CRIMINAL CHARGES FOR FALSE CLAIMS: Supplement Company Owner Pleads Guilty to Fraudulently Marketing Dietary Supplements
Making claims that a dietary supplement product can treat, cure or prevent a disease; making claims that are not substantiated or even worse, claiming that clinical studies have been performed when in fact, they have not, can result in substantial forfeiture of assets and federal criminal charges. The supplement industry is familiar with FDA and FTC oversight of dietary supplement claims resulting in consent decrees and civil penalties for violations of federal regulations. But what companies are not as familiar with are FDA’s enforcement powers to launch criminal investigations which are prosecuted by the United States Attorney’s office. Below is a recent example of the kinds of penalties that not only companies but individuals can be subject to for making false claims about supplement products. See how the Federal FCA is different from the Florida law here. CMG works with our clients to review their label and advertising claims for compliance with federal laws and regulations, to help prevent or avoid this kind of situation from occurring:
SPRINGFIELD BUSINESS OWNER PLEADS GUILTY
TO FRAUDULENTLY MARKETING
INTERNET BUSINESSES GENERATED NEARLY $12 MILLION
WITH FALSE CLAIMS TO PREVENT, CURE DISEASES
SPRINGFIELD, Mo. – Beth Phillips, United States Attorney for the Western District of Missouri, announced today that a Springfield, Mo., business owner has pleaded guilty in federal court to her role in a conspiracy to fraudulently market dietary supplements over the Internet with illegal claims that these supplements could prevent, treat or cure a number of diseases. Several Web sites were used to sell nearly $12 million worth of the products in 2005 and 2006.
Mai Lor, 25, of Springfield, pleaded guilty before U.S. District Judge Richard E. Dorr on Friday, Feb. 5, 2010, to her role in a conspiracy to commit wire fraud.
Lor was co-owner, along with her husband, of Medycinex, located in Springfield, which purchased dietary supplements and sold them over the Internet. At her husband’s direction, Lor also formed Bio Nutrasource, LLC, located in Springfield, to carry on the business previously conducted by Medycinex.
Lor contracted with co-defendant Tony T. Pham, 41, of Grand Rapids, Mich., to market and distribute the dietary supplements. Co-conspirators claimed that six products sold over the Internet had been proven reliable through clinical testing for the treatment and prevention of diabetes, irritable bowel syndrome, gout, high cholesterol, high blood pressure, heartburn and diarrhea. In reality, no clinical testing had been performed.
Under federal law, a dietary supplement may not claim to treat, cure or prevent a specific disease or class of diseases. None of the dietary supplements sold by Lor and her co-conspirators are generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under any of the conditions recommended in their labeling. Therefore, each of these dietary supplements is a new drug. None of them were approved by the FDA, and their labels do not bear adequate directions for use; therefore, they are also categorized as unapproved drugs and misbranded drugs. The dietary supplements that were marketed as unapproved new drugs and misbranded drugs included Diabeticine (later renamed Diamaxol, and also known as Glucolex), Digestrol (also known as Digesticine), Uricinex (also known as Uricaid), Cholestasys Rx (later renamed Cholestasys), Hyperexol and Prolipamy.
Pham pleaded guilty on July 2, 2009, to charges contained in the April 2, 2009, superseding indictment. Pham owned and operated Techmedica Health, Inc., located in Grand Rapids. Pham admitted that he used Techmedica to repackage, sell, market, and distribute unapproved new drugs and misbranded drugs over the Internet.
Pham admitted that since April 6, 2004, he participated in a conspiracy to buy and sell unapproved new drugs and misbranded drugs and to defraud the United States by impeding the lawful functions of the Food and Drug Administration to prevent the introduction of unapproved new drugs and misbranded drugs in interstate commerce, to regulate the interstate sale and distribution of drugs in the United States, and to safeguard the health and safety of consumers who purchase drugs. In addition to the conspiracy, Pham pleaded guilty to one count of wire fraud related to payments in the form of a wire transfers to a bank account.
Pham sold $11,954,648 worth of those products in 2005 and 2006, using several different Web sites. Web sites used by Techmedica contained materially false testimonials, product information, and identification of medical professionals.
Techmedica fabricated fraudulent customer identities using photographs purchased from Istockphoto.com. Testimonials attributed to these fraudulent identities touted the effectiveness of the unapproved new drugs and misbranded drugs. Techmedica also posted one of the Istockphoto.com photographs on their Web sites to fabricate a non-existent physician, Dr. Judy Hamilton, for the purpose of lending authenticity to and endorsing product claims about Diabeticine for customers with Type I and Type II diabetes. The person identified as Dr. Hamilton was in fact a model from California. This same model’s photograph was also used by Pham on another Web site to fabricate a non-existent nurse, Bethany Hunt, RN, to tout the effectiveness of the unapproved new drugs and misbranded drugs.
Techmedica, through Pham, operated several Web sites using mirror image technology. When each of these Web sites was accessed from an FDA network computer, they displayed a “sanitized” version of the Web site containing medical claims that attempted to comply with the federal Food, Drug, and Cosmetic Act (FDCA). However, when each of these Web sites was accessed from a computer whose IP address could not be traced to the FDA, they displayed claims that the dietary supplements could cure, mitigate, treat, and prevent diseases, so that these supplements were sold as unapproved new drugs and misbranded drugs.
By pleading guilty, Lor also agreed to forfeit to the government any property derived from the proceeds of the offenses, including $11,954,648 (for which she and her co-defendants are jointly and severally liable), three real estate properties in Springfield, properties in Rogersville, Mo., and Pleasant Hope, Mo., three vehicles and various bank accounts.
Under federal statutes, Lor is subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 or twice the gross gain. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.
This case is being prosecuted by Supervisory Assistant U.S. Attorney Michael S. Oliver. It was investigated by the Food and Drug Administration – Office of Criminal Investigation.
This news release, as well as additional information about the office of the United States Attorney for the Western District of Missouri, is available on-line at