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Office of Criminal Investigation 2001

Chapter 6

Last Update: August 07, 2003

In fiscal year 2001, the efforts of FDA's Office of Criminal Investigations resulted in 422 arrests and 360 convictions for violations of the Federal Food, Drug, and Cosmetic Act and related statutes. Additionally, these criminal investigations resulted in $99,838,650.00 in fines/restitution and $534,592.00 in forfeitures.

Center for Biologics Evaluation and Research

Unapproved HIV Test Kit

Defendants Submitted False Data in Attempt to Obtain Approval For HIV Test Kit

This case was initiated following a referral from the Center for Biologics Evaluation and Research (CBER), concerning false information submitted in an Investigational Device Exemption (IDE) application. SMLX Technologies, Inc., Hallandale, Florida, filed an IDE in support of its HIV 1 and 2 - Saliva Test, a diagnostic device intended to provide a rapid, non-invasive test for the presence of HIV antibodies in human saliva.

On January 11, 2001, two former corporate officers of SMLX Technologies, Inc., Henry Schur and Nicholas Levandoski, were convicted in U.S. District Court for the Southern District of Florida, of violating Title 18 U.S.C. § 1341 - mail fraud and Title 21 U.S.C. § 331(q)(2) and § 333(a)(2) - submitting false or misleading information in an IDE. On January 16, 2001, SMLX Technologies, Inc., was convicted of violating Title 21, U.S.C. § 331(a) and § 333(a)(2) - introduction of an adulterated HIV test kit in interstate commerce.

On April 25, 2001, Henry Schur and Nicholas Levandoski were each sentenced to serve 15 months in federal prison. On April 30, 2001, SMLX itself was sentenced to pay a $150,000.00 fine and all three defendants were ordered jointly and severally to repay $297,500.00 lost by distributors in the scheme to sell the unapproved and ineffective HIV test kits.

The investigation revealed that SMLX sold HIV test kits that had not received the required FDA approvals or clearances and were not manufactured in accordance with good manufacturing practices. The majority of the test kits were sold to foreign countries. Schur and Levandoski provided distributors, potential distributors, and foreign regulators with altered or false testing data for the HIV test kits. They also provided similar false testing data to the FDA as part of their attempt to obtain approval.

Unapproved HIV Saliva Based Test Kits Promoted on the Internet

OCI Investigation Leads to Felony Conviction for Unapproved HIV Test Kit

This case was initiated in upon receipt of information relative to a complaint about Newco Inc. The complainant alleged that Newco Inc., and its owner, Stanley Lapides, were selling unapproved HIV saliva based test kits via the Internet. Lapides used the following websites to sell the HIV test kits: WWW.HIVORALTEST.COM, WWW.HIVSALIVATEST.COM

On June 18, 2001, Lapides was sentenced in U.S. District Court, District of New Jersey, to three years probation. In addition, Lapides was ordered to pay restitution in the amount of $31,368.60. This sentence was levied pursuant to his felony conviction of violating Title 21 U.S.C. § 331(a) 333(a)(2) - distributing misbranded medical devices with intent to mislead consumers.

Investigation of Plasmapheresis Center Results in Conviction

Owner of Plasmapheresis Center Submitted False Documents to FDA To Influence Regulatory Inspection

This investigation was initiated based on information received from the FDA, Los Angeles District Office, concerning complaints into the business practices of Biosera, Inc., and its owner/operator Craig Petrik. Craig Petrik operated a plasmapheresis center with a red blood cell immunization program. The purpose of the immunizations is to increase the number of antibodies produced by the donors. The more antibodies, the more valuable the plasma.

In October of 1997, Craig Petrik's product license was suspended by FDA/CBER, as a result of a regulatory inspection where investigators from the FDA's Denver District Office and Los Angeles District Office biologics teams found evidence that the red blood cells used to immunize plasma donors were mislabeled, i.e. the blood type was wrong. Additionally, investigators found documents showing the disposition of red blood cells used for immunizing plasma donors had been changed.

The subsequent criminal investigation revealed that Craig Petrik knowingly submitted to FDA a document containing materially false statements for the purpose of influencing the result of the FDA regulatory inspection. On April 30, 2001, Craig Petrik was sentenced in Federal District Court, Santa Ana, California, to serve 5 years of probation and ordered to pay a fine of $30,000.00 pursuant to his conviction of violating Title 18 U.S.C. § 1001 - making a false statement to a government agency. Petrik was also ordered to abstain from ever participating in any manner in the manufacture, packing, storage, or distribution of articles or products regulated by FDA, including, but not limited to biological products.

FDA/OCI was assisted in this investigation by the U.S. Postal Inspection service. The Denver District Office investigators and CBER provided technical expertise and other assistance was provided by the FDA's Los Angeles District Office.


Center for Drug Evaluation and Research

Violations of the Prescription Drug Marketing Act

Pharmaceutical Firm Pays $879,000,000. To Government as Part of Global Settlement

On October 16, 2001, TAP Pharmaceuticals entered a plea of guilty to a one-count criminal information, charging the company with conspiracy to commit violations of the Prescription Drug Marketing Act (18 U.S.C. § 371). The company provided a check in the amount of $879,000,000.00 to the government as part of a global settlement. This payment by TAP includes a $290,000,000.00 criminal fine, which is the largest criminal fine ever imposed on a health care company. District of Massachusetts U.S. Attorney Michael Sullivan stated that this payment, along with the indictments and convictions thus far, send a very strong signal to the pharmaceutical industry that it best police its employees conduct and deal strongly with those who would gain sales at the expense of the health care programs for the poor and the elderly and the persons insured by those programs.

This investigation uncovered a conspiracy between physicians and managers of TAP Pharmaceuticals, a subsidiary of Abbott Laboratories. This conspiracy involved TAP's payment of kickbacks and inducements in various forms (samples, grants, gifts, travel) to these physicians and other customers to obtain their referrals of prescriptions for Lupron to Medicare program beneficiaries, in violation of the anti-kickback statute. The case also involves widespread Medicare fraud through billings of Lupron samples by doctors, in violation of the Prescription Drug Marketing Act (PDMA).

Prosecution of the following physicians has been completed:

On April 25, 2000, Indiana urologist Dr. Rodney Mannion appeared in U. S. District Court, Boston, MA, where he was convicted of violating Title 18 U.S.C. § 371 - conspiracy to commit violations of the PDMA - Title 21 U.S.C. § 331 (t) and 333 (b)(1)(B).

On December 27, 2000, Connecticut urologist Dr. Jacob Zamstein appeared in U.S. District Court, Boston, MA, where he was convicted of violating Title 18 U.S.C. § 371 - conspiracy to commit violations of the PDMA - Title 21 U.S.C. § 331(t) and 333(b).

On March 29, 2001, Connecticut urologist Dr. Joseph Spinella appeared in U.S. District Court, Boston, Massachusetts, where he was convicted of conspiracy to commit Medicare fraud, in violation of Title 18 U.S.C. § 371 and Title 42 U.S.C. § 1320a-7b(b)(1) and (b)(2).

On July 18, 2001, Maine urologist Dr. Joel Olstein appeared in U.S. District Court, Boston, Massachusetts, where he was convicted of Title 18 U.S.C. 371 - conspiracy to commit violations of the PDMA - Title 21 U.S.C. § 331(t) and 333(b).

On October 2, 2001, a Federal Grand Jury, Boston, Massachusetts, returned indictments on seven additional defendants charging various crimes to include conspiracy, Medicare fraud, illegal remuneration, and PDMA violations. Their adjudication is pending.

Convictions Obtained for Resale of Pharmaceuticals

Defendant Sentenced to 46 Months in Prison and Ordered to pay $4.7 Million in Restitution to Pharmaceutical Firms

This investigation involves the purchase of pharmaceuticals by Northland Providers, a closed-door pharmacy, opened and financed by Peter Fenton, Tom Fenton and Jim Bottineau. Upon receiving the pharmaceuticals, the partners would transfer them to their wholesale business (Lakeside Medical Supply) for sale to secondary wholesalers in Michigan and Nevada.

Investigation began in the fall of 1997, and included historical witness interviews, information from industry sources, trash covers, pen register/toll record/trap & trace analysis, and physical surveillance. Information developed provided probable cause for a Title III wiretap in captioned investigation. Subsequent search warrants executed simultaneously in 5 states, along with 31 forfeiture seizure warrants, executed in Minnesota and California, lead to the seizure of approximately $1,000,000.00 in cash, $350,000.00 in vehicles, and approximately $850,000.00 in pharmaceutical inventory.

Investigation led to the conviction of target Peter John Fenton for crimes which included conspiracy to commit mail fraud and wire fraud, money-laundering, felon in possession of a firearm, and conspiracy to possess methamphetamine with the intent to distribute, for which he was sentenced to serve 87 months in prison. This information, as well as the convictions/sentencing of co-defendants Candi Creamer, and Robert Christy, were detailed in a previous report.

On March 6, 2001, the grand jury, District of Minnesota, returned a sealed indictment against target Jim Bottineau. The 22 count indictment charged mail and wire fraud, interstate transportation of property obtained by fraud, money laundering, and falsification and concealment of material facts.

On May 21, 2001, Jim Bottineau appeared in U.S. District Court, District of Minnesota, where he was convicted of violating Title 18 U.S.C. § 1341 - mail fraud; Title 18 U.S.C. § 1001 - false statements; Title 18 U.S.C. § 1956 - money laundering.

On August 28, 2001, Bottineau was sentenced to serve 46 months in prison and pay restitution to pharmaceutical manufacturers in the amount of $4,700,000.00.

Bulk Drug Manufacturing Facility Submitted False Information to FDA

Firm Ordered to Pay Criminal Fine of $23,193,600. and Forfeit $10,000,000. To U.S.

On October 19, 2001, Caroline H. West, Vice President of Global Litigation and Compliance for Aventis Pharmaceuticals, Inc., on behalf of Roussel Uclaf S.A., pled guilty in U.S. District Court for the District of Maryland, to one count of conspiracy, in violation of Title 18 U.S.C. § 371; and one count of distribution of adulterated drugs in interstate commerce with the intent to defraud or mislead, in violation of Title 21 U.S.C. §§ 331(a) and 333(a)(2). Roussel was ordered to pay a criminal fine of $23,193,600.00 as well as forfeit $10,000,000.00 to the United States, pursuant to Title 18 U.S.C. § 981.

This case was initiated following a referral from the Center for Drug Evaluation and Research (CDER) in 1997, concerning the intentional reporting of false manufacturing procedures in new drug applications and making of false records during the manufacture of bulk drugs by Biochimica Opos, SpA, Agrate Brianza, Italy. Information concerning these violations was obtained through an FDA inspection of Biochimica Opos and subsequent self-disclosures on the part of Roussel. Biochimica Opos was a wholly owned subsidiary of the French corporation, Roussel Uclaf S.A.

Biochimica Opos SpA is a bulk drug manufacturing facility in Italy, which held FDA approval to manufacture various antibiotics, including cefaclor USP, minocycline hydrochoride USP, and clindamycin phosphate. Because this was the first generic supply of cefaclor available, there was great demand by generic dosage form drug manufacturers in the U.S. In order to increase the production of cefaclor available for sale in the United States, Roussel attempted to mislead the FDA into believing that cefaclor was manufactured at production facilities listed in the AADA, when in fact they knew that intermediates were being manufactured at facilities in Italy, France, and Romania that were neither listed in the AADA or inspected by the FDA. In order to conceal the outsourcing of drug intermediates from unapproved sources, false records were prepared including batch production records, raw material log books, a double software application, and work orders.

This case represents the first time that a foreign corporation has been criminally punished based upon defrauding the FDA concerning a drug product manufactured wholly outside the United States but marketed to the American public. It is also among the largest monetary penalties imposed in a criminal pharmaceutical prosecution.

Illicit Pharmaceutical Drug Diversion Schemes

Defendants Solicited Closed Door Pharmacies to Sell Drug Products in Violation of Own Use Contract

This investigation pertains to several individuals and corporations involved in the illicit acquisition and distribution of pharmaceutical drug products re-sold into the secondary wholesale market in violation of several federal laws. Institutional, or closed door pharmacies dispense drugs and other pharmaceutical products to patients in hospitals, nursing homes, and other institutional settings and typically receive limited reimbursement from insurance companies and under federal and state programs.

Because institutional pharmacies do not serve the general public, they do not compete with retail pharmacies. Therefore, drug manufacturers sell pharmaceuticals to them at prices discounted by as much as 75 percent below standard wholesale prices.

This tiered pricing, however, creates the opportunity for the unscrupulous institutional pharmacy, in collaboration with willing wholesalers, to realize tremendous profits by reselling their discounted drugs to wholesale and retail outlets. To protect themselves from this conduct, drug manufacturers use two mechanisms. First, they insist that all sales contracts with institutional pharmacies include an own use clause. (An own use clause requires that the institutional pharmacy (a) represent and promise that all drugs purchased at the deeply discounted institutional prices will be provided solely to patients in institutional settings, and (b) acknowledge that any other use will be grounds for immediate termination of the preferential pricing structure.) Second, drug manufacturers monitor the institutional pharmacy's ordering patterns by comparing the type and quantity of the drugs ordered by the pharmacy, and the frequency with which they were ordered with the number of patient beds in the facilities serviced by the pharmacy.

Members of Instinct Medical Consultants, Laguna Beach, California, headed by Garey Miller, solicited several closed-door pharmacies throughout the United States to sell pharmaceutical drug products to secondary wholesale distributors in violation of drug manufacturers' own use contract provisions. Miller and company acted as brokers for significant percentages of the proceeds of total sales.

The following individuals and corporations have been prosecuted on a multitude of charges to include, but not limited to the following: Title 21 U.S.C. § 331(t) & 353(c) - Importation and distribution of prescription drugs; Title 18 U.S.C. § 1347 - Health care fraud; Title 18 U.S.C. §§ 1343 and 2 - Aiding and abetting wire fraud; and Title 18 U.S.C. § 4 - Misprision of a felony.

On July 26, 2001, Christopher Bruckner, Stephen Cassill, and Shannon O'Shea appeared in United States District Court, Northern District of Ohio, where they were convicted and sentenced for their involvement in illicit pharmaceutical drug diversion schemes.

Cassill was also required to enter a guilty plea on behalf of his corporation, Hoops Enterprises, Inc., and pay a fine of $55,000.00. O'Shea pled guilty on behalf of his corporation, Irish Enterprises, Inc., however, he was required to withdraw his plea when he could not remit the $40,000.00 required by the Judge at the time of sentencing. It was determined that Irish Enterprises, Inc., would be sentenced at a later date.

On August 8, 2001, Stephen Shackman appeared in United States District Court, Eastern District of California, where he was sentenced to serve 18 months in prison for his involvement in illicit drug diversion with Garey Miller et al.

On November 15, 2001, Ronald Hodge (owner of Mandaree Medical Company [Mandaree] Bismarck, North Dakota, secondary wholesale distributor) appeared in U.S. District Court, Northern District of Ohio, Eastern Division. Hodge pled guilty on behalf of his corporation, Mandaree, which was sentenced to one-year probation and a $100,000.00 fine.

On December 21, 2001, Garey Miller and Gary Iley (former commission brokers for Ronald Hodge, Esq., et al.) appeared for sentencing in U.S. District Court, Northern District of Ohio. They received probation and fines ranging from $5,000.00 to $100,000.00.

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