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Haggen Incorporated Enters Into Civil Settlement Agreeing to Implement Measures to Prevent Future Misconduct by Pharmacists

February 27, 2009

MILTON W. CHEUNG, 55, of Lynnwood, Washington, was sentenced today in U. S. District Court in Seattle by U.S. District Court Judge John C. Coughenour to 15 months in prison, one year of supervised release, and a $10,000 fine for Acquiring Controlled Substances by Deception, and Misbranding Drugs.

CHEUNG is a Washington State Licensed pharmacist. CHEUNG graduated from the University of Washington School of Pharmacy in 1976, and for the past several years was employed as Pharmacy Manager at the Top Food Drug Store, 21900 Highway 99, in Edmonds, Washington. Top Food is owned by Haggen, Incorporated, a Washington corporation, which operates 17 Top Food Drug Stores in the State of Washington. As pharmacy manager, CHEUNG was the principal pharmacist at the Edmonds store location, responsible for the daily activities and operations of the pharmacy.

Beginning at least as early as 2007, and continuing through September 2008, when his actions were uncovered and he resigned, CHEUNG engaged in a variety of illegal acts at the pharmacy. These acts included the federal felonies of acquiring drugs by deception and subterfuge, a violation of the Federal Drug Abuse Prevention and Control Act, and misbranding drugs while held for sale in violation of the Federal Food and Drug Cosmetic Act.

In particular, during 2007, and continuing through September 2008, CHEUNG conducted a scheme to defraud by soliciting a number of Washington State medical providers, including doctors, hospices, and clinics, as well as Top Food Drug Store customers, to provide expired and unexpired drugs to him at the Edmonds Top Food Drug Store, on the alleged basis that he would then provide these unused drugs to less developed countries as part of a philanthropic mission. In fact, CHEUNG purposefully diverted much of the drugs collected, by placing the drugs into the regular supply bottles at Top Food Drug Store. This gave him a much larger inventory of drugs to distribute to pharmacy customers and made the pharmacy which he managed appear more profitable on the company books. As a result, he received various benefits from Top Food, including being awarded Top Food’s Pharmacist of the Year Award. The seeming profitability of the pharmacy also helped mask the thefts CHEUNG was committing at the pharmacy on a daily basis.

CHEUNG distributed these returned drugs to customers at the Edmonds Top Food Drug Store when filling new customer prescriptions, even though a large portion of these drugs were expired drugs, and all of the drugs were adulterated in that they had already been distributed to and possessed by others. CHEUNG was doling out this returned merchandise as new inventory. Some of these redistributed drugs were Schedule II through IV controlled substances such as fentanyl, methadone, morphine, oxycodone, hydrocodone, and lorazepam. Thousands of pills containing numerous drugs were distributed to pharmacy customers as part of this subterfuge. Top Food customers were never advised that they were receiving expired and adulterated drugs. In September, 2008, after learning of the criminal conduct by CHEUNG, Haggen, Incorporated issued a drug recall, printed in the Seattle Times, advising customers of the Edmonds Top Food Drug Store to return all potentially affected drugs.

CHEUNG knew that he was breaking the law, and the entire drug re-distribution scheme to provide drugs to developing nations had not been sanctioned by the DEA or any other valid regulatory authority.

At the time of his guilty plea, CHEUNG also admitted stealing money from Top Foods Drug Store in a variety of ways, including by pocketing cash from co-pay payments provided by customers when paying for prescriptions, by processing phony merchandise returns from customers and pocketing the cash supposedly refunded to customers, and by purchasing and cashing gift cards to which he was not entitled.

In a letter to the Court, CHEUNG apologized for “subjecting others to undue risk” by his actions, and for “betraying the trust” of his employer and customers.

In his sentencing memorandum, Assistant United States Attorney Ron Friedman stated: “Pharmacists perform a very important function in our society, and individuals need to be able to trust their community pharmacists. What CHEUNG did undermined that trust.”

In a related matter, a continuing investigation of the business practices at the Edmonds Top Food location revealed inadequacies in the record keeping system at the pharmacy, and the failure by the pharmacy to have sufficient controls in place to prevent the unlawful diversion of controlled substances. These inadequacies allowed CHEUNG to continue his criminal activities over a period of several months without being detected. All pharmacies are required by law to maintain adequate record-keeping systems and to have sufficient controls in place to prevent unlawful drug diversion.

In February 2009, Haggen, Incorporated entered into a civil agreement with the United States Department of Justice, acknowledging its failure to maintain adequate records and safeguards against diversion. As a sanction for its conduct, Haggen agreed to pay the United States a fine of $425,000.00. In addition, Haggen agreed to immediately implement a compliance program designed to maintain adequate records and to prevent the unlawful diversion of controlled substances. The DEA agreed to participate in employee instruction as part of that program.

This case was investigated by the Drug Enforcement Administration (DEA), Internal Revenue Service Criminal Investigation (IRS-CI), Food and Drug Administration (FDA) and Edmonds Police Department.

The case was prosecuted by Assistant United States Attorneys Ronald J. Friedman and Peter A. Winn.

For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.

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