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20.

FDCA Buy-Bust Prosecutions

In order to prove a felony violation of the FDCA, a prosecutor must prove elements not present under the Controlled Substances Act. For example, an FDCA violation requires proof that the product at issue is a "drug" under 21 U.S.C. § 321(g) (and not, for example, a dietary supplement); that the drug or some component of the drug traveled in interstate commerce; and that the distribution of the drug violates certain provisions of the FDCA because the drug is in some way "misbranded" or "adulterated." (Proof of this last element will often require the use of expert testimony).

More importantly, to obtain a felony conviction, the evidence must prove that the defendant acted with the "intent to defraud or mislead." See 21 U.S.C. § 333(a)(2). Rarely can sufficient evidence concerning this element be established solely within a "buy-bust" scenario. It is not sufficient to show that the defendant was selling an unapproved or "black market" product; there must be evidence that the defendant took affirmative actions designed to evade detection by regulatory authorities (or alternatively, to defraud or mislead consumers). See United States v. Mitcheltree, 940 F.2d 1329, 1347, 1352 (10th Cir. 1991); see, e.g., United States v. Arlen, 947 F.2d 139 (5th Cir. 1991), cert. denied, 112 S. Ct. 1480 (1992); United States v. Bradshaw, 840 F.2d 871 (11th Cir.), cert. denied, 488 U.S. 924 (1988); see also United States v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991) (defendant had "the intent that the FDA not realize what he was doing, and he certainly was trying to hide his activities from the FDA because he was worried that they certainly wouldn't approve what he was doing").

In United States v. Geborde, 278 F.3d 926 (9th Cir. 2002), defendant made GHB and gave it to friends at "rave" parties. He was convicted of failing to register a drug manufacturing facility with the intent to defraud or mislead. The Ninth Circuit held on appeal that the government failed to establish that the evidence of intent to defraud or mislead was connected to the failure to register and overturned the felony conviction, making the conviction a misdemeanor.

The court found that the evidence of fraud all related to hiding the drug from law enforcement after its manufacture and with defrauding the minors to whom Geborde gave the drug. 278 F.3d at 928 - 30. The court held that there was no evidence directly connecting Geborde's failure to register to any deliberate attempt to hide his drug manufacturing from law enforcement. Geborde, 278 F.3d at 930 (finding "no evidence of Geborde's intent in failing to register, assuming he even knew he was required to register"). Geborde mixed the chemicals that constitute GHB in a bucket at the side of his van on a public street in plain view for anyone to see. See 278 F.3d at 928.

In dicta, the court commented that "[i]t is not enough for felony treatment that Geborde may have intended to evade the watchful eyes of local or federal authorities. That is already implicit in simple failure to register." 278 F.3d at 930. This dicta is factually faulty, as merely failing to register does not necessarily imply that the defendant was deliberately hiding activities from enforcement authorities. For example, a manufacturer might fail to register due to neglect or defiance. Moreover, this dicta is inconsistent with United States v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991), quoted supra. Thus, Geborde should be viewed as a case resolving evidence of fraudulent intent in particular circumstances, rather than as a rule limiting the evidentiary implications of a person's efforts to hide from FDA.

The Fourth Circuit in United States v. Ellis, 326 F.3d 550 (4th Cir. 2003), closely examined the reasons for the FDCA's registration requirements, and reached a different conclusion than the Geborde dicta. Ellis, like Geborde, manufactured and distributed GHB. A jury convicted Ellis of operating an unregistered drug manufacturing facility with the intent to defraud and mislead. The unregistered facility was the kitchen where Ellis concocted his GHB. 326 F.3d at 552 - 53.

On appeal, Ellis argued that the government had not met its burden of proof for a felony conviction because "any intent to defraud or mislead must have been related to the underlying act of failing to register with the FDA." Id. at 553 (italics in original). The Fourth Circuit examined the function of the registration requirement in the FDCA, and concluded:
"[I]ntent to defraud or mislead" under § 333(a)(2) is shown when the evidence demonstrates that the defendant has deliberately frustrated the purpose for which registration is required under § 360(b) and (c), i.e., to provide the required information to the FDA and to facilitate public knowledge of the defendant's operations. The inquiry, therefore, is whether the defendant designed his conduct to avoid the regulatory scrutiny of the FDA. Thus, while the inadvertent failure of an ordinarily dutiful and law-abiding operator to register its drug-manufacturing establishment gives rise only to a misdemeanor violation, a defendant's affirmative efforts to conceal his drug-making establishment from the FDA can serve as evidence of an intent to defraud or mislead, as provided in § 333(a)(2). See United States v. Arlen, 947 F.2d 139 (5th Cir.1991); United States v. Bradshaw, 840 F.2d 871 (11th Cir.1988).
326 F.3d at 554.

Applying this standard, the court affirmed Ellis' felony conviction. In doing so, it focused on the "extensive evidence demonstrating that Ellis actively concealed his operations from the regulatory scrutiny of the FDA." Id. at 555. The evidence the court considered included Ellis' knowledge of FDA's regulation of GHB, his own GHB overdose, and his extensive efforts to conceal his manufacturing and distribution activities.
From this evidence, a rational jury could have concluded beyond a reasonable doubt that Ellis knew that the manufacture and distribution of GHB was regulated by the FDA; that GHB was potentially harmful to the public; and that Ellis deliberately withheld disclosure and concealed his operations from government regulation in order to frustrate that regulation and deny the government of the knowledge that registration would otherwise provide. If believed, this evidence would readily establish that Ellis failed to register and subject his operation to FDA regulation with the intent to defraud or mislead the FDA and ultimately the public. See Arlen, 947 F.2d 139; Bradshaw, 840 F.2d 871. But see United States v. Geborde, 278 F.3d 926 (9th Cir.2002). Indeed, this evidence leaves little room for Ellis to argue that his failure to register was innocent or even negligent.
326 F.3d at 555. Judge Michael dissented, arguing that the evidence of intent was too generalized to sustain Ellis' felony conviction. Id. at 557 - 60.

In any event, the court's holding in Geborde demonstrates that if the crime charged is failure to register a drug facility, evidence related solely to hiding finished drug products from law enforcement may not establish fraudulent intent.

[updated October 2004] [cited in USAM 4-8.205; Civil Resource Manual 15]