FTC Wants Supplement Executives Jailed After Judge Imposes $40 Million in Sanctions

<p>FTC asked a U.S. District Judge to incarcerate Jared Robert Wheat of Hi-Tech Pharmaceuticals and another company executive, Stephen Smith, they complete the recall of the affected products.</p>

WASHINGTON—A federal judge must decide whether to throw the top executive of a 20-year-old company just north of Atlanta behind bars for failing to recall dietary supplements that were subject to an order three months ago, a federal agency regulating business practices said last week.

It wouldn’t be the first time Jared Robert Wheat of Hi-Tech Pharmaceuticals, Inc. has spent time behind bars. In 2009, a federal judge sentenced him to prison for his role in a criminal scheme to manufacture unauthorized pharmaceutical products for weight loss and sexual health.

FTC asked U.S. District Judge Charles Pannell to incarcerate 42-year-old Wheat and another Hi-Tech executive, Stephen Smith, until they complete the recall of the affected products.

Beginning on June 30 and through July 11, the FTC bought the affected products from Internet retailers and at retail outlets in Chicago, Dallas, Los Angeles and Washington, according to the FTC in court papers.

“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 declared. Fastin is a dietary supplement for weight loss.

That FTC discovered such products isn’t surprising considering most retailers didn’t receive notice of the recall or phone calls about it until on or after July 7, lawyers for the defendants said in court documents. The attorneys also said there was no evidence the supplements are dangerous.

Earlier this month, Wheat appeared in Atlanta federal court for a show cause hearing where he repeatedly invoked his right against self-incrimination and was later discovered on the floor of the men’s room outside the federal courtroom and taken to the hospital, the Atlanta Journal-Constitution reported. Wheat previously complained of chest pains, the newspaper said.

Wheat and Smith have been tangling with the federal government for years. FTC said its case against the defendants began a decade ago when it charged them with making deceptive claims about weight-loss products that contained ephedra. A federal judge later ordered the defendants to pay USD $15.8 million and barred them from making certain weight-loss claims.

Hi-Tech was conceived while Wheat was serving 32 months at Maxwell AFB in Montgomery, Alabama after he was arrested after graduating from high school for selling Ecstasy, according to his online bio.

He would later find himself the subject of a 2006 federal grand jury indictment in connection with a scheme to sell illegal drugs over the Internet that resembled such pharmaceutical drugs as Viagra, Ambien and Lipitor, according to the U.S. Justice Department. Three years later, Wheat was sentenced to more than four years in prison and assessed a $3-million forfeiture after pleading guilty to a conspiracy to commit mail and wire fraud, and to introduce unapproved new and adulterated products into interstate commerce. Federal prosecutors dismissed dozens of other counts against him. Wheat was released from the penitentiary on March 11, 2011, according to the Federal Bureau of Prisons.

His criminal record and entanglements with FTC have not dissuaded him from expanding his stake in the U.S. dietary supplement business. Wheat is not only the founder of Hi-Tech, in 2012 he purchased Hi-Tech Nutraceuticals LLC, a manufacturer of nutritional and dietary supplements.

Wheat also owns a consulting company (PharmaTech Consulting Inc.) that reportedly specializes in FDA and FTC regulatory matters, according to court documents. The Reedsville, Pennsylvania-based company says on its website that its “prime focus is to assist domestic and foreign pharmaceutical, food, dietary supplement and cosmetic firms comply with applicable laws and regulations."

Recall Order

On May 14, 2014, U.S. District Judge Charles Pannell ordered Norcross, Georgia-based Hi-Tech, Wheat and others to pay $40 million for violating a 2008 injunction by making unsubstantiated advertising claims and failing to place a health-risk warning on products.  Pannell also ordered the defendants to recall products that contained unauthorized claims on the labels and packaging.

On June 24, Hi-Tech announced the nationwide recall of various lots of products sold under the names Fastin, Lipodrene, Stimerex ES and Benzedrine. Pannell ordered the recall due to claims he deemed false on labels, including use of the terms “thermogenic", “fat burner" and fat loss aid," the notice said.

The company appealed the decision to the 11th Circuit Court of Appeals, according to the recall notice filed with the U.S. District Court for the Northern District of Georgia. It disputed FTC’s assertion that it needed a double-blind placebo-controlled study under the Dietary Supplement Health and Education Act of 1994 (DSHEA) to make such claims as “fat burner" and “thermogenic".

Hi-Tech said it notified its customers about the recall, and as of last month, about three-quarters of customers had been contacted by the company’s sales team.

But the company waited until early July to notify retailers of the recall, several weeks after the court’s May 14 order, according to the FTC in July 17 court papers. The notice omitted the recall deadline and failed to include the lot numbers subject to the recall, instead requiring distributors to examine the products to determine if the unauthorized claims appeared on the labels and packages, FTC attorneys said.

Finally, FTC questioned the veracity of a statement from a Hi-Tech executive that the recall notice was mailed to all of the company’s 2,402 customers. FTC lawyers said the defendants previously submitted to the FTC a list of 3,775 retailers and distributors who sold Fastin, Lipodrene, Benzedrine, and Stimerex-ES since the recall order took effect.

Hi-Tech has not only butted heads with the FTC. Last year, the FDA seized more than $2 million in products containing DMAA, a controversial stimulant, or its chemical equivalent. Hi-Tech later sued FDA, claiming the agency unlawfully failed to engage in a rule-making procedure before banning DMAA from the market.

TAGS: Regulatory
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