Dietary supplements firm or herbal cabal?
Prosecutors allege Georgia company, execs engaged in Mob tactics
by Mike Brunker
Until late last year, Hi-Tech Pharmaceuticals of Norcross, Ga., appeared to be a thriving business with a hot-selling line of natural dietary supplements. But in a bizarre case quietly unfolding in federal court in Atlanta, prosecutors allege that it was really a criminal enterprise that sold dangerous “spiked” products and was run by executives who considered assassination and blackmail to quash a federal investigation.
The allegations are the most far-ranging ever leveled against a major player in the loosely regulated dietary supplement industry, and include activities more at home in the Mob hangouts of television’s Tony Soprano than a corporate boardroom. Among other things, prosecutors allege in court filings that some or all of the defendants:
* Discussed killing a U.S. Food and Drug Administration agent and blackmailing an assistant U.S. attorney. Neither plot was carried out, but a Hi-Tech co-founder was subsequently jailed after being convicted of being a felon in possession of a “firearm silencer.”
* Used the herbal stimulant ephedra in Hi-Tech diet products after the U.S. Food and Drug Administration banned its use on April 12, 2004, finding it presented “an unreasonable risk of illness or injury.”
* Sold “herbal” supplements that actually contained the active ingredients of prescription drugs that could interact dangerously with other medications.
* Illegally imported and sold banned steroids.
* Manufactured phony ecstasy tablets that were sold on U.S. streets.
* Created a muscle-building drink that was later marketed as a cleaning solution in an effort to mislead investigators.
The shocking allegations spring from the Sept. 7 indictment of the company and 11 executives, employees and associates for allegedly operating an illegal Internet pharmacy in Belize.
Belize lab ‘substandard and unsanitary’
The defendants used numerous Web sites to advertise and sell what were described as generic prescription drugs from Canada but were actually products that they were manufacturing in “substandard and unsanitary conditions” in Belize, according to the indictment.
Among the substances were the steroids Oxymethelone and Stanozolol, controlled drugs Ambien, Valium and Xanax, and prescription drugs Viagra, Cialis, Lipitor and Vioxx, it said.
The indictment also charged Hi-Tech President and CEO Jared R. Wheat, 35, with operating a “continuing criminal enterprise” — a violation of an anti-organized-crime statute that carries a minimum penalty of 20 years in prison. In court filings, prosecutors describe Wheat as a “lifelong drug dealer,” citing a conviction for dealing ecstasy at the age of 19 in addition to the current allegations.
Wheat has pleaded not guilty to all charges and Hi-Tech said in a statement that it is “appropriately conducting its business and there is no basis for the indictment.”
The case raises concerns about the safety of the company’s line of dietary supplements, which remain available through many major U.S. retailers, and more generally about a loosely regulated industry that supplies nutrition products consumed by millions of Americans.
But it remains unclear to what extent the government’s charges involve Hi-Tech products manufactured and sold in the United States versus those made in Belize for sale over the Internet.
The U.S. Food and Drug Administration has not issued any safety advisories for Hi-Tech products since the indictment. Representatives of the FDA and the U.S. Attorney’s Office in Atlanta said they could not discuss the ongoing criminal case.
Sensational allegations buried in legal filings
The indictment generated a few headlines when it was unsealed in September, but the case has received no attention as it has spiraled into the sensational since then through a series of legal filings by prosecutors.
Allegations that company officials discussed using violence and blackmail in an effort to block the government’s investigation surfaced March 21 in response to a defense motion asking the court toallow Wheat to post bond and leave the Atlanta jail where he has been held since his arrest on Sept. 14.
The filing alleged that Hi-Tech co-founder and convicted steroid dealer Tomasz Holda discussed with Wheat, Hi-Tech Vice President Stephen D. Smith and others “obtaining a firearm silencer for use in attacking an FDA agent conducting a criminal investigation into Hi-Tech’s use of Viagra in its Stamina Rx product.”
The prosecution filing said that while the FDA agent was not harmed, “It is important to note that in June 2004, Defendant Holda purchased a silencer on the Internet for delivery to his home. This silencer was intercepted by U.S. Customs and Defendant Holda was prosecuted and ultimately pleaded guilty to being a felon in possession of a firearm silencer.”
The timing of the alleged threat was not specified, but the reference to Stamina Rx appears to refer to an FDA complaint brought against Hi-Tech in late 2002. The complaint charged, among other things, that the company used the prescription-strength drug ingredient tadalafil — the active ingredient in the erectile-dysfunction product Cialis — in what it marketed as a natural dietary supplement. Hi-Tech agreed the following year to FDA supervision of its product labeling and marketing, but admitted no wrongdoing in the alleged mislabeling of Stamina Rx’s ingredients.
Serving time for possession of silencer
Holda, 44, who had previously been convicted of possession of steroids with intent to distribute, remains behind bars in Atlanta, serving a 54-month sentence. But his attorney, Thomas J. Spina of Birmingham, Ala., said that the prosecutors’ assertion runs counter to evidence presented at trial indicating Holda purchased the silencer for a friend.
“Tom’s reason for purchasing that silencer is on the record and documented,” he said. “… It was intended to be provided to someone else and was not intended to be shipped to his house.”
The government also alleged in court filings that “Wheat and Smith, among others, discussed hiring a private investigator to try and gain evidence for use in blackmailing Assistant United States Attorney Aaron M. Danzig.”
While the prosecution said it was unclear whether subsequent steps were taken to execute the plan, it argued that “mere discussions” of acts intended to “harm or intimidate a federal prosecutor … shows the depth of Defendant Wheat’s desperation.”
The government has not charged any Hi-Tech officials with any crime in connection with the alleged discussions of violence and intimidation. The information was included in the court record to argue against bail for Wheat and Smith.
Michael Trost of Atlanta, Wheat’s criminal attorney, did not return phone calls from MSNBC.com seeking comment on the new allegations.
But Timothy M. Fulmer, a Birmingham, Ala., attorney who represents Hi-Tech and has known Wheat for years, said the charges do not fit a man he describes as a “workaholic” with a wide charitable streak.
“I am confident that Mr. Wheat is innocent of those allegations and that that will be borne out,” he said. “Everything I know about Jared Wheat tells me he is not a violent man.”
Smith’s attorney, Brett M. Bloomston of Birmingham, said his client “was not involved in any conspiracy to violate any laws. I believe the entire company did everything it could to avoid that.”
Ephedra allegedly used after FDA ban
Of potential concern to a broader audience — the millions of Americans who take herbal supplements intended to help them lose weight — is the prosecution’s charge that Wheat and the company continued to put ephedra in its diet products after its use was banned by the FDA in April 2004.
Responding to the defense’s contention that Hi-Tech and another company controlled by Wheat “have become quite successful through the legal sale of lawful products,” prosecutors stated in the March 21 filing that “the government concedes no such thing.”
“The government previously investigated Hi-Tech for spiking its Stamina Rx product with the active ingredient in Viagra and Cialis,” it said. “While Defendant (Wheat) and Hi-Tech denied this activity, the government has recently learned from cooperating sources that, in fact, Defendant Wheat had done just that. Moreover, the government has learned that Defendant Wheat and Hi-Tech have been similarly spiking its diet products with ephedra and continued to do this even after the ban on ephedra products was upheld.”
The filing did not identify the “cooperating sources,” but the U.S. Attorney’s Office in Atlanta issued a press release on Feb. 13 stating that two of the original defendants in the Hi-Tech case – David A. Brady and David D. Johnson of Pinehurst, N.C. – had pleaded guilty to charges related to the Internet drug sales and were cooperating with authorities.
The prosecution’s filing did not say how recently ephedra was allegedly added to Hi-Tech products, and Patrick Crosby, a spokesman for the U.S. Attorney’s Office in Atlanta, declined to elaborate on the court documents or provide any other additional details concerning the ongoing case.
Fulmer, the Hi-Tech attorney, told MSNBC.com that the company added ephedrine alkaloids — the active ingredient in ephedra — to its diet products only from April 2005, when a U.S. district judge in Utah overturned the FDA ban, to August 2006, when a federal appeals court reinstated it. All such products were clearly labeled as containing ephedrine alkaloids, he said.
After the first ruling, “Hi-Tech, after seeking counsel, resumed selling ephedrine-alkaloid-containing products,” he said. “At the time of the appeals court ruling, Hi-Tech consulted lawyers and we told them that their position would no longer be supported and they stopped.”
The FDA and Justice Department did not agree with the company’s interpretation of the ban’s status, and in February 2006 ordered the seizure of approximately $3 million worth of raw ephedrine alkaloid and diet products containing the substance from Hi-Tech facilities in Norcross. Fulmer said the company remains in litigation with the FDA over the seized ephedrine alkaloid and the diet products.
Kimberly Rawlings, a spokeswoman for the FDA, declined to comment on the seizure or the prosecution’s allegation, citing the ongoing criminal case.
Other documents filed in the case subsequent to the indictment allege the defendants engaged in other drug schemes:
* An affidavit from Edward Smith, a special agent with the Drug Enforcement Administration, filed in support of a seizure warrant, alleged that one of the early products created by Wheat and other defendants and manufactured in Georgia was a liquid known as Verve, which was marketed to bodybuilders as a “nutrient supplement.”
‘Nutrient supplement’ or cleaning product?
In fact, according to the affidavit, the drink contained gamma hydroxybutyrate, or GHB, a central-nervous system depressant that gained notoriety in the 1990s as a “date rape” drug, and gamma butyrolactone, or GBL, a chemical used in many industrial cleaning solvents and paint thinners.
To mask the chemicals’ taste, the affidavit alleges, Wheat and others mixed the active ingredients with water, blue raspberry Kool-Aid and sugar in 55-gallon drums in a rented storage unit in Duluth, Ga., ending up with a bluish liquid that one witness said looked like Windex.
Smith quoted a cooperating defendant in the case, Charles Hill, as stating that individuals associated with Hi-Tech later repackaged Verve as a “cleaning solution” and added warnings against human consumption as a means of concealing its real purpose.
Possession and intent to distribute GHB and GBL are among the violations cited by the government in support of the “continuing criminal enterprise” charge against Wheat.
* The affidavit also quoted Hill as stating that Hi-Tech employee Brad Watkins, who also is a defendant in the criminal case, sold large quantities of fake ecstasy tablets bearing the Playboy bunny imprint.
Tests on one lot seized by the DEA in California in 2004 found no trace of methylenedioxymethamphetamine, or MDMA, commonly known as ecstasy, but did contain Clobenzorex, a stimulant that is illegal in the United States. Tests on similar Playboy-stamped pills found at the lab in Belize also tested positive for Clobenzorex, Smith said in the affidavit.
Buttressing a faulty case?
A defense attorney who spoke with MSNBC.com on condition of anonymity portrayed the added allegations as an attempt by the government to buttress a case built on a faulty assumption: that Hi-Tech Pharmaceuticals Inc. operated an Internet pharmacy business in Belize.
A defense attorney, who spoke with MSNBC.com on condition of anonymity, maintains that Hi-Tech’s business selling dietary supplements such as these in the U.S. is separate from the Belize-based venture that spawned the criminal case.
“The government takes the position that Hi-Tech is some sort of a parent company or a holding company that has various divisions, one of which seems to be a Belizean entity that manufactures pharmaceuticals,” the lawyer said. “Hi-Tech does not own any interest in Belize. … Hi-Tech is a dietary supplement business in Norcross, Ga.”
The lawyer conceded that Wheat and other individuals do have “an ownership in entities in Belize,” but added that they “conduct business in accordance with the laws of Belize.”
The defense attorney also noted that the government has a significant financial interest in the outcome of the case, noting it is seeking forfeiture of the company, which it has valued at $35 million, at least $19.8 million in cash, 17 pieces of real estate and 15 luxury vehicles it says were the proceeds of the criminal operation.
Other cases multiply defendants’ woes
But the allegations that prosecutors have added also are echoed in other criminal cases and lawsuits involving Hi-Tech, Wheat or the other criminal defendants:
* Sergio Oliveira, a defendant in the Atlanta criminal case, was among six people indicted in Illinois on Oct. 26, 2006, on charges of smuggling illegal steroids and other controlled substances into the United States via Mexico.
The indictment alleges that Oliveira, an associate of Hi-Tech who prosecutors say worked out of an office at the company’s Norcross complex and who visited the Belize drug-manufacturing facility with company officials, was the supplier of millions of dollars worth of anabolic steroids and other drugs that were dispensed by the other defendants.
The case against Oliveira has since been dismissed at the government’s request to be consolidated with the Atlanta case, said his attorney, Michael Monico.
* A lawsuit filed in 2005 by a Dutch company, OX2000, alleged that Wheat and Hi-Tech, in partnership with another diet supplement maker, NVE Pharmaceuticals of Newton, N.J., entered into an agreement to sell it 25 million two-pill packets of a product known as Sigra, “an all-natural herbal supplement to enhance male sexual performance.”
Pills said to contain Viagra ingredient
After OX2000 paid the defendants more than $751,000, the lawsuit contends, Dutch authorities seized a shipment of 656,000 packets of Sigra and conducted tests that determined that they contained sildenafil, the active ingredient in Viagra, and tadalafil, the active ingredient in Cialis.
OX2000 later abandoned the lawsuit for unknown reasons. Efforts to reach OX2000 officials or its attorneys were unsuccessful.
David Caldwell, an attorney for NVE Pharmaceuticals, which is under Chapter 11 bankruptcy protection as a result of ephedra-related lawsuits, declined to comment on the allegations.
* Wheat and another company under his control — the National Urological Group — and NVE Pharmaceuticals also have been sued by Tom and Monica Killian of Ottawa County, Mich.
The Killians’ lawsuit alleges that Tom Killian suffered a stroke after taking a free sample of Spontane-ES, a male sexual enhancement supplement manufactured by Wheat’s National Urological Group and marketed by NVE Pharmaceuticals, that he received in the mail. Later tests showed the product actually contained tadalafil, the Cialis ingredient, which was not listed on the product’s label, it said.
Wheat portrayed as flight risk
It is against this complex legal tapestry that pretrial maneuvers in the Hi-Tech criminal case are being played out.
Much of the early maneuvering has focused on attempts by the defense to enable Wheat and Stephen D. Smith to post bond and be released from the Atlanta City Detention Center pending trial.
The government has strenuously objected to freeing Wheat, saying he would pose a flight risk because he faces the prospect of a long prison term and is believed to have money stashed in offshore banks.
To support its contention, the government alleged that Wheat fled Belize and transferred $1.7 million to a bank in Panama in 2004 when authorities there raided the pharmacy lab searching for illicit drugs.
But defense attorneys say that they need Wheat to help them work through a mountain of evidence submitted by the government that may eventually total 1 million pages. Because of the difficulties of viewing the evidence at the jail, where computer access is limited, Wheat has only had the opportunity to review 77 binders worth of the government’s case, or approximately 41,000 pages, as of March 7, defense attorneys said.
The defense attorneys who agreed to speak with MSNBC.com also argued that the government is using unnecessarily tough tactics.
Prosecutors painted as ‘unduly aggressive’
One, Steve Murrin, represented Tomasz Holda’s wife, Jessica, until she committed suicide by shooting herself in the head in February. He said she took her life after the government took “unduly aggressive” actions that included threatening to arrest her for trading in a vehicle that the government said was subject to seizure and summoning state case workers from the Georgia Department of Family and Children’s Services to determine if the couple’s 1½-year-old daughter should be removed from her custody.
“This was, in my experience, out of the ordinary and I think was designed to pressure Mrs. Holda to testify against her husband,” he said.
And Bloomston, Stephen D. Smith’s attorney, said that efforts by the prosecution to portray the defendants as dangerous were “ludicrous.”
“For the allegations they are facing, these guys should not be incarcerated,” he said. “There are many worse folks out there that are out on bond. I know. I represent some of them.”