On April 7, 2011, the U.S. government rocked Jim Cole's universe. Dozens of federal agents searched his home and numerous businesses he owned, including a gym, dietary supplement business and medical device company.
Armed with warrants from a federal magistrate judge in Oregon, the feds confiscated hundreds of boxes of files, customer records and invoices, even going so far as to snatch files marked, "Attorney Client Privileged Information," Cole said in a recent phone interview. Agents recovered a safe in his Hood River, OR home that contained 320 ounces of gold coins and bars worth $523,000, according to an affidavit from a government agent.
Maxam Nutraceutics was well established at the time with around 68,000 customers including consumers, doctors and retailers, Cole said. Then, FDA notified customers the business was under investigation. "We had customers that called us to let us know, 'don't ever contact me again. We don't want to do business with your company because you are under investigation'", Cole said. "They do a pretty good job of destroying a human. I would blame the FDA.
Several months later, federal authorities seized Cole's bank accounts. U.S. Bank closed accounts, even shuttering merchant accounts. Cole said he couldn't find a financial institution in Oregon to take his money.
"It was a total mess," he said. "That took about a month to find a bank that would even accept us."
Among the assets seized: $150,000 in cash from operating accounts and $380,000 worth of Maxam products, according to Cole's counsel, John Markham of Boston-based Markham & Read.
Nineteen months after the searches, Cole wants his stuff back. That could be problematic. More than a year ago, the U.S. Attorney's Office in Portland filed a so-called complaint in rem for forfeiture , alleging mail and wire fraud in two civil lawsuits. The Justice Department contends it's entitled to the property.
"They felt my assets were purchased with funds that were derived [from] mail fraud and that gives them the right to take everything," Cole said.
But Cole could have bigger problems on his hands. He is the target of an ongoing criminal investigation concerning tax matters, court records show.
FDA eyed hood river businesses for years
The story begins with FDA.
The government agency has been eying Cole for nearly a decade, public records show. On Feb. 28, 2003, the agency warned Cole's Advanced Sports Nutrition that a product's claim of maintaining" lean muscle" was unsubstantiated. A year later, a company named Advanced Scientific Nutrition at the same Hood River address received another warning letter when FDA expressed concern over the safety of a product called Androstene 100. FDA contended the product was "adulterated" and should be taken out of the commerce stream.
After that, Cole may have flown under the radar for several years until October 2010. That's when the agency advised him Maxam's marketing violated the Federal Food, Drug, and Cosmetic Act. In the letter, FDA declared the company's labeling on its products was "intended to affect the structure or function of the body of man or other animals and/or intended to cure, mitigate, treat, or prevent disease conditions."
The letter presented a problem for the company because only government-approved drugs, not dietary supplements, can be marketed to treat diseases such as those federal authorities claim Maxam said it could care for: AIDS, autism and Alzheimer's among others. Food regulators were alarmed by glowing client reviews that described the benefits of Maxam's dietary supplements.
Cole claims he removed the testimonials within the government-allotted time, yet FDA still raided his businesses and home.
Ex-employee conversation, undercover operations lead to searches, bank seizures
Federal authorities tell a different version of the events. In early November 2010, a Spokane, WA attorney representing Cole informed FDA certain statements had been removed from the website, maxamlabs.com. But FDA notified the attorney it continued to observe violations after reviewing the site, according to an affidavit from David Slafsky, a special agent for the IRS - Criminal Investigation.
"All of this started with a vincative ex-employee who threatened to destroy my life if I fired her," Cole told INSIDER. "We've never found out what she told them."
That employee was Jeanne Suiste, Cole's "bookkeeper" for more than three years, according to Slafsky's affidavit. Cole said he let her go because his CPA advised him she may have committed a crime. (There is a phone number listed online under Jeanne Suiste with Ginnie Mooney Real Estate in Hood River, but a person who picked up the phone said it was a wrong number).
"Her two new business partners (other ex-employees) were found to be embezzling company funds, and a police report was filed," Cole said.
Slafsky's affidavit revealed little juice on what Suiste actually told the feds. What is known is that she conferred with Special Agent Hilary Rickher, FDA, Office of Criminal Investigation. In November 2010, Suiste told the agent her former boss was distributing "several products he labeled as dietary supplements for the treatment of hot flashes, weight gain, aging, autism and cancer," according to Slafsky's affidavit. She also disclosed a Massachusetts chemist was shipping supplements in powder form to Cole and that Cole mixed the powder with water before packaging the products in spray bottles.
A month later, going undercover, Rickher placed an online order at Maxam Labs for several products. Then, another special agent with the FDA, Jeff Novitsky, placed a call to a number listed on the website. He informed a Maxam employee he purchased the products because he was suffering from cold sores. Among her responses: he "would see results on his cold sores right away" and individuals "with herpes and hepatitis have really good results, sometimes within a few months", according to Slafsky's affidavit.
An FDA lab analysis found the products Rickher purchased didn't contain active drug ingredients or poisons, though a microbiologist told her the products were misbranded and that "PC3X" was likely made under insanitary conditions. Issued on Feb. 8, 2011, the microbiologist's report also noted two products contained unidentified yeast while one had a specific bacteria: Bacillus lentus.
Very little of the affidavit actually relates to fraud, observed Cole's lawyer Markham.
"The rest of it deals with all these minor alleged violations of the Food and Drug Act, which do not result in forfeiture," he said. "It's only fraud."
Search warrants issued, customers interviewed
On March 31, 2011, U.S. Magistrate Janice M. Steward issued search warrants for Cole's Hood River home and three of his businesses: Maxam Nutraceutics; Turbo Sonic USA and Big Gym. A week later, authorities executed the warrants while Cole was out of town at his second home in southern California.
That day Slafsky and Rickher interviewed Julie Graves, the general manager of Maxam and Turbo Sonic. She disclosed Maxam's products "are used for detoxification, brain rehabilitation and help with the common cold and other viruses", Slafskey wrote in his affidavit. "Graves stated Maxam Nutraceutics customers are from 'all walks of life,' including parents of autistic kids and medical practitioners," the IRS agent declared. "Graves stated people call with 'every kind of problem, brain problems, sexual dysfunction.'"
Authorities also directly contacted some of Cole's customers. One woman from California purchased a $125 bottle of Maxam's "PCA" for her son who had been diagnosed with autism. She said she thought the product was FDA-approved and had read testimonials on Maxam's website from parents who believed PCA had cured autism for their children. She told Rickher the product "tasted like water" and she "feels for people who are wasting their time and money."
That type of story is what the U.S. government likely would cite before a jury in support of its allegations that Cole concocted a scheme to defraud customers by claiming Maxam's products could treat diseases when in fact they were not FDA-approved drugs. Cole has demanded a jury trial.
Civil cases on hold pending criminal investigation
The civil cases, however, are in limbo. In July, a federal district court in Oregon granted prosecutors leave to put them on hold for six months. The U.S. Attorney's Office in Oregon had asked for a stay pending the resolution of a related criminal investigation. In a motion, Assistant U.S. Attorney Katherine Lorenz asked for the stay because "continued civil discovery will adversely affect the government's ability to conduct the related criminal investigation."
"When the related civil and criminal cases will require the government to prove many of the same facts in both cases as is the case here then the government's deposition of witnesses presents a clear risk of an adverse effect on the criminal case, as depositions expose the government's strategy for trial, and also provide claimants the opportunity to cross-examine them under oath in advance of trial," Lorenz wrote.
In the motion, prosecutors remained silent on the facts surrounding the criminal investigation. On Oct. 24, 2012, Lorenz filed an ex-parte status report that was not publicly available on PACER, the electronic service for accessing federal court cases.
In papers filed over the summer with the federal district court, Cole's lawyer Markham opposed the government's request to put the case on hold for a number of reasons.
First, he pointed out the civil cases were significantly advanced with the taking of 11 depositions, interrogatories, exchanging of documents and third-party discovery. (Cole said the government hasn't taken his deposition). Second, Markham declared he has avoided exploring questions that would interfere with a criminal investigation into a tax matter. Markham further questioned the government's concerns over secrecy given it supplied him with more than 600 pages of documents in order to induce a plea agreement that would have settled the civil forfeiture and criminal tax matters.
In a six-page order, Judge Michael H. Simon granted the government's request for a stay, finding that "continued civil discovery in these forfeiture proceedings will adversely affect a related criminal investigation."
Still, the court acknowledged concerns that a continued delay of the civil proceedings could violate Cole's constitutional right to due process.
"The court takes seriously Claimants' due process concerns if their property is held for a prolonged period of time without an opportunity to contest that seizure in a court of law," Simon wrote. "While the conduct of these forfeiture proceedings up to this point has not violated Claimants' rights, an extended abatement of proceedings might raise due process concerns."
Hurting for money
Exasperated, Cole wants his property back. Markham said he plans to ask the court to either lift the stay, return the cash the feds seized or require the U.S. Attorney's Office to produce evidence of wrongdoing. If the court denies such a request, Markham might be forced to ask for relief from the 9th Circuit U.S. Court of Appeals in San Francisco.
"Jim's financial situation for the companies is so bad," he said.
"They haven't charged me with anything and I want my stuff back," griped Cole, who contends the government still has been unable to produce any evidence of fraud against him.
Markham agrees. "We've always said our products have not been approved by the FDA ....," said Markham, who was a federal prosecutor for six years. The testimonials "can't possibly be fraudulent because we're not saying" the products work. "We're saying these people wrote us and here's what [they] said and we quote them accurately and so we're not defrauding anybody."
He also denied Cole's businesses made any representations that its products could cure illnesses.
Gerri Badden, a spokeswoman for the U.S. Attorney's Office, declined to comment on the case other than to say it's an open investigation. She also didn't immediately respond Monday to a follow-up request for comment.
Cole takes case to the public
The government crackdown on Cole's businesses and personal life prompted him to take his case to the public. Through a link on Maxam's website, he told his story and asked the public to sign a petition pressuring Congress and President Obama to cease the alleged witch-hunt and return his property.
Cole also has promoted his cause on social networks including Facebook and Twitter. As recently as October, Cole continued to inform his followers that he's being unfairly targeted by the feds.
"The FDA is maliciously persecuting Jim Cole, a natural supplement manufacturer who is being targeted by the FDA because he posted his customers' testimonials on his website," states the petition, which has more than 1,000 signatures, according to a website SignOn.ORG."The FDA has seized his assets and is trying to put him out of business. By refusing to indict him or charge him with a crime, they are denying him his due process."
At least one notable lawmaker on Capitol Hill is sympathetic to Cole's plight: Ron Paul, the famous Texas Congressman, expressed his repugnance with the raid on Cole's business. Paul last year introduced a bill that would bar the federal government from censoring a person's account of his or her experience with foods and dietary supplements. The legislation hasn't made it past a House health subcommittee, according to information from the Library of Congress.
"The necessity for this bill shows how little respect the federal bureaucracy has for the Bill of Rights and the principles of a free society," Paul said at the time.
FDA cites more problems at Maxam
Meanwhile, FDA is still keeping a close eye on Cole. The food safety agency inspected Maxam's manufacturing facility in March 2012. In a Sept. 28 letter to Cole, FDA stated a days-long inspection of the facility revealed "serious violations" of its current cGMP (good manufacturing practice) regulations. Patricia El-Hinnawy, a spokeswoman with FDA, declined to comment for this article, citing an "open compliance matter".
As is customary, Maxam had 15 days to notify FDA of steps it has taken to comply with the regulations. "We have most of those things corrected and they can come back and inspect us," Cole said.