The Federal Trade Commission wants the president of a Norcross dietary supplement company jailed for failing to carry out a court-ordered product recall.
In the latest twist in a decade-long battle in civil court between the FTC and Hi-Tech Pharmaceuticals Inc., the agency says “coercive incarceration” is necessary to force Jared Wheat and another company executive to comply with an order requiring recall of four weight-loss products because the firm has falsely advertised their effects.
The recall was among the sanctions imposed in May by U.S. District Judge Charles A. Pannell Jr. on Wheat and the company for contempt of a 2008 court order enjoining them from making unsubstantiated claims. The sanctions also included a $40 million judgment, one of the largest obtained by the FTC against a supplement manufacturer.
A hearing is scheduled for Aug. 13 in Pannell’s court so the judge can hear arguments on whether Wheat and Stephen Smith, Hi-Tech’s executive vice president, should be jailed.
"Contempt defendants' continued failure to comply with the court's order demands coercive incarceration," the FTC wrote in a July 14 court filing.
Weeks after Pannell’s ruling, FTC investigators purchased Hi-Tech products, including the popular diet pill Fastin, with packaging that violates the 2008 order. The purchases were made at retail outlets in Chicago, Los Angeles, Dallas and Washington, D.C. as well as online, the FTC filing says.
“Shockingly, on July 11, 2014, a Chicago-area FTC investigator even located and acquired Fastin from a GNC that still contained the prominent claims `Rapid Fat Loss’ and `Rapid Fat Loss Catalyst,’” the FTC wrote. “Indeed, that store displayed multiple packages of Fastin with these claims.”
In an email statement to The Atlanta Journal-Constitution, FTC spokeswoman Betsy Lordan said the agency is making greater use of coercive incarceration as an enforcement tool.
“We have not sought coercive incarceration often in the past,” she wrote. “However, we have been seeking it with increasing frequency in cases where, as here, the order violations are egregious and ongoing and a fine would not be sufficient to coerce compliance.”
As a recent example, Lordan cited the case of Kevin Trudeau, the infomercial pitchman who in March was sentenced to 10 years in federal prison.
Trudeau, often seen on television hawking his weight-loss book, was convicted of criminal contempt in a case that grew out of a civil matter in which the FTC sought $37.6 million for deceptive marketing.
Art Leach, Wheat's long-time attorney, declined comment, saying Hi-Tech's position was best expressed in the response it filed in court.
In the filing, the company says it began a nationwide recall on June 24, the day after Pannell declined to reconsider the use of certain wording on product packaging. Since that time, 2,402 recall notices have been sent to customers, and calls have been made to follow up, the filing says.
“Yes, the recall will take time,” the filing states. “But recalling products whose advertising has been deemed `false’ does not present the same situation as recalling products that have been found to be dangerous.”
The $40 million judgment represents Hi-Tech’s gross sales for Fastin, Lipodrene, Benzedrine and Stimerex-ES from Jan. 1, 2009, to Aug. 31, 2013, the date when Pannell ruled that Hi-Tech was in contempt of the 2008 order. Fastin, sold at drugstores, supermarkets and health food stores, accounted for roughly half of that amount.
The funds are to be placed in the registry of the court and used to reimburse consumers who bought those products during that time, Pannell ordered.
Pannell's order noted that the balance of the FTC's 2008 judgment against Hi-Tech — $15.9 million — remained unpaid, yet Wheat had purchased another supplement company for $2 million in 2012 and had bought a $135,087 Lamborghini Gallardo in January 2013.
Wheat, 42, spent two years in federal prison after pleading guilty to conspiracy to commit mail and wire fraud and selling unapproved and adulterated drugs in 2008. Prosecutors portrayed him as the mastermind of an internet scheme that purported to sell knock-off prescription drugs from Canada when in fact they were manufactured under unsanitary conditions in Belize.
Last fall, the U.S. Food and Drug Administration seized more than $2 million in Hi-Tech products labeled as containing the banned stiumulant DMAA from company warehouses in Norcross and Suwanee.
The FDA’s action was prompted by an AJC story detailing how Hi-Tech was selling supplements with DMAA despite a year-old crackdown on the stimulant, which has been linked to heart attacks, strokes and other serious health issues. CVS and Kroger immediately pulled Hi-Tech’s products with DMAA from their shelves when they were informed of the AJC’s findings.
The FDA has since tested the seized products and found that nine contained DMAA or “its chemical equivalent,” according to an amended complaint filed by the agency in March. Two of those products are Lipodrene and Stimerex-ES, the FDA says.
The amended complaint also states that testing showed that one of the seized products — Fastin — did not contain DMAA even though the ingredient was listed on the label. Because DMAA wasn’t found in the product, Fastin must be considered misbranded and subject to seizure, the complaint says.
Hi-Tech has sued the FDA, accusing it of “bullying tactics” and arguing that the agency has failed to follow its own rule-making procedure in acting against companies using DMAA in their products.
Hi-Tech also disputes the FDA contention that DMAA can’t be in supplements because it doesn’t occur in nature. The company contends that the stimulant can be found in geraniums, which it claims is confirmed by at least four peer-reviewed studies.
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