S. mail. The plaintiff challenged the statute on two grounds, alleging that the Act violates the Due Process Clause because it forces remote sellers to comply with tax laws of foreign jurisdictions with which they do not have sufficient contact, thereby denying them the right to contest the Act’s application, and that it violates the Equal Protection Clause because it discriminates without a rational basis against military personnel by denying them the ability to make remote purchases of tobacco products for delivery. The court rejected both claims.

As to the Due Process claim, the court found that selling products over the internet and knowingly conducting business through the internet in a state is a sufficient contact to satisfy due process concerns. Because the plaintiff’s activities were sufficient to render it subject to state jurisdiction, the court held that it did not offend the Due Process Clause for the plaintiff to be subject to taxation in the states where it does business. As to the Equal Protection claim, the court held that the plaintiff lacked standing to assert the rights of non-party military personnel. In the alternative, the court found that Congress had a rational basis for banning the use of the Postal Service to deliver tobacco products, citing congressional findings that the use of the mails to deliver such products facilitated tax evasion, trafficking in untaxed cigarettes, and criminal activity; made it easier for children to obtain these products; and led to unfair competition from sellers selling untaxed products when law abiding retailers were collecting local and state taxes. Accordingly, the court found both of plaintiff’s claims legally deficient and dismissed the action.

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Updated January 19, 2016