- GENERAL BACKGROUND
- FACTUAL BACKGROUND
On September 16, 1992, the grand jury returned an Indictment charging defendant XXXX X. XXXXXXXX in a six count Indictment. The counts in the Indictment are premised upon the defendant's activities in connection with his illegal purchases of unapproved bulk drugs intended for use in food-producing animals and his subsequent illegal distribution of those drugs.
Specifically, the Indictment charges the defendant with one count (Count 1) of conspiring to violate the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 331 and 333, both by agreeing to and actually causing the introduction of adulterated and misbranded bulk animal drugs into interstate commerce, with the intent to defraud and mislead, and by proffering the delivery of adulterated and misbranded bulk animal drugs (also with the intent to defraud and mislead) after receipt of those drugs in interstate commerce. The remaining counts (Counts 2 through 6) charge the defendant with introducing or delivering for introduction into interstate commerce, with the intent to defraud or mislead, misbranded animal drugs, in violation of Title 21, United States Code, Sections 331(a) and 333(b).
The drugs involved in these counts were drugs represented to be dimetridazole (Count 2), furazolidone (Counts 3 and 6), oxytetracycline (Count 4), and gentamycin (Count 5). These substantive counts allege that these drugs were misbranded within the meaning of 21 U.S.C. § 352(f)(1), in that their labeling did not bear adequate directions for use.
The trial in this matter is set to begin on Monday, March 7, 1994, at 9:00 a.m. Interpreters will not be necessary, and the jury has not been waived. The government estimates the duration of the trial to be a maximum of eight (8) days. Since the return of the Indictment on September 16, 1992, the defendant has been released on his personal recognizance.
A. The Black Market In Animal Drugs
In recent years, a black market in unapproved animal drugs has flourished in this country. In general, this black market reflected two types of economic incentives.
The first type of incentive was the opportunity to profit by circumventing the government's pre-market approval process, which is costly and time-consuming. In response to this incentive, black marketeers have sold substitutes for approved drugs. The substitutes have taken the form either of finished, dosage-form drugs containing the same active ingredients as approved drugs, or, more commonly, unfinished, bulk active ingredients intended to be processed further by end-users. These bulk active ingredients have appeared in this country through the smuggling or otherwise unlawful importation activities of various individuals and entities. Because they have not been subjected to scientific scrutiny, the bulk ingredients -- and drugs manufactured from them under uncertain conditions -- are not guaranteed to have the same composition, purity, effectiveness, and safety as the approved drugs they purport to replace. They are, not surprisingly, marketed at much lower cost than the approved drugs.
The second type of economic incentive driving the black market in animal drugs was the opportunity to profit by distributing drugs that were effective in treating food-producing animals, but that were completely banned for such purposes by the government because of health risks to humans (or for some other reason).[FN1] In response to this second type of incentive, black marketeers again have typically smuggled into the United States or otherwise unlawfully imported bulk active ingredients from abroad.
FN1. For example, dimetridazole, which is identified in Count 2 of the Indictment as the subject of a November 1987 transaction, was banned from any use in food animals in July 1987, primarily due to concern over its carcinogenic properties. See United States v. 9/1 Kg. Containers, 854 F.2d 173, 177 (7th Cir. 1988) (citing 52 Fed. Reg. 25312), cert. denied, 489 U.S. 1010 (1989).
B. The Statutory Scheme
Under the Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. §§ 301-94, Congress comprehensively regulates animal drugs. The regulatory scheme has two central aims. One is to insure that veterinary drugs effectively serve the purposes of those who administer them to animals: unsafe or ineffective drugs could wreak substantial economic damage on owners of livestock. The other aim is to insure the safety of the nation's food supply. Unapproved animal drugs, or drugs that are used in an unapproved manner, may leave chemical residues in eggs, milk, and meat derived from treated animals. Such residues could pose serious health risks to humans that ingest them.
To achieve its aims, the FDCA takes two complementary approaches to regulating animal drugs. One approach is to require that all "new animal drugs"[FN1] be approved as safe and effective by the United States Food and Drug Administration ("FDA") before being marketed for use.[FN2] A drug lacking such approval is deemed to be "adulterated" under the FDCA and is subject to a web of prohibitions concerning interstate distribution and use.[FN3] The other approach is to require that all drugs be properly labeled so that all users, including laymen, can use them safely and effectively.[FN4] A drug that is not properly labeled is deemed to be "misbranded" under the FDCA and is subject to the same web of prohibitions concerning interstate distribution and use.[FN5]
FN1. The term "new animal drug" is defined in the FDCA, 21 U.S.C. § 321(w). Although the import of the definition is not entirely self-evident, virtually all drugs in use in veterinary medicine or in animal feeds come within the definition of "new animal drug."
FN2. 21 U.S.C. § 360b.
FN3. 21 U.S.C. §§ 331, 351(a)(5), and 360b.
FN4. 21 U.S.C. § 352; 21 C.F.R. § 201.5 (1993). Unapproved new animal drugs are, by definition, also improperly labeled. To be proper, labeling must give adequate directions for use. 21 U.S.C. § 352(f)(1). It is impossible to give adequate directions for using a drug that is not approved for any use because the directions given, if any, would not be based upon adequate scientific information.
FN5. 21 U.S.C. §§ 331, 352.
The FDA gives pre-market approval to a "new animal drug" only if its sponsor demonstrates that the drug is safe and effective for its intended uses. To gain approval, the sponsor must submit a "new animal drug application" (commonly known by the acronym "NADA") bearing extensive, scientifically rigorous data covering a number of subjects.[FN6] In the case of all new animal drugs, whether or not intended for use in food-producing animals, such requirements include scientific data that establish the drug's safety and effectiveness for its intended purpose;[FN7] a complete statement of the ingredients and composition of the drug;[FN8] and a full description of the all facilities, methods and controls used in producing the drug.[FN9]
FN6. See generally 21 U.S.C. § 360b(b).
FN7. See 21 U.S.C. § 360b(b)(1)(A).
FN8. 21 U.S.C. §§ 360b(b)(1)(B) and 360b(b)(1)(C). A drug typically consists of a number of different ingredients, some "active" and some not. A variation, no matter how slight, in the quality of any ingredient in a drug can materially alter the drug's safety, effectiveness, or both.
FN9. 21 U.S.C. § 360b(b)(1)(D). Unless a manufacturer has in place reliable production methods and controls, there can be no assurance that all batches of a drug will be equally safe and effective.
In the particular case of drugs intended for use in food-producing animals, the requirements go further. The application must describe how the manufacturer proposes to measure chemical residues in food products derived from treated animals and must describe any restrictions on the use of the drug necessary to keep residues at safe levels that will not pose a health risk to humans.[FN10] Drugs that leave potentially dangerous residues will not be approved.[FN11]
FN10. 21 U.S.C. §§ 360b(b)(1)(G) and 360b(b)(1)(H). More specifically, a NADA must describe how the manufacturer proposes to measure chemical residues in food products derived from treated animals and must describe any restrictions on use of the drug necessary to keep such residues at safe levels.
FN11. United States v. 9/1 Kg. Containers, 854 F.2d at 174.
Approval of a NADA, if granted, pertains only to those particular uses of the drug specified in the application (uses that would typically be confined to particular animals and to specific disease conditions), and only to the particular manufacturing practices specified in the NADA.[FN12] Furthermore, the FDA can revoke approval if at a later time data show that the drug is not safe or effective for the particular uses for which it had been approved.[FN13]
FN12. 21 U.S.C. § 360b(a)(1).
FN13. 21 U.S.C. § 360b(e).
Labeling requirements complement the requirement of premarket approval by promoting the safe and effective use of all animal drugs. Proper labeling insures that drugs that are approved for use are in fact not misused in ways that detract from safety or effectiveness.[FN14] Elements of proper labeling include adequate directions for use[FN15] and a statement of the name and place of business of the manufacturer, packer, or distributor.[FN16]
FN14. Indeed, in deciding whether to grant pre-market approval to a "new animal drug," the FDA considers the manufacturer's proposed labeling. 21 U.S.C. § 360b(b)(1)(F).
FN15. 21 U.S.C. § 352(f)(1). Adequate directions instruct users, including laymen, on such matters as dosage, frequency, and safety precautions. Failure to follow such directions could result in the drug not being effective or, even worse, in the drug causing harm to the animals treated, to humans administering the drug, or to humans ingesting food products derived from treated animals.
FN16. 21 U.S.C. § 352(b)(1). Identification of the manufacturer, packer, or distributor enables a user experiencing difficulties with a drug to report problems or to pursue appropriate remedies. Similarly, this identification allows the FDA, if necessary, to take the necessary regulatory action.
The FDCA's prohibitions on the distribution in interstate commerce of misbranded or adulterated animal drugs reach quite far across the chain of distribution. For example, since the FDCA defines "drug" to include any article intended for use as a component of a "drug",[FN17] bulk drugs -- i.e., active ingredients intended for manufacture into finished drug products -- fall squarely within the FDCA's purview."[FN18] Likewise, the term "new animal drug" includes drugs intended for use as ingredients in animal feed.[FN19]
FN17. 21 U.S.C. § 321(g)(1)(D).
FN18. E.g., Algon, 879 F.2d 1154, 1155 (3d Cir. 1989); 9/1 Kg. Containers, 854 F.2d at 178-79.
FN19. 21 U.S.C. § 321(w).
Accordingly, bulk drugs destined for inclusion in any "new animal drug" would be deemed to be adulterated and misbranded under the FDCA unless specifically within the coverage of an approved NADA governing all aspects of the "new animal drug," including identity of ingredients.[FN20] This requirement extends to and includes bulk drugs distributed to veterinarians for use in their practice.[FN21]
FN20. 21 U.S.C. §§ 351(a)(5), 360b. There is one chief exception to this general rule: under 21 U.S.C. § 360b(j) and pertinent regulations, provision is made to exempt from the FDCA's prohibitions drugs and drug ingredients used under carefully controlled conditions in scientific investigations. The sponsor of any such investigation must comply with a number of obligations and must document the exemption by submitting to FDA a "Notice of Claimed Investigational New Animal Drug Exemption" ("INAD exemption").
FN21. Algon, 879 F.2d at 1158-63; 9/1 Kg. Containers, 854 F.2d at 177-78.
Neither knowledge nor intent is required to establish a misdemeanor violation of the FDCA. United States v. Park, 421 U.S. 658, 668-73 (1975); United States v. Hiland, 909 F.2d 1114, 1127-28 (8th Cir. 1990). Establishing a felony violation of the FDCA requires proof that the defendant acted with "the intent to defraud or mislead."[FN22] "Intent to defraud or mislead" encompasses the intent to defraud regulatory authorities, such as the FDA, by evading detection. E.g., United States v. Arlen, 947 F.2d 139, 143 (5th Cir. 1991) ("intent to defraud or mislead" can be established by showing that "the defendant intentionally violated § 331 with the specific intent to defraud or mislead an identifiable government agency"), cert. denied, 112 S. Ct. 1480 (1992); United States v. Mitcheltree, 940 F.2d 1329, 1347 (10th Cir. 1991) ("intent to defraud or mislead" can be established by showing that "a defendant consciously sought to mislead drug regulatory authorities such as the FDA or a similar governmental agency"); United States v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991) ("intent to defraud or mislead" can be established by showing that the defendant "was trying to hide his activities from the FDA because he was worried that they certainly wouldn't approve of what he was doing"); United States v. Bradshaw, 840 F.2d 871, 874-75 (11th Cir.) ("intent to defraud or mislead" can be established by showing that the defendant took actions to avoid detection by the FDA and state law enforcement authorities), cert. denied, 488 U.S. 924 (1988).
FN22. 21 U.S.C. § 333.
At trial, the government will establish that defendant XXXX XXXXXXXX, acting as Cigar Store, Inc. ("Cigar"), [NOTE: names and places changed from original] a business he operated from his home, was illegally distributing bulk veterinary drugs that he had acquired through the black market. Specifically, the evidence will establish that the defendant was purchasing drugs from at least two black market sources, XXXX XXXXX and XXXXXX XXXXXXXX, both of whom have been convicted for selling unapproved bulk veterinary drugs. The defendant's purchase and subsequent distribution of these drugs, which were intended for use in food-producing animals, was wholly outside of approved channels and outside the control of the FDA, the agency responsible for ensuring that such drugs are safe and effective.
The evidence at trial will further show that the drugs bought and sold by the defendant were substances he represented to be (and the purchasers believed to be) antibiotics intended for veterinary use. These drugs were in bulk, or highly concentrated, form (hence the name "bulk animal drugs"), and therefore required further processing before they could be used in animals. The drugs distributed by the defendant included, among others, dimetridazole,[FN23] furazolidone,[FN24] gentamycin, oxytetracycline, and carbadox.[FN25]
FN23. Evidence at trial will show that, prior to July 1987, dimetridazole, a powerful antibiotic, was manufactured under an FDA approval that permitted it to be used solely in turkeys. Effective July 31, 1987, the FDA banned the use of dimetridazole entirely. 52 Fed. Reg. 25312 (July 6, 1987). This action was taken due to growing evidence that dimetridazole was a carcinogen and because of concern, therefore, that drug residues in meat, milk, and eggs resulting from the use of dimetridazole in food animals was a significant health concern. Count 2 of the Indictment charges the defendant with distributing dimetridazole in November 1987, after the drug was banned entirely for use in food animals.
FN24. The FDA banned the use of furazolidone in food animals as of January 31, 1992. 56 Fed. Reg. 164 (August 23, 1991). This action was taken because of a finding that furazolidone was an animal carcinogen and because furazolidone residues were not shown to be safe for human consumption. Prior to this ban, furazolidone was approved for use in poultry and swine. That approval, however, like all FDA approvals, required, among other things, that furazolidone be labeled properly with information including the strength or concentration of the drug and required withdrawal times--information required to ensure the drug was used safely. Counts 3 and 6 of the Indictment charge that the defendant sold furazolidone without adequate directions for use.
FN25. Carbadox in bulk form presents special threats to humans, both in the direct handling of the drug and in its lingering health risks from tissue residue. Carbadox is extremely explosive, has associated fumes that are pulmonary toxicants, and may cause chromosomal aberrations and adversely affect spermatogenesis. Residues of the drug in animal-derived food pose health risks due to mutagenicity, clastogenicity and germ cell toxicity.
The ultimate origin of the drugs sold by the defendant is uncertain, but at least one of the defendant's suppliers will testify that many of the drugs sold to the defendant were smuggled into the United States. None of the bulk drugs bought by the defendant from XXXXX and XXXXXXXX and sold to his various customers were approved by FDA. The evidence at trial will also show that the drugs distributed by the defendant bore little, if any, labeling. Moreover, witnesses will testify that the labels on these drugs were removed so the drugs could not be traced back to the original source or to the distributors.
Ample evidence of the defendant's intent to evade the FDA's regulatory controls relating to the distribution of animal drugs can be found in the manner in which he both acquired and distributed bulk animal drug products. Indeed, the defendant's manner of obtaining the drugs from his black market suppliers was purposely designed to evade detection by the FDA and other regulatory authorities. For example, testimony at trial will establish that at least one of the defendant's suppliers initially delivered black market animal drugs directly to the defendant's home. The mode of delivery changed dramatically, however, after a visit to the defendant's home by an FDA investigator inquiring about the defendant's activities. Thereafter, the defendant and his supplier took several steps designed to avoid FDA scrutiny. No longer would the supplier deliver drugs to the defendant's home in Carroll. Instead, the defendant and the supplier would meet elsewhere, and would then exchange the drugs in a park or other "neutral" location. Testimony will establish that this surreptitious behavior was directly tied to the FDA's visit to the defendant, as well as the defendant's and the supplier's concerns that no one, particularly FDA, witness the defendant's continued acquisition of these unapproved drugs.
Further, the evidence will show that the defendant, acting as Cigar, acquired more than $600,000 worth of bulk drugs from his black market sources. Despite this huge quantity of business, Cigar maintained no records documenting the defendant's illegal acquisition of the drugs.
The evidence relating to the defendant's knowledge and intent is also compelling. As early as June 1986, the defendant acknowledged in a sworn declaration, that "the sale of bulk vet drugs to anyone other than an NADA holder is considered illegal by the Food and Drug Administration." The evidence will show that, notwithstanding the defendant's personal acknowledgement of the law, he continued to violate the law, buying various bulk animal drugs without personally possessing an NADA and selling those drugs to individuals who had no NADAs. In fact, the evidence will show that less than one month after the date of this declaration, the defendant sold 5 kilograms of carbadox (a/k/a mecadox) and 20 kilograms of dimetridazole to a veterinary customer.
The defendant's behavior when selling these illegal drug products was equally furtive. For example, as a general course, neither the drugs, nor many of the invoices issued by the defendant bore any indications of the nature of the drugs being distributed. Testimony will establish that many of the bulk drug products delivered by the defendant were in drums or bags bearing, at worst, no identifying features, or, at best, labels written in a foreign language. None of the products bore labels indicating the potency of the drugs, much less providing adequate directions for handling or use.
Even the invoices provided by the defendant to his customers were designed to conceal his illegal activities from the regulatory authorities. In contrast to the invoices he issued when distributing approved drugs, many of the invoices the defendant issued in conjunction with his sale of unapproved drugs did not identify Cigar as the seller. In addition, the defendant very rarely identified the drugs by name on the invoices. Instead, he employed a system of numerical codes (e.g., "10B" for carbadox, "50B" for dimetridazole, "60" for gentamycin, "80" for furazolidone, "200B" for oxytetracycline) to further mask his illegal distribution of the drug products. Moreover, as evidenced by Cigar's production of documents to the grand jury, the defendant maintained no invoices relating to his distribution of these drug products.
Finally, perhaps the best evidence of the defendant's intent to defraud the FDA's regulatory and enforcement mechanisms comes from the defendant himself. On two different occasions in 1987, the defendant was interviewed by FDA investigator Jan Longenecker. On both occasions, the defendant, although specifically asked about the nature of Cigar's business, purposefully omitted any mention of his involvement in the sale of bulk animal drugs.
First, on January 12, 1987, the defendant affirmatively misrepresented his activities to Longenecker, stating that the only FDA regulated products with which he dealt were premix products (i.e., medicated feed), notwithstanding the fact that five days earlier he had purchased $17,660 worth of bulk drugs from one of his black market sources, and four days earlier he had sold 1 kilogram of the bulk drug ampicillin.
Similarly, during an interview on March 2, 1987, the defendant was again asked by Longenecker about Cigar's business operations. This time, the defendant represented that Cigar was involved with his wife's "home interiors" business, that he "worked" cattle occasionally, and that he sold a limited number of medicated premixes. Again, the defendant purposely concealed that he was engaged in the purchase and sale of bulk veterinary drugs, notwithstanding the fact that:
(1)by this point in time, the defendant had purchased almost $300,000 worth of bulk veterinary drugs from his black market sources, and had combined gross sales of bulk animal drugs to two customers in excess $100,000; and
(2)less than three weeks earlier, the defendant had purchased $33,225 worth of bulk veterinary drugs from one of his black market sources; and
(3)slightly more than three weeks earlier, he had sold, among other drug products, 10 kilograms of carbadox (a/k/a mecadox), 50 kilograms of dimetridazole, and 80 kilograms of furazolidone (a/k/a furox), all of which were unapproved bulk animal drugs.
Finally, the evidence will show that after this visit from the FDA, the defendant purchased another $300,000 worth of illegal bulk animal drugs from his black market suppliers, and that his sales of these drugs continued unabated.
[cited in Civil Resource Manual 15]