Two executives of Norcross-based Hi-Tech Pharmaceuticals are being sent to prison until they can show a federal judge they have complied with a product recall order. To be released from coercive incarceration, company owner and CEO Jared Wheat and Senior Vice President Stephen Smith will have to meet these four conditions:
- The four products found in violation of federal regulations are not available for retail purchase;
- A proper recall notice has been sent. It must clearly identify what is being recalled and have enough informatin to help retailers return the recalled products;
- Notice has been distributed, via letter and email, to all retailers, distributors and brokers associated with the products at issue;
- Links to the recall notice are prominently displayed on each page of the company website, with the words "RECALL NOTICE" in all caps and bold font and in a color and size that makes them easy to see.
Dietary supplement company CEO Jared Wheat has been ordered to report to federal prison for failing to comply with a court-mandated recall of products distributed by his Norcross firm.
U.S. District Judge Charles A. Pannell Jr. , in a scathing 34-page opinion Tuesday, said Wheat and an associate at Hi-Tech Pharmaceuticals Inc. must surrender to U.S. marshals by noon Friday. And, the judge ruled, they will remain incarcerated until certain conditions are met, including the removal of all recalled products from the shelves of the nation's retailers.
In taking the rare step of imposing coercive incarceration on Wheat and Stephen Smith, Hi-Tech’s executive vice president, Pannell sharply criticized the company for the way it responded to an order to remove four products that falsely advertise their weight loss potential. Pannell ordered the recall along with a $40 million judgment in May after finding Wheat and Hi-Tech in contempt of a 2008 ruling enjoining them from making claims that violate Federal Trade Commission regulations.
In his order Tuesday, Pannell noted that Hi-Tech didn’t send out recall notices until 50 days after the recall was ordered, never indicated that the matter was urgent, failed to contact all retail outlets and kept no documentation to support purported followup calls.
“The defendants’ actions, and lack thereof, demonstrate that they look for every possible avenue to avoid complying with the court’s orders,” the judge wrote. “Based on the facts of the case, incarceration is the least coercive sanction necessary to encourage defendants’ compliance.”
According to Pannell, Wheat and Smith will be imprisoned until they prepare a “properly-drafted” recall notice, distribute the notice to all retailers, distributors and brokers, prominently display the notice on the company web site and show that all prohibited products are no longer available in retail stores.
Steve Murrin, Smith’s attorney, said he and other lawyers would “hustle 24/7” to achieve the judge’s goals while their clients are incarcerated. But he said he’s worried that the task of removing prohibited products from all retail outlets may be next to impossible.
“We’re talking about thousands of retail stores and probably millions of bottles, some of which are under no control of Hi-Tech whatsoever,” he said. “You’ve got huge retailers with hundreds of (outlets). But you’ve also got mom-and-pop health food stores that are relatively unresponsive to our efforts to get them to send the products back.”
Wheat’s attorney, Art Leach, did not immediately return calls seeking comment.
The ruling is the latest turn in a lawsuit filed by the FTC a decade ago in an effort to end what the agency has contended are a variety of deceptive marketing practices by Hi-Tech, established by Wheat in the late 1990s.
At a mid-August hearing in Pannell’s court, FTC attorneys argued that coercive incarceration was the only way to stop Wheat and others at the company from dragging their feet in carrying out the recall. The FTC claimed that Hi-Tech was attempting to “sell off” the prohibited products rather than recall them.
An FTC spokesman said Tuesday that agency officials were studying Pannell’s ruling and that there would be no immediate comment on it.
The order to incarcerate Wheat comes on the heels of the FTC successfully obtaining a similar sanction against Kevin Trudeau, who sold his weight-loss books through television infomercials. Trudeau was sentenced to 10 years in federal prison in March in a criminal contempt case that grew out of a civil matter brought by the FTC for deceptive marketing.
Wheat, 42, has a long been in the sights of federal criminal and regulatory authorities, including a 2009 federal prosecution in which he was portrayed as the ringleader of a scheme that purported to sell knock-off prescription drugs from Canada that were in fact manufactured in Belize. He spent two years in prison after pleading guilty to conspiracy to commit mail and wire fraud and selling unapproved drugs.
Wheat also spent time in federal prison for selling Ectasy in his home state of Alabama before moving to the Atlanta area and starting Hi-Tech.
At the mid-August hearing in the FTC case, Leach informed Pannell that Wheat would invoke his Fifth Amendment right against self-incrimination if questioned by FTC attorneys. Leach said Wheat would not answer questions because he’s the subject of a federal criminal investigation that includes the contempt issue.
The FTC called Wheat to the stand anyway, and he took the Fifth to every question — 19 times — before Pannell excused him. A few minutes later, Wheat collapsed on the floor of the men’s room outside the courtroom, resulting in his removal from the federal building by paramedics.
About the Author
