Device Maker Receives Five-Year Sentence in Fraud Case

A scheme to market ineffective medical diagnostic kits has landed a Pleasant Hill, Calif., man in prison for five years. Following a two-week jury trial, he was convicted on 21 felony counts of fraudulently marketing medical devices, wire fraud, mail fraud, falsifying clinical test data, and violating probation.

Robert F. Hird, 50, formerly president of Diversified Diagnostics Inc. (DDI), also was ordered to pay $386,878.25 in restitution to three medical device firms he had defrauded. He began his prison term last March.

Seven years earlier, Hird had pleaded guilty to medical device-related misdemeanor charges and was on probation when charged with the felony offenses in 1993.

The previous conviction resulted from an FDA investigation in the mid-1980s of Biospec, a firm Hird then owned. The investigation showed that culture media manufactured by Biospec for laboratory identification of bacteria was adulterated and ineffective.

FDA secured an injunction ordering the firm to stop selling the adulterated devices and later, through the Justice Department, filed a criminal action charging Hird with 16 misdemeanor counts. These included filing false documents and distributing adulterated devices.

In September 1987, Hird pleaded guilty to the charges and received five years' probation, which included a stipulation barring him from participating in the manufacture of medical devices.

By the time of the probation, however, Hird had already formed DDI and was seeking partners to produce and distribute various medical devices.

The preceding April, before pleading guilty to the misdemeanor charges, Hird received FDA approval to market a kit called the Chromagen culture test. The device checks for strep throat by growing bacteria from a patient's throat swab on a culture plate and testing typical bacteria colonies with chemical reagents to confirm the presence of Streptococcus.

In May 1988, FDA rejected Hird's application for approval of a similar device called the Chromagen direct test, designed to detect Streptococcus bacteria by applying chemical reagents directly to the throat swab. FDA told Hird that sale of the Chromagen direct test would be illegal.

Despite this, Hird entered into an agreement in February 1988 with California Integrated Diagnostics (CID) for that company to assemble Chromagen direct test kits using chemical reagents made by DDI. During negotiations with CID, Hird falsely claimed that FDA had approved the Chromagen direct test. Unaware the kits were illegal, CID began assembling and delivering them to Hird.

At the same time, Hird similarly misled officials from Port Washington, N.Y.-based Henry Schein Inc. (HSI) into believing FDA had approved Chromagen direct tests for marketing. As a result, HSI began test-marketing the devices and, in August 1988, signed an agreement with Hird's company giving exclusive license to make and sell products using DDI-developed technology, including the Chromagen direct test.

DDI shipped the unapproved devices to HSI and collected approximately $600,000 for the kits, research and development, and loans. HSI distributed the test kits for about a year, unaware that they were not approved devices.

By early 1989, FDA had received complaints claiming the Chromagen devices didn't work. The agency traced the devices to Hird's company and conducted an inspection of the facility between April and May 1989.

The inspection revealed that the Chromagen device being sold was not cleared by FDA and that Hird had violated the terms of his earlier probation. FDA confronted Hird, who called HSI and told officials there about FDA's findings. HSI quickly cut off all business with Hird, stopped selling the test kits, and, in August 1989, sued Hird for civil damages. (The suit went to trial in January 1993, and in June of that year the court awarded HSI $300,000 in damages.)

Hird then petitioned FDA to reconsider clearing the Chromagen direct test. In November 1989, the agency rejected the petition and, around the same time, referred Hird's case to the U.S. Probation Office in San Francisco. After a hearing, the case was referred to the U.S. Attorney's Office, which directed FDA to investigate the case further to determine the full extent of Hird's criminal activities.

Between March and October 1991, Hird negotiated with Troy Biologicals, of Troy, Mich., to market the Chromagen direct test kit under the Troy label. Again, Hird falsely claimed that FDA had approved the test. Troy agreed to market the kits and bought 300 of them.

That November, an HSI employee saw the Troy version of the Chromagen direct test, marketed as the Micro-Swab Strep Kit, and recognized it as Hird's uncleared, ineffective device. The employee notified FDA, which went to Troy and asked for documentation showing FDA had cleared the device. Troy contacted Hird, who faxed a fraudulent certification. FDA then prepared to seize devices on Troy's premises, but later found the inventory had been moved to a firm in Massachusetts that had invested in Hird's operations. In February 1992, U.S. marshals seized the kits from the Massachusetts company.

Earlier, Hird had signed a marketing agreement with Bioclinical Systems Inc., of Annapolis Junction, Md., to sell a device that tests for Chlamydia, a sexually transmitted bacterium. Between March 1989 and October 1990, DDI conducted studies needed to clear the device. Hird altered the study data to show the Chlamydia test to be more effective than actual test results demonstrated. Based on a review of documents submitted with the falsified data, FDA cleared the device in April 1991. Because the data were submitted by Bioclinical Systems and Hird's name was nowhere on the application, FDA officials were not suspicious.

A month later, Bioclinical Systems began to suspect there was "something fishy about the data," says Alex McCormick, compliance officer in FDA's San Francisco district. Bioclinical ran its own tests and found the Chlamydia kit didn't work. In May 1991, after running further tests, the company notified FDA, which investigated the clinics Hird used for the trials. Comparing data sheets for patients on file at the clinics with Hird's submitted data, FDA officials determined that Hird had skewed the data. Hird had claimed a 94 percent effectiveness rate for the test, but FDA found it to be 66 percent--"not much better than flipping a coin," says McCormick.

In September 1992, the U.S. Attorney's Office filed a probation revocation with the U.S. District Court for the Northern District of California. By that December, FDA and the U.S. Attorney's Office were examining further charges and negotiating with Hird for a possible plea bargain. Hird rejected a plea and was indicted in September 1993. In September 1994, a jury found him guilty on 21 felony counts, and he was sentenced the following December.

Because the companies Hird worked with were unaware of the fraudulent aspects of the agreements, none was considered liable.

John Henkel is a staff writer for FDA Consumer.

Canadian Firm Gets Maximum Fine For Selling Mail-Order Drugs

Medicine Club International Inc. also was ordered by the U.S. District Court for the District of Maryland last Jan. 5 to pay nearly $340,000 for investigative costs incurred by the U.S. government. The firm must maintain a $1 million letter of credit that will be forfeited to the U.S. Treasury if the company manufactures, advertises or distributes adulterated or misbranded drugs during a five-year probation.

The company, which also operated under the name Interpharm Inc., was affiliated with the major Canadian generic drug manufacturer, Apotex Inc.

Medicine Club International practiced what is commonly called "off-shore pharmacy." From at least January 1991 to August 1993, the company routinely promoted and shipped more than 75 unapproved new drugs into the United States from Canada. Among the drugs were generic versions of Prozac (fluoxetine), used to treat depression; Retrovir (zidovudine), used to treat AIDS; and Tagamet (cimetidine), used to treat ulcers.

The company took consumer orders over an 800 telephone number that it publicized through ads in U.S. newspapers, magazines, and direct mailings. The ads targeted the general public, as well as specific groups such as the male homosexual community, senior citizens, and veterans. Between January 1991 and January 1992, ads ran in 24 different gay publications. Drugs were sold at greatly reduced prices and did not require a prescription. Quantities sold generally were limited to a three-month supply.

By law, companies intending to market generic drugs in the United States must file an abbreviated new drug application (ANDA) with FDA and must be authorized to distribute or sell those products. Otherwise, FDA cannot ensure that such products have been properly manufactured and are effective. Medicine Club International had no ANDA on file and did not obtain authorization to sell the drugs. In addition, the drugs the firm sold require a prescription, but Medicine Club customers were not asked for one.

FDA first became aware of the illegal activities in January 1991, when agency officials saw a magazine ad promoting the mail-order products. The company's ads implied that FDA permits such purchases under its "personal use" policy, which allows individuals to import some unapproved drugs for personal use under certain conditions.

FDA traced the 800 numbers to Toronto and Montreal. From interviews with newspapers and magazines in which the ads appeared, investigators determined that Medicine Club International (then called Interpharm) was placing the ads and shipping products. An investigator from FDA's Buffalo district office bought drugs undercover from the 800 number. Over the next year, officials from nine other FDA field offices around the country bought drugs.

Based on evidence collected, FDA sent Interpharm warning letters in early 1992 telling the company to stop distributing the drugs. FDA also sent the company written notice that the mail-order products did not fall within the agency's "personal use" policy, which pertains only to products not available in the United States.

But the drug sales continued. To elude FDA, the company changed its name and 800 number. "They didn't heed our warning letters, and they dodged surveillance," says David Kiessling, investigator in FDA's Buffalo district office.

In January 1993, the Federal Bureau of Investigation joined the investigation, and the next month, an FBI agent bought 100 fluoxetine tablets from Medicine Club International. That purchase formed the single count of shipping unapproved drugs under which the U.S. government secured a guilty plea in January 1995 from the firm.
--John Henkel

Shrimp Processor Goes to Jail

The sentencing last March 28 in the U.S. District Court for the District of Massachusetts followed an October 1994 conviction of Robert Randazzo, 49, and his firm, New England Shrimp Company, Ayer, Mass., on 101 counts. The charges included conspiracy, making false claims to the U.S. Department of Defense (DoD), distributing shrimp containing sodium hydroxide and sodium tripolyphosphate (STP), distributing Chinese shrimp fraudulently labeled as U.S. shrimp, and filing false tax returns.

Something had "smelled fishy" to federal agents at the firm's processing plant for some time. But it wasn't until suspicious competitors as well as a former employee--fired because he refused to go along with New England Shrimp's illegal activities--complained to federal authorities in February 1992 that FDA and other government agencies got the break they needed.

Acting on the complaints, the Massachusetts U.S. Attorney's Office, DoD, and FDA assembled evidence needed to request a warrant to search the plant. In the early morning of June 30, investigators from FDA, DoD, U.S. Customs, National Marine Fisheries Service, and local law enforcement agencies headed to New England Shrimp to execute the search.

"We had all met the day before to go over the details of the operation," says FDA Boston district investigator John Ridings. "The place was so large that everyone had to be assigned a specific area to search; the logistics were crazy."

The search began shortly after 7 a.m., and investigators collected evidence for more than 14 hours. By the end of the search, 136 boxes had been filled with evidence, including production records, financial data, shipping records, memos, and correspondence. They were trucked away to safe storage areas at federal facilities. Also, more than 1.3 million pounds of shrimp, valued at $2.75 million, was seized.

Investigation of the company's records and supporting testimony from former employees revealed how New England Shrimp, Randazzo, and former plant manager Daniel Canavan had conspired to violate federal laws.

FDA's Boston district worked with the U.S. Attorney, DoD, Customs, and the Internal Revenue Service to consolidate the case against New England Shrimp. In early 1994, the government handed down a 101-count indictment.

New England Shrimp had sold more than $3 million worth of STP-contaminated shrimp to DoD, despite contractual agreements with that agency prohibiting use of the chemical in the shrimp it buys. STP makes the shrimp retain water, increasing its weight and therefore its price, because shrimp is a weight-based commodity. Also, because STP was used in levels exceeding the limits allowed under good manufacturing practices, the product was regarded as unsafe for human consumption. There were no reports of illness from the shrimp, however.

In April 1994, Canavan pleaded guilty to conspiracy to make false claims against the government in selling the shrimp to DoD, and conspiracy to sell adulterated and misbranded shrimp. He was sentenced to five months imprisonment followed by five months home detention. Randazzo, however, maintained he was innocent and went to trial in October 1994.

During the trial, FDA seafood expert John Noonan demonstrated to the judge and jury how New England Shrimp changed grayish and black-striped shrimp harvested in China to look like pink shrimp from the Gulf of Mexico.

Noonan soaked the Asian-harvested shrimp in containers of sodium hydroxide, chemically burning them to the pinkish-orange color more appealing to American consumers. New England Shrimp labeled and advertised the shrimp as Gulf shrimp.

New England Shrimp Company is no longer in business.
--Joseph Raulinaitis is a public affairs specialist with FDA's Boston district office.

New York Cattle Dealer Caught Selling Adulterated Beef

Caught red-handed, Zabadal agreed to terms of a consent decree of permanent injunction for selling adulterated beef. U.S. District Judge Thomas McAvoy, Northern District of New York, signed the decree last Dec. 23. Zabadal agreed to set up and use a written records system--to be approved by FDA--designed to prevent the illegal marketing. In another decree, the farmer also agreed to improve his drug residue control procedures.

Illegal antibiotic residues in meat can cause life-threatening allergic reactions in people sensitive to those drugs. In addition, they contribute to development of antibiotic-resistant strains of bacteria in people who eat or handle the meat.

"This was a small case, but an important one," says John Thompson, a compliance officer with FDA's Buffalo district office. "It's the first animal tissue residue enforcement action we've taken against an animal dealer in New York. Maybe it will send a message to some others who aren't doing their best that FDA takes this problem seriously."

On Feb. 26, 1993, William Chilton, an animal tissue monitor in FDA's Syracuse resident post, inspected Zabadal to investigate a report from the U.S. Department of Agriculture that one of the dealer's animals had illegal residue levels of penicillin and streptomycin. FDA permits no more than 0.05 parts per million (ppm) of penicillin, but this sample showed 0.13 ppm. FDA allows 2.0 ppm of streptomycin, but the sample showed 21.17 ppm.

USDA inspectors at each slaughtering site obtain tissue samples from the slaughtered animals for analysis at a USDA laboratory. The results are then transmitted to FDA by computer through USDA's Residue Violation Information System.

During Chilton's inspection, he learned that for more than 40 years, Zabadal had been buying about 800 cattle a year from local farmers in New York and then delivering them for resale, usually to slaughter houses in Pennsylvania. "Zabadal admitted he deals mostly in 'down cows,'" Chilton says. "These were usually sick, lame or injured dairy cows, more likely than others to have been medicated. He had already received several warning letters from FDA and USDA for additional drug residue reports in the 1980s."

Zabadal had certificates printed, Chilton says, stating that the animal hadn't been medicated or that proper withdrawal time had been observed before a medicated animal was offered for slaughter. "He had his farmers sign this before he'd buy their animals."

Confronted with the new USDA report that found excessive residue levels in one of his cows, Zabadal showed Chilton a certificate signed by the source farmer, Paul Stephen Smith, of Smith Family Farms. Chilton made a copy of the certificate.

In March 1993, Chilton inspected Smith. "I showed him the certificate," Chilton says, "and asked, 'Is that your signature?' Smith answered, 'No. I never signed that.'" Chilton learned that Zabadal had in fact not even been at the Smith farm that day and that the cow wasn't even there, but at another farm about 70 miles away.

Chilton confronted Zabadal with what Smith had said. Zabadal admitted he signed Smith's name, Chilton says, and that he did this often with his regular sources if a farmer wasn't available or didn't know about the animal's medication status.

Chilton told Zabadal it was his responsibility to ask questions so that he would be certain of every animal's medication status and to always wait the appropriate drug withdrawal time.

Then, in November 1993, FDA got a notice from USDA that a slaughtered Zabadal cow had an illegal penicillin residue level of 5.08 ppm. Chilton inspected Zabadal again, in January 1994.

"Turns out," Chilton says, "Zabadal had gone to a cattle auction in Sennett, N.Y. When he would buy cows at these sale barns, he'd make no attempt to learn who the owner was to ask about the animal's medication status. But guess who had sold this cow--Paul Stephen Smith."

Chilton again told Zabadal he needed to inquire further about these animals, to be certain he wasn't offering cows with illegal drug residues.

In April 1994, Chilton reinspected Smith and found that his controls to prevent illegal residues were inadequate.

On June 24, Smith signed a consent decree agreeing to develop a records system for administering drugs, a drug inventory and accountability system, and a system for giving drug records to the cattle buyers, who must certify receiving them. The decree was filed June 27 in the U.S. District Court, Western District of New York.

In July, at FDA's request, a complaint for injunction was filed against Zabadal. The consent decree he signed in December requires a records system that tracks each animal's ear tag number; the date the animal is bought and the seller's name; the date any drug is given and its name, dose, and route of administration; each drug's pre-slaughter withdrawal time; and the date a medicated animal is sold and the buyer's name. Zabadal must obtain from the seller of a medicated animal a signed certificate indicating the animal is drug-free.

FDA is monitoring both the dealer and the farmer.
--Dixie Farley