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Investigators' Reports

Companies, Employees Answer To Corrupt Milk Practices

A busy grapevine that kept alive a rumor of an illegal dairy practice wound its way into unexpected territory: FDA. The agency investigated and discovered that the rumor was indeed true.

As a result, earlier this year, two Arkansas companies and four individuals were sentenced to fines totaling more than $300,000 for allowing milk contaminated with drug residues and a cancer-causing toxin to enter interstate commerce. Two of the convicted people also were sentenced to jail. All four are now on probation or under supervised release.

A fifth man pleaded guilty July 16 to a related charge of accessory after the fact, a misdemeanor. At press time in September, his sentencing hearing had not been set.

Their scheme came to light after a milk hauler questioned a Tennessee state milk inspector about a milk cooperative's practice of transporting contaminated bulk milk to a cheese curd manufacturer after milk processing plants had rejected the milk. The milk hauler had learned about the practice from fellow milk haulers, according to former FDA compliance officer Ray McCullough. The milk hauler wanted to know why this particular milk cooperative was allowed to ship contaminated milk when he had to dump his.

The milk that went to the cheese curd manufacturer contained residues of the antibiotics penicillin and tetracycline and of sulfa compounds, all of which can be used to treat diseases in cows. However, it is illegal to allow milk contaminated with these drugs into the food supply because the drugs can cause allergic and other adverse reactions in some people. The drugs also may interfere with the effectiveness of human medications and may contribute to the development of drug-resistant bacteria. In addition, one sulfa drug, sulfamethazine, is a potential carcinogen.

The milk also contained aflatoxin, which is produced by certain species of mold and may cause liver cancer. The mold can grow on grains used in animal feed, causing the toxin to form. The toxin can then pass into the milk of animals eating the feed.

Those sentenced last March for participating in the scheme were:

• Associated Milk Producers Inc. (AMPI) Mid-South Division, of Little Rock, Ark. This company, a milk cooperative, is a division of one of the largest milk-producing associations in the United States, according to McCullough. Each division is made up of dairy farmers who sell their raw milk to milk processing plants. AMPI collects the milk and transports it to processing plants for the farmers.
• Hills Valley Foods Inc., of Batesville, Ark. This company made cheese curd, an intermediary substance in cheese production, and sold it to a Missouri cheese company.
• Jerry Moore, manager of AMPI's Mid-South Division
• John Wilbanks, president of Hills Valley Foods
• Darrell Williams, laboratory supervisor for AMPI's Mid-South Division
• Larry Miller, dispatcher and administrative assistant for AMPI's Mid-South Division.

FDA got involved in the case when the Tennessee Department of Agriculture reported the milk hauler's allegations to the agency in fall 1990.

Typically, milk haulers collect raw milk from farms and take it to processing plants via bulk tanker trucks. Each tanker holds about 20 metric tons (45,000 pounds) of milk, worth about $8,000, and milk from one to as many as nine farms can be put into one tanker, depending on the amount of milk from each farmer, McCullough said.

Before haulers unload the milk, the processing plant screens each truckload for chemical contaminants, bacteria, and other quality factors. If the milk tests positive for drug residues or aflatoxin, it must be dumped.

According to the milk hauler's allegations, this was the point at which AMPI truck drivers shipped milk that tested positive for illegal drug residues or aflatoxin to Hills Valley Foods rather than dump it.

FDA began to investigate the allegations in October 1990. McCullough, along with other FDA investigators, interviewed a number of employees with Hills Valley Foods and AMPI, including laboratory personnel, dispatchers, and milk truck drivers. The investigators reviewed recorded test results of milk samples, milk deliveries, and routing information. With this information, they compiled a computerized database. They then used the database to cross-reference positive drug residue and aflatoxin test results with delivery dates and other pertinent information. The cross-references enabled them to show that contaminated milk was shipped to Hills Valley Foods, where it was made into cheese curds and then shipped to the Missouri cheese maker.

As a result of these findings, the U.S. Attorney's Office undertook a grand jury investigation in June 1993, subpoenaing about 50 witnesses, including AMPI and Hills Valley employees who had refused earlier to cooperate with FDA investigators.

The grand jury charged that:

• AMPI Mid-South Division had an agreement with Hills Valley Foods in which AMPI sold rejected contaminated milk to Hills Valley. According to FDA investigators, Hills Valley bought the contaminated milk at a favorable price.
• The scheme involved hundreds of thousands of pounds of contaminated milk sold on about 30 occasions between about December 1987 and about April 1993.
• Employees often changed positive test results for antibiotics and aflatoxins to negative results. This finding, according to FDA's McCullough, was borne out by U.S. Postal Service forensics laboratory testing that enabled investigators to decipher erased original entries.
• Employees Moore and Williams instructed truck drivers to call ahead to Hills Valley to inform personnel that a "hot," or contaminated, load of milk was on its way. This preannouncement signaled Hills Valley personnel that they would have to add an extra dose of starter culture (called "hot shot" by both parties) to prevent the drugs in the milk from inhibiting the bacterial culture needed to make cheese.
• AMPI identified farmers whose milk had contaminated each truckload, and Moore and Williams would arrange for direct pickup of that farmer's milk for delivery to Hills Valley.

Five other parties pleaded guilty to misdemeanor offenses throughout 1995 and 1996 and were sentenced in March 1996 as follows:

• AMPI Mid-South Division--fined $200,000.
• Hills Valley Foods--fined $88,000 and placed on two years' probation.
• John Wilbanks of Hills Valley Foods--sentenced to 30 days in the county jail, five-months' home detention, and seven months of other supervised release; fined $20,000.
• Darrell Williams of AMPI--one year of probation; fined $2,500.
• Larry Miller of AMPI--one year of probation; fined $5,000.

Cream Doesn't Pay

Clayton Rawhouser, 46, was sentenced Feb. 6, 1996, to two years' supervised probation, plus two and a half months in jail (which he served while awaiting sentencing), and 50 hours of community service. He also was ordered to pay a $75 special assessment. Janice Rawhouser, 45, was sentenced Nov. 28, 1995, to six months' unsupervised probation, fined $250, and ordered to pay a $50 assessment.

A grand jury in the U.S. District Court for the District of North Dakota had indicted the couple on 48 counts of mail fraud, obstruction of justice, and shipping adulterated and misbranded farm cream across state lines. Both Rawhousers pleaded guilty to lying to a U.S. Customs agent and introducing misbranded or adulterated food into interstate commerce.

The North Dakota Department of Agriculture notified FDA's resident post in Fargo about a problem the state's assistant dairy commissioner, Tom Haak, discovered during a routine inspection of Wyndmere Creamery on Jan. 26, 1994. Haak had found bills of lading showing that since Jan. 1, the creamery had imported more than 563 metric tons (1.25 million pounds) of raw cream from Mexico. This violates the federal Milk Importation Act, which prohibits importing milk and cream from Mexico because these products do not meet American health standards. The inspector returned two days later with a state-issued embargo for all cream and butter products at the dairy.

On Feb. 1, Haak returned to Wyndmere Creamery with Howard Burmeister, an investigator with FDA's Fargo resident post, to obtain product samples and copies of records. Clayton allowed them to take samples, but would not give them access to any records and ordered them off the premises. The next day, Burmeister and a county deputy sheriff arrived at the dairy with a subpoena from the state of North Dakota ordering the surrender of all pertinent records.

"No records were found in the search," said Jess Talty, special agent with FDA's Office of Criminal Investigations in Chicago, "and neither was Clayton. He had taken off, and Janice said she burned the records Jan. 31."

In response to a request from the Rawhousers' attorney, the North Dakota Department of Agriculture offered to settle with Wyndmere Creamery if the creamery gave the department information about the illegal importation of Mexican cream and paid for disposing of the finished product in North Dakota and in Chicago, where it had been sold to Danish Maid Butter Co. between Oct. 27, 1993, and Jan. 31, 1994. The dairy rejected the offer.

"The burning question was how FDA and U.S. Customs could have allowed 26 semi-truckloads of Mexican cream to be smuggled across the border," Talty said. "The answer was 'we didn't, and it wasn't': There never was any imported Mexican cream."

FDA Special Agents Daniel Piovosi and Greg Aspinwall learned this when they went back to the creamery on Feb. 23 to interview Janice Rawhouser and dairy employees. According to Talty, Rawhouser said the creamery had never used Mexican cream. Instead, she said, they used cream from smaller nearby farms.

"She said she wouldn't tell anyone where they got the cream because they didn't want their employees to find out and start their own business," Talty said. "As we talked to the employees, though, we got the impression that it was almost impossible for the dairy to process the amount of cream the Rawhousers were bringing in and shipping out in such a short period of time."

In reviewing phone and trucking records and talking to employees, the investigators found the creamery had had many transactions with Honeymead Soybean Oil Co., in Mankato, Minn. Talty and U.S. Customs Special Agent Anthony Onstad interviewed officials at Honeymead on March 9 and learned that Clayton Rawhouser had set up contracts to buy 116 metric tons (257,460 pounds) of soybeans in November 1993, 261 metric tons (579,360 pounds) in December 1993, 315 metric tons (700,280 pounds) in January 1994, and 394 metric tons (875,000 pounds) each in February, March and April 1994.

Meanwhile, laboratory results of samples taken during the Feb. 1 inspection at Wyndmere and from Danish Maid on Feb. 3 showed the "farm cream" in fact was mostly soybean oil with some food coloring added to make the product look like cream.

On Feb. 22, 1995, FDA's Office of Criminal Investigations (OCI) turned the information over to the Department of Justice, which presented the case to the grand jury Sept. 8, 1995.

OCI special agents arrested Janice Rawhouser Sept. 9 but continued to look for Clayton Rawhouser, who officials believe fled the state around March 1994.

Talty located an address for Rawhouser in Pharr, Texas, and notified OCI's Austin, Texas, office. On Sept. 12, 1995, Special Agent Ray Strucker, along with an agent from U.S. Customs and a U.S. marshal, went to the address, which turned out to be a storage facility.

"The owner wouldn't give them any information, so they went back to the Customs Office to get a summons to serve him with," Talty said. "Then they went back to the warehouse and, lo and behold, who should come driving up right in front of the place but Clayton."

Clayton Rawhouser was arrested in Pharr on Sept. 12 and held in jail until his sentencing.

--Marian Segal

Food Analyst in Prison for Falsifying Data

George T. Michael, 51, of Dedham, Mass., pleaded guilty to one count of wire fraud related to the scheme and one count of making false statements to secure a bank loan at his March 12 sentencing.

Michael's scheme began following a December 1991 fire in the Americold facility, a 100-acre underground storage cave in Kansas City, Kan. The facility housed millions of pounds of food products owned by various clients. Damage estimates from the fire ranged as high as $1 billion. Insurers paid off food owners' claims; then, to recoup some of the losses, they hired salvagers to determine what food could be resold.

In early 1992, a salvage company, M.F. Bank and Co. Inc., hired Michael to oversee chemical analyses of more than $2 million worth of food. The company wanted Michael to verify if the products had been contaminated with toxic substances from the fire. The tests would determine whether the food had to be destroyed or could be released to the public.

Michael subcontracted with Minnesota Valley Testing Laboratories (MVTL) in New Ulm, Minn., to perform the analyses. The food was supposed to be tested for benzene, toluene, styrene, xylene, and polychlorinated biphenyls (PCBs). Contamination from any of these chemicals would render the food unsuitable for human consumption.

The Kansas Department of Health and Environment (KDHE) oversaw the fate of the warehouse food, basing its decisions on submitted test results. On Oct. 6, 1992, the department called Greg Dixon, an investigator in FDA's Kansas City district office to discuss sample data. KDHE officials reported that Michael had submitted a laboratory report on MVTL letterhead that read "none detected" for various contaminants, yet no levels of sensitivity for the tests were listed, as is common practice.

"This made us and KDHE suspicious of the accuracy of Michael's data," Dixon says.

FDA's Kansas City district then asked the agency's Minnesota district office to investigate the Minnesota laboratory. After interviewing the analyzing chemist at MVTL, Minnesota district investigators concluded that because not all the tests indicated on Michael's lab report had been done, Michael must have falsified results.

On Nov. 23, 1992, FDA's Minnesota district office completed its investigation of the testing laboratory, which included interviews and reviews of records. The investigation confirmed that Michael had submitted false test results to KDHE. Officials determined neither the laboratory nor the salvage company that hired Michael was involved in Michael's scheme.

In September 1995, the U.S. District Court for the District of Massachusetts charged Michael with the two criminal counts. The court charged a wire fraud violation because Michael transmitted the false results over a facsimile machine. The other count was for obtaining a loan in 1988 from a Massachusetts savings and loan by providing false statements.

--John Henkel

Alcohol-Free Mouthwash with Twist of Bacteria

Hydrox Chemical Co., of Elgin, Ill., hired Culligan Water Co. following an FDA investigation that faulted Hydrox for failing to maintain its purified water system. Unmaintained for almost a year, the system apparently introduced the bacterium Pseudomonas cepacia into hundreds of thousands of gallons of Fresh Moment Alcohol Free Mouthwash produced by Hydrox between August 1995 and February 1996. The mouthwash was distributed to hospitals across the country and caused infection in 12 hospitalized patients on ventilators.

While rarely harmful to healthy people, Pseudomonas cepacia can be dangerous to people with depressed immune systems.

Laboratory analyses identified the bacteria in samples of the mouthwash. The company voluntarily began recalling the mouthwash in February, and by August, all of it had been recalled.

FDA became aware of the contamination last Feb. 2, when a epidemiologist with Froedtert Lutheran Memorial Hospital in Milwaukee contacted the agency. He reported that since Dec. 20, 1995, 12 hospital patients--all on ventilators--developed Pseudomonas cepacia infections. The hospital laboratory identified the bacterium in patients' sputum and in bottles of Hydrox's Fresh Moment mouthwash, which was distributed to patients. A doctor caring for the ventilator patients became suspicious after noticing that a number of patients developed rashes around their mouths, where their face masks rested. Health-care workers had used the mouthwash to swab patients' throats.

All the patients recovered from the infection following antibiotic treatment.

FDA traced the manufacture of the mouthwash to Hydrox, which also makes other cosmetics, over-the-counter drugs, and veterinary products. Theodore Thorsen, an investigator with FDA's Chicago district office, inspected the company's facility Feb. 2. He collected samples of the company's mouthwash, as well as other company products, such as body lotions, baby shampoo, and milk of magnesia antacid and laxative. FDA's Midwest Laboratory for Microbiological Investigations analyzed the samples and identified Pseudomonas cepacia in the mouthwash. The other products tested negative for bacterial contamination.

Thorsen continued to inspect and monitor the company's activities through February and March. His inspections identified six problems:

• The purified water system had not been properly cleaned and tested since May 1995. Hydrox's president, Kapana Ramanandan, told FDA officials the company skipped the scheduled maintenance because it couldn't afford it. The company filed for bankruptcy in March 1995, under Chapter 11 of the Federal Bankruptcy Act.
• The reverse osmosis membranes of the water system had not been changed for more than a year, although this should be done every four months, according to the company's written procedure, to prevent microbial buildup. The company again cited financial difficulties as the reason.
• Employees failed to perform adequate microbial challenge tests--specifically of Pseudomonas cepacia, which can flourish in the presence of the antibacterial agent the company added to its Fresh Moment mouthwash.
• Employees did not use the appropriate hose clamps on equipment. Thorsen noted that the clamps used "appeared to be basic hose clamps that are used in the automotive trade" and were rusty, dirty and discolored.
• Employees left doors open during production, allowing airborne dust from outside to enter the manufacturing area.

By testing mouthwash in reserve, the company traced the point at which contamination began to the end of August. The company decided to extend the cutoff point to July 1 as a precaution.

Ramanandan also said the company had:

• contracted with the Culligan Water Co. for $30,000 to reengineer, validate and maintain Hydrox's water purification system
• sanitized the entire water system with hydrogen peroxide
• changed the reverse osmosis membranes
• rewrote the standard of operation for the purified deionized water system
• replaced hoses and clamps with new sanitary connectors.

On April 4, 1996, FDA issued company president Ramanandan a warning letter because of "concern over this matter," wrote Raymond Mlecko, FDA's Chicago district director. He cited the company's manufacture of other products with water from the same system used to make mouthwash and the company's refusal to perform routine equipment maintenance when scheduled. Mlecko warned the company that failure to correct problems could result in enforcement action, such as a seizure or injunction.

The company responded in a May 9 letter reiterating the corrective measures it had taken. FDA's Thorsen continues to monitor the company.

According to Kathy Haas, recall coordinator for FDA's Chicago district office, the company had recalled all of the affected products by Aug. 1. The company destroyed the mouthwash at a landfill, she said.

--Paula Kurtzweil