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Federal and state regulators hope that prison sentences stemming from an FDA criminal investigation have finally put a plug in a lucrative but fraudulent decades-old Mississippi honey- and syrup-making business.
The prison sentences--as much as two and a half years for one man--are the stiffest ever imposed on a company or individual for violations based solely on the Federal Food, Drug, and Cosmetic Act.
For almost a quarter of a century, the family-run business in rural DeKalb, Miss., touted its products as the real thing and sold them in old-fashioned copper-colored tins at farmers' markets and produce stands around the country. The marketing technique may have charmed consumers with its homeyness, but, as regulators repeatedly found, these products were nothing more than a homespun hoax.
Labeled as pure honey and pure maple, cane and sorghum syrups, the products were in fact made with low-cost sweeteners--mainly corn syrups.
Despite countless federal and state warnings, injunctions, embargoes, and other attempts to stop the illegal practice, it continued. But the most recent court action--prison sentences and a lifetime ban on syrup and honey making for two of the most flagrant violators--may finally help convince the family to reform their business practices.
Serving time--19 months and 30 months respectively--are brothers J.H. Pilgrim, 52, who did business under his own name, and Paul Pilgrim, 64, proprietor of Paul Pilgrim Syrup Co. They were sentenced in October after pleading guilty to selling adulterated honey and syrup. In addition to prison and the manufacturing ban, Chief Judge William Barbour of the U.S. District Court for the Southern District of Mississippi fined the men $20,000 each and sentenced them to one-year supervised probation.
"For 20-plus years, this family has arrogantly ignored the agency's authority and adamantly refused to comply with the law of the land," said James Blakely, an investigator with FDA's Jackson (Miss.) resident post who has been involved with investigations of the Pilgrim family since 1978. "They would just snub their noses at the government."
"We had to make an example of these guys," he said, referring to J.H. and Paul Pilgrim.
Although made under crude conditions--in plywood buildings, where boat paddles were used for stirring and tube socks for straining--the products never posed a significant health hazard. "This was an economic problem," Blakely said.
The outcome of the first prosecution of a Pilgrim family member, initiated by FDA in the late 1980s, had little effect on the rest of the family's business activities. In that case, family patriarch Nathan H. Pilgrim pleaded guilty in April 1990 to four felony counts of misbranding honey and syrup. He was fined $130,000 and served three years' probation. To the best of FDA's knowledge, he no longer is in the honey and syrup business.
Following the sentencing, however, FDA continued to receive complaints from industry and consumers about Pilgrim products. Industry complained that the products were priced so low that legitimate companies could not compete, and some were forced out of business. FDA estimated that the Pilgrims' illegal activities enabled them to undercut costs of legitimate honey and syrup makers by as much as 85 percent.
Consumers complained about the products' taste. Blakely recalled one call he received from a consumer who made and sold maple cookies. She used a Pilgrim "pure" maple syrup in a batch of cookies, but the final product didn't taste anything like her usual cookies. "She like had a duck," Blakely said. "She was extremely upset that her recipe and possibly her reputation were being compromised by this substituted product."
Regulatory actions continued. For example:
Early in October, FDA learned from the credit manager of Cargill Corn Milling in Memphis, Tenn., that within the two previous days, the company had delivered 21.6 metric tons (48,000 pounds) of corn syrup to J.H. Pilgrim and 18 metric tons (40,000 pounds) to Paul Pilgrim.
In October, FDA executed a search warrant of the premises of both brothers' businesses, seizing business records, labels, flavorings, and $5,000 worth of syrups and honey. In addition, FDA investigators around the country collected samples of Pilgrim products in their areas for laboratory analyses. Investigators also took testimony from experts in the syrup industry and scores of state officials.
Laboratory analyses, testimony, and business records indicated the brothers substituted primarily corn syrup for pure ingredients and distributed the bogus products coast to coast. "They seemed to be everywhere," said FDA Special Agent David Bodge, who participated in the investigation. "They had a long list of customers."
Business records indicated that between 1993 and 1995, J.H. Pilgrim sold about $750,000 worth of adulterated and misbranded syrup and honey, making a net profit of about $300,000. During that same period, Paul Pilgrim sold about $440,000 worth of illegal products, earning about $204,000.
The two men were charged in 10-count indictments in February 1996. At their arraignment on March 5, FDA's Blakely recalled that U.S. Magistrate Judge Alfred Nichols told the brothers that as of that date, they were not to sell any more illegal syrup products and that if any of their illegal products were found on the market, he would revoke their bond. He also told them that it was his opinion that FDA intended to put the brothers out of business and that as far as he was concerned, they were out of business as of that date.
However, in a conversation with a confidential informant on March 8, FDA's Blakely learned that Paul Pilgrim was manufacturing syrup labeled as pure sorghum. The informant pointed out to Blakely that Pilgrim was making sorghum syrup at a time of year when sorghum is in very short supply. The plant is harvested in the United States in October, and Blakely recalled learning earlier in the investigation that small producers usually use up their sorghum supply quickly. Also, the Sorghum Producers Association had told him that its members will not sell sorghum to Paul Pilgrim.
The informant also told Blakely that Paul Pilgrim's son, Douglas Pilgrim, 40, planned to deliver a truckload of sorghum syrup to Alabama, Texas or New Mexico, within the next few days.
Blakely, Special Agent Bodge, and Mississippi state investigators executed a search warrant of Paul Pilgrim's residence on March 12. In the back of a truck parked on the premises, they found 150 cases of product labeled "Country Made" pure sorghum and pure cane syrups. The labels on the cases were the same as those previously used by Paul Pilgrim with one exception: The manufacturer was now listed as Douglas Pilgrim instead of "Paul's Sorghum House" and "Paul Pilgrim & Son." The investigators collected samples for laboratory analyses.
Within a few days, the investigators contacted Millhouse Printing of Decatur, Miss., the company that had printed the labels. FDA learned that both Paul and Douglas Pilgrim had ordered new labels on or about March 8. The printer told the investigators that Paul Pilgrim had asked for a label imprinted with "Douglas Pilgrim" so that it could be laid over the existing manufacturer's name. Douglas Pilgrim picked up the new labels on March 11.
Laboratory analyses of the samples of sorghum and cane syrups again showed the products were adulterated and misbranded.
When presented with this information in April 1996, Judge Nichols immediately revoked Paul Pilgrim's bond and ordered him jailed until sentencing. According to Blakely, the bond revocation followed by immediate jailing is the first of its kind in FDA food case history.
J.H. and Paul Pilgrim pleaded guilty to four and three counts respectively of their 10-count indictments. J.H. Pilgrim was sentenced Oct. 3 and Paul Pilgrim Oct. 22.
They are banned from participating in honey and syrup manufacturing--either directly or indirectly through family members--for the rest of their lives. Meanwhile, they remain incarcerated in federal prison.
"We got the impression early in the investigation that they thought FDA was never going to get them," FDA's Bodge said. "I think they were surprised at FDA's involvement. Jail was the furthest thought from their minds."
Paula Kurtzweil is a member of FDA's public affairs staff.
A federal jury in the U.S. District Court for the Middle District of Florida returned guilty verdicts Oct. 18 against Sigma International Inc.; its vice president, William Andrew Walton, 47; plant manager Charles Sternisha, 64; and head salesman, international division, Robert Fields, 34; on a variety of federal crimes involving FDA and U.S. Customs fraud. They were found guilty of conspiring to import shrimp from India using false entry documents and false labeling to avoid compulsory product testing, of obstructing justice, and of adulterating and selling tainted shrimp.
Two other indicted defendants, Yaw Bin "Tony" Huang, owner of Sigma, and Geogy Kannikal, Sigma's purchase agent in India, remain fugitives in India and east Asia. A sixth defendant, Jagadeesh Reddy, was acquitted of charges against him.
During a 10-week trial, the government proved that Sigma had chemically treated the decomposed Chinese shrimp with a solution of chlorine and copper sulfate and then, with some success, passed it off to customers as "fresh frozen." It also showed that the firm imported frozen shrimp from unapproved packers in India. FDA places shipments from unapproved manufacturers on automatic detention, prohibiting the shipments' entry into the country until the shipper or importer proves the product meets FDA standards. Sigma used false invoices with the names of approved packers to avoid detention.
For three years, FDA's Office of Criminal Investigations (OCI) and the U.S. Customs Service collected evidence to bring the defendants to trial. "Chemists and experts in the shrimp business were flown in from India and England to testify for the government," said OCI agent Rande Matteson. He noted that Sigma spent more than $1 million for its defense.
The investigation was prompted by a routine FDA inspection of imported shrimp in Tampa, Fla., in October 1991. Norman Harvey, an investigator with FDA's Tampa resident post, noticed that the labels on cartons of shrimp imported from India identifying the packer had been altered or removed. Other cartons from the same shipment had labels from unapproved packers. Further checking revealed that the invoice submitted for the shipment listed the name of an approved packer. Examination of other entry documents showed discrepancies indicating that the invoice and India's Certificate of Health had been altered.
Harvey then notified the Customs Service about the problem and told inspectors that another shipment was scheduled to arrive in November. Harvey and a Customs Service inspector examined cartons from the November shipment and found the same kinds of discrepancies.
"Shrimp can be purchased from unapproved packers at rock-bottom prices and sold as legitimate product for handsome profits," Matteson explained. FDA's review of documents later showed that Sigma had imported more than 50 shipments of shrimp with false labels over a two- to three-year period.
The U.S. Customs Service initiated a criminal investigation, and customs agent Robert Siberski called Matteson to enlist OCI's collaboration. In December 1992, FDA and the Customs Service executed a search warrant of Sigma's business premises and subpoenaed letters of credit from the Los Angeles branch of a Taiwanese bank Sigma used to purchase its shrimp from India. The search turned up evidence that included correspondence in which Sigma's vice president, Walton, instructed Kannikal, the firm's purchasing agent in India, to falsify invoices and other documents to avoid automatic detention of the shipment. Copies of invoices in the bank's letter of credit files showed the shrimp was processed and packed by an unapproved packer, while the invoices Sigma submitted to FDA and the Customs Service showed the name of an approved packer.
In addition, Matteson said, "We found many handwritten notes by Walton instructing Kannikal to get doctored paperwork to present to the Customs Service and FDA showing that the shrimp came from an approved packer." At one point, Walton sent a message to Huang, Sigma's owner, apparently warning him that a U.S. firm in the New York-New Jersey area had been charged with importing shrimp from unapproved packers. That message, Matteson said, established that they both knew and were concerned that the Customs Service and FDA scrutinized shrimp from unapproved packers.
A review of additional records corroborated other evidence that Sigma engaged in a dual invoicing scheme, using false invoices to fraudulently bring the shrimp from India into the United States.
In December 1994, Jean Peoples, a consumer safety inspector in FDA's Tampa resident post, told Matteson that during a routine inspection of a cold storage facility, she walked by a pallet of frozen shrimp imported by Sigma from China and could smell it was rotten.
"She recalled that she and investigator Harvey told Sigma officials that they wanted to sample shrimp from those pallets," Matteson said, "and Sigma's traffic manager became very upset." FDA collected and sampled the shrimp, nevertheless, and laboratory results indicated the shrimp contained levels of class 2 and 3 decomposition. "That means it's not fit for human consumption," Matteson said.
The next month, a storage facility employee told Peoples that one of Sigma's buyers had rejected shrimp Sigma imported from China because it was rotten. Huang, Walton and Sternisha, Sigma's plant manager, decided to bring the rejected lots stored in all of their cold storage facilities to their plant at St. Petersburg and see if any of the shrimp could be salvaged.
"They had so much returned shrimp that the freezers were busting at the seams," Matteson said. "Then they hatched the idea to dump the bad shrimp into vats containing a mix of chlorine, lemon juice, trisodium phosphate, water, and a product containing copper sulfate." Sigma concocted this chemical treatment to get rid of the odor and reduce the amount of indoles (chemicals released by decomposition), he said.
Investigators later learned that Sigma had aluminum freezer trays custom-built so that the refrozen shrimp would fit the original cartons from China. But they found that the frozen blocks of shrimp stuck to the aluminum, so Huang arranged for plastic trays to be sent by air from China. They then refroze the shrimp and repacked them in the original cartons.
To keep its inventory straight, investigators later learned, Sigma stamped a 7000 or 8000 series on the boxes. The 7000 series indicated products that had been rejected by the buyer, then washed by Sigma and OK'd for its standards. Sigma would then send the shrimp back to the same buyers that had rejected it, as well as to others.
"But one of the buyers had ink-stamped numbers on its boxes before it returned them to Sigma, and the company noticed the same ink stamps on the boxes of shrimp they got back from Sigma," Matteson said. "Company officials questioned Sigma about the stamps and were told that only good product salvaged from the lots was returned to them." The company accepted Sigma's explanation and kept the shrimp.
The 8000 series was rejected shrimp that had been treated and deemed unacceptable by Sigma's standards. Sigma sold this product to a Virginia Beach processor, which in turn sold it to the public.
On Feb. 23, 1995, after obtaining a second search warrant, Matteson, along with a team of OCI, Customs Service, and State of Florida Department of Agriculture Food Safety agents, went to Sigma and found employees washing the shrimp in the chemical mix. The agents also found chemicals and more than 100,000 documents indicating that Sigma had imported frozen shrimp from unapproved packers in India, refunded money to distributors for bad shrimp, and treated shrimp with chemicals. With additional search warrants, the government also obtained and examined documents indicating that Sigma had taken measures to influence witnesses in India and to create additional false documents in an effort to obstruct the government's investigation.
They also found computerized inventory records with notations such as "rejected by" and the name of the company following. Matteson interviewed officials from these companies, and when told that the shrimp they received had been treated with chemicals or previously rejected, the officials said that had they known, they would not have bought it.
FDA laboratory analyses of sampled shrimp again showed high levels of indole. At FDA's request, the State of Florida put a stop-sale notice on all of Sigma's products.
FDA and the Customs Service presented the evidence to a grand jury, which indicted the corporation and the six executives in September 1995.
In February 1996, agents Matteson and Siberski and Assistant U.S. Attorney Michael Rubenstein went to India to interview Kannikal. However, an injunction had been filed in India prohibiting the U.S. government from taking depositions from Kannikal or other witnesses.
After hiring attorneys to challenge the injunction, they finally were able to depose one witness, P.P. Makkar. Makkar, an approved packer whose company's name Sigma had used, attested that he had not packed the shipments in question.
In July, defense attorneys claimed they had a witness in India who they wanted to depose. So, Siberski and assistant U.S. Attorney Dennis Moore returned to India to take the deposition from the defense witness, who was a competitor of Makkar.
The witness attested that his company had processed and packed the shrimp in question but that a supervisor from Makkar's company had been present during the processing and packing, and therefore Makkar's company name could legally be represented as the packer and processor. Indian officials called as witnesses for the prosecution, however, dispelled the contention that this was legal practice in their country.
Another deception revealed at the trial related to the 8000 series of shrimp that Sigma had rejected under its own standards, yet sold to a processor in Virginia Beach, Va. In his opening statement for the defense, Sigma's attorney said it was a mistake that the 8000 product got out but that the firm got all of it back from the processor. The defense presented credit invoices and returned checks attesting to this, and Sigma's head salesman, Robert Fields, testified that it was all true and accurate.
However, FDA's Matteson knew this was not true, and at his recommendation, the prosecution arranged for the vice president of the Virginia Beach firm to testify at the trial. He told the court that in April 1995--several months after FDA and the Customs Service had searched Sigma's warehouse--Fields called, asking the vice president to return the product but didn't tell him why. When the vice president told Fields he had already sold the shrimp, Fields said to send something that looked like the original product, and so the vice president sold back other shrimp to Sigma.
At press time, the firm and the three executives were expected to be sentenced in March 1997. Sigma is still in business but prohibited from selling shrimp.
--Marian Segal
David "Doc" Speer, 64, is a medical doctor whose physician's license was revoked in 1990 by the state of Alabama for abuse of prescription-writing privileges. Evidence collected by FDA showed that Speer made GHB at his home and sold it at Doc's Gym, a health club he owned in Hartselle, Ala.
GHB is a "synthetic steroid" that has become popular with bodybuilders for its alleged uses in "bulking up" and building strength. It also is prevalent at nightclubs, where it is used for its alleged hallucinogenic qualities. At one time, health food stores and pharmacies sold GHB over the counter as a dietary supplement. But in 1990, because GHB was found to have serious side effects, such as nausea, uncontrolled shaking, coma, and even death, FDA warned all distributors to take the drug off the market or face legal action. The drug is not approved for any use.
The Speer case began in 1992, when FDA's Montgomery (Ala.) resident post received a report from the Alabama state forensic laboratory that a Hartselle teenager had passed out at a baseball game. The teenager's reaction was attributed to GHB bought from Speer.
Several times between August and December 1992, FDA investigators posing as customers bought GHB from Speer. In December 1992, under warrant, they searched Speer's business, home, and a storage site, seizing large quantities of GHB and the chemicals needed to make the drug, along with business records and computer files. The evidence showed that Speer was manufacturing GHB in his home.
A grand jury for the U.S. District Court of the Northern District of Alabama indicted Speer in March 1996 on:
On Aug. 30, the court sentenced Speer, who began serving the prison term right away.
--John Henkel
Centeon L.L.C., King of Prussia, Pa., signed a consent decree of permanent injunction in January agreeing to stop nearly all distribution at its Bradley, Ill., facilities until it takes corrective actions, including hiring an outside consultant. Bradley is Centeon's only U.S. manufacturing plant.
FDA allowed the company to produce and distribute two products considered essential for the public health--H.P. Acthar Gel treatment for infant seizures and MVI-12 injectable multivitamin.
The consent decree followed a 10-week FDA inspection in which serious violations of federal safety and quality standards were found.
FDA began its investigation Sept. 27, 1996, four days after Centeon recalled one lot--about 17,000 vials--of Albuminar brand human albumin product because it was contaminated with bacteria and linked to reports of septicemia, a life-threatening systemic blood infection.
On Oct. 3, FDA announced that the recall was expanded to include nine additional lots of Albuminar and on Oct. 4 that it also included one lot of Monoclate-P, an antihemophilic factor (Factor VIII) used to treat hemophilia A. Vials in these lots may have been damaged during manufacture and, as a result, could have become contaminated, the agency said. On Oct. 9, as a further precaution, Centeon recalled all its Albuminar human albumin and Plasma Plex plasma protein products.
FDA decided an injunction was necessary to protect the public health, and negotiations between the agency and Centeon began in mid-December.
Under the consent decree, Centeon has agreed to stop distribution (except for the two products) until it:
FDA will inspect Centeon to determine whether it is complying before allowing the company to release products.
--Dixie Farley