Food Broker Sentenced in Export Diversion Scheme

A New Jersey businessman has been sentenced to four months in prison and another four months of home detention for participating in false export diversion schemes. His activities cost nearly 40 American manufacturers of drugs, foods, and health and beauty aids as much as $20 million.

Judge John C. Lifland sentenced 42-year-old Steven LaSala in the U.S. District Court for the District of New Jersey on Jan. 12, 1995. The judge also ordered LaSala to pay $1.9 million in fines, forfeitures and restitution from a Swiss bank account he maintained.

U.S. manufacturers often export products for sale overseas at discounts of up to 50 percent below U.S. prices to open new markets and expand worldwide sales. They also may offer discounts for goods that are to be donated to poor people in impoverished countries, or because the manufacturer's overhead costs may be lower for some products it sells overseas.

"LaSala would buy products from the manufacturers at the discounted prices, claiming they were for foreign export," says Dave Carman, special agent in FDA's Office of Criminal Investigations. "Then he'd sell the products for distribution in the United States and pocket the difference between the domestic and export wholesale prices."

LaSala's sentence followed a guilty plea in April 1994 in which he admitted to 39 schemes involving wire fraud, customs fraud, and causing a drug company to maintain false drug distribution records.

According to the New Jersey U.S. Attorney's Office, LaSala used several methods to mask the diversion schemes. In some cases, he would ship the goods overseas to a port in Belgium or Holland, for example, but return them immediately to the United States as "American Goods Returned," which enter the country duty-free. He and others working with him created false invoices for U.S. Customs that made it appear the goods were returned because they could not be sold overseas.

In other cases, LaSala would have others issue false bills of lading or other shipping documents that purported to show a product had been shipped overseas when it hadn't.

"Diversion of these products caused the manufacturers to unknowingly violate FDA record-keeping requirements," Carman says, "and the false records would hamper their ability to recall a product if that became necessary."

"For instance," he explains, "if I tried to track a drug for recall and the manufacturer told me it was shipped to Belgium, I would alert the State Department officer covering that part of Europe to inform his counterpart in Belgium of a problem with the product. What I wouldn't know is that I should have been talking to someone in the health department in Arkansas or Kentucky or wherever it was that the product was actually sold."

The Office of Criminal Investigations entered the case in the winter of 1993, when the Newark U.S. Attorney's Office asked FDA to assist U.S. Customs Service in Newark in its investigation of a Bogota, N.J., firm called Christopher Trading, operated by LaSala. A Customs office in the Midwest had identified the company as a possible participant in illegal export diversion schemes.

Carman and Anthony Merinda, a U.S. Customs agent, interviewed employees, clients and manufacturers across the country to unravel the details of the operation.

"We served several hundred subpoenas, executed search warrants, conducted surveillances, and used several grand juries in the case over a year's time," Carman says. "In reviewing records, we uncovered evidence such as duplicate invoices for the same material, indicating it was sold and shipped to two different locations on the same date. We found shipments indicated on ships that didn't dock at the port listed."

Also because of LaSala's ruses, companies unknowingly used false shipping documents to obtain monetary and subsidy benefits from U.S. Customs and the U.S. Department of Agriculture programs designed to promote exports of U.S. finished products.

For example, Nestle U.S.A. of Glendale, Calif., was able to buy sugar from USDA at subsidized prices below the U.S. market price based on false bills of lading issued to mask a diversion scheme in which LaSala participated. LaSala also caused Bock Pharmacal Company of St. Louis, Mo., to maintain false records of drug distributions by falsely representing that goods bought by LaSala would be sold in Nigeria when, in fact, LaSala sold them for distribution in the United States.

Among the 39 companies defrauded in LaSala's schemes were Nestle, American Cyanamid/Lederle, Redmond, General Mills, Ralston Purina, Alpo Pet Foods, Van Camp/Hormel, Forest Pharmaceuticals, ICN Pharmaceuticals, Fissons Pharmaceuticals, Schwarz Pharmacal, Elder Pharmaceuticals, CIBA Pharmaceuticals, Fujisawa Pharmaceuticals, Golden Grains Company, Tsumora Medical, Hunt/Wesson, and Procter and Gamble.

LaSala is cooperating with government authorities in ongoing investigations of export scams.

Marian Segal is a member of FDA's public affairs staff.

Feed Mills Correct GMP Violations

The three plants--two run by Molinos de Puerto Rico Inc., and one operated by To-Ricos Inc.--passed FDA inspections last April after executing a remedial plan. The companies had a three-year history of violating good manufacturing practice (GMP) provisions of food and drug law.

Both firms are owned by Omaha, Nebraska-based ConAgra Inc. They manufactured feeds--with and without drugs added--that were marketed for a variety of animals. Before the December 1994 injunction, the three mills supplied about half of Puerto Rico's medicated-feed stock. The injunction cited the firms for product adulteration and misbranding.

The injunction permitted shutting down medicated feed production at all three plants. However, FDA agreed to allow the Molinos plant located in Catano and the To-Ricos plant in Las Piedras to keep producing medicated feed after plant officials demonstrated a good-faith effort to correct violations. The Molinos plant in Hatillo permanently stopped making medicated feed but continued to supply nonmedicated feed. Further infractions at the Catano or Las Piedras plants will subject them to immediate shutdown of medicated feed production.

FDA first discovered GMP infractions during a routine inspection of the Las Piedras plant in January 1992. Besides pigeons in the plant, investigators' findings included deficiencies in record keeping and failure to maintain a daily drug inventory. When FDA sent a warning letter the same month, the company promised to come into compliance.

New problems surfaced in September 1993, when FDA inspected the Catano plant and found major GMP deviations, including batch records showing the wrong drugs had been added to feed, failure to follow adequate equipment clean-up procedures, and failure to stop selling feed that had drug concentrations below what was stated on the label. An inspection of the Hatillo plant two months later uncovered similar deviations.

"Some employees and lower-level managers seemed unaware that to make medicated feeds, you have to keep accurate records," says Philip Lindeman, compliance officer in FDA's San Juan district office. "They didn't seem to have any knowledge of federal regulations."

Investigators observed that the plants failed to flush equipment and working surfaces between batches, setting the stage for contamination.

"Some employees would make up feed for chickens that contained the drug monensin, which is toxic to horses," Lindeman says. "Then they'd make horse feed with the same equipment, which, of course, could be contaminated with monensin."

Another recurring problem was selling feed containing less than the stated drug amounts. "The firms' own records show that about 30 percent of samples showed subpotent drug concentrations," says Lindeman. "Also in their records were a few examples with zero potency."

In October and December 1993, FDA sent warning letters to managers of both plants detailing the inadequacies. Again, company officials assured FDA the problems would be corrected.

But the following February, FDA inspected all three facilities and found little had changed, especially at the Catano plant. FDA's San Juan district office recommended that both companies, along with ConAgra, be enjoined. At that point, the firms entered a period of negotiation with FDA.

A July 1994 inspection of all three facilities revealed that the plants, though making some progress, still had substantial problems. The following month, FDA forwarded the case to the Department of Justice, which proceeded with an injunction. More negotiations followed, and, Lindeman says, by October 1994, the plants were showing improvement.

The injunction was signed in the U.S. District Court for the District of Puerto Rico in December, but FDA waived closing down medicated feed production at the plants when the agency determined that the Catano and Las Piedras plants were addressing remaining problems. All three plants reorganized, improved record keeping, and upgraded equipment.

Last April, FDA inspected the three plants and found them in compliance.

--John Henkel

Unapproved Devices Destroyed

Called the Bio-Ionic System, the device operated like a transcutaneous electrical nerve stimulation, or TENS, unit, which FDA has approved only for treating pain. A TENS device transmits electrical impulses through electrodes placed on the skin.

The Bio-Ionic System was one of several medical devices that were the focus of a 1992 congressional hearing, "Recent Trends in Dubious and Quack Medical Devices." At the hearing, the daughter of a deceased 54-year-old breast cancer patient testified about her mother's treatment with the Bio-Ionic System by Evans Rapsomanikis, the device's maker. She said he declared her mother free of cancer after the treatment, yet the mother died of cancer six weeks later.

Rapsomanikis was owner of Paradise Pain Clinic and Kyttaron Energy Corp., both in Las Vegas, Nev. Kyttaron manufactured the devices, 11 of which were used at the clinic to treat patients.

FDA believes that Rapsomanikis fled the country, possibly with some of his devices, in 1991, and that he may have set up practice in London. FDA has informed British health officials about Rapsomanikis' activities in this country.

The Paradise Pain Clinic came to FDA's attention in spring 1991, when the Nevada State Board of Medical Examiners contacted FDA's San Francisco district office about a complaint it had received from Jean Harris of Pleasant Hill, Ore. Harris, whose son is paralyzed from the neck down, told the board that she believed Rapsomanikis misrepresented himself as a medical doctor because he had indicated to another family member that he could cure quadriplegia. Harris took her son to Paradise Pain Clinic for therapy, but when the treatments failed, they returned to Oregon, refusing to pay Rapsomanikis' fee of $150 to $200 a treatment.

The Nevada board investigated but found no evidence that Rapsomanikis referred to himself as a physician, and the case was dropped.

In summer 1991, Las Vegas TV station KVBC aired a two-part news report on Rapsomanikis' clinic. The report included interviews with two KVBC employees who posed as cancer patients. Both reported that Rapsomanikis told them he could cure their cancer. In an interview, Rapsomanikis told the reporter his treatment had an 80 percent success rate for cancer.

In August 1991, an anonymous caller to FDA's Las Vegas resident post told investigators the general location of where the devices were made. FDA traced the exact site to a Las Vegas office building, where space had been leased under the name Paradise Pain Clinic.

In September, an investigator with FDA's San Francisco district office, posing as a breast cancer patient, and an investigator with the Las Vegas district attorney's office, posing as her brother, went to Paradise Pain Clinic. They met with Rapsomanikis, who told them he could cure her cancer after three weeks of treatment with the Bio-Ionic System. He also said he had treated numerous women with breast cancer and they all were fine.

The investigators were given promotional videotapes and a packet of testimonials allegedly written by former patients who claimed Rapsomanikis' medical device had cured them of Guillain BarrŽ syndrome, chronic fatigue syndrome, Epstein-Barr virus, arthritis, and other diseases.

The next day, the investigator posing as the patient went to a Las Vegas chiropractor to whom Rapsomanikis had referred her. The chiropractor examined her and told her she had two lumps "the size of grapes" in her left breast. That same day, the investigator went to a medical doctor for a mammogram and breast ultrasound. Both tests revealed no lumps or cancerous growths in either breast.

The investigator returned to Paradise Pain that same day, but according to the investigators, for unknown reasons, Rapsomanikis apparently had become suspicious of both investigators and refused to treat the one posing as the patient. He said that because she had no pain, she was ineligible for treatment at the pain clinic. In October, FDA obtained warrants to inspect the Paradise Pain and Kyttaron sites. Rapsomanikis was not present at either site.

At the clinic, FDA investigators interviewed the office manager and Rapsomanikis' assistant. At times, the employees refused to cooperate, denying the investigators access to patient records and trying to prevent them from taking photographs.

According to the office manager, Rapsomanikis saw an average of 14 patients a day, with treatments generally lasting three hours a day for two to three weeks.

The investigators detained 11 Bio-Ionic devices for 30 days by taping and tagging them with warnings about using the devices during the detention period.

Meanwhile, at Kyttaron, two other FDA investigators detained two completely assembled Bio-Ionic devices and various parts of partially assembled units, including 24 overstuffed chairs, 63 empty cabinets, and several batteries and battery chargers. At this time, the investigators also discovered that the company did not keep production records, as required by federal law.

Rapsomanikis, through his attorney, scheduled a meeting in November 1991 with FDA officials to discuss the devices' detention. The day before the meeting was scheduled, however, Rapsomanikis canceled it. That Nov. 13, he sued FDA, individual FDA investigators, KVBC-TV reporters, and the Harrises, who had filed the initial complaint against him. His lawsuit kept the case open until last fall.

U.S. marshals seized a semitruckload of the detained items on Nov. 29, 1991, at Kyttaron. When the marshals arrived at Paradise Pain Clinic that same day to seize the devices there, they found the facility empty of all but two incomplete devices. An informant later told FDA that Rapsomanikis had moved the devices and promotional literature to another location the night before the seizure. Investigators never located the missing devices.

--Paula Kurtzweil

Contaminated Tea Destroyed

Belladonna poisoning typically causes fever, dilated pupils, rapid heartbeat, flushed skin, agitation, and disorientation. It can be fatal to older people, children, or heart patients.

The NYC Health Department found belladonna in the tea, and speculated it may have come from jimson weed, a plant of the nightshade family, which often grows alongside tea plants. Within a day of being notified of the poisonings, FDA's Northeast Regional Laboratory, in independent testing, also identified belladonna in the tea.

A report on the poisonings in the national Centers for Disease Control and Prevention's March 24, 1995, Morbidity and Mortality Weekly Report stated: "This report underscores the need for persons who use herbal products to report any adverse reactions immediately to health authorities. .... The public should be aware that all herbal products have the potential to be misidentified when collected, mislabeled, contaminated, or adulterated."

The first poisoning occurred March 20, 1994. Within a half-hour of drinking Paraguay Tea, a couple and their 10-month-old baby developed belladonna poisoning symptoms. The wife and baby were only mildly ill and didn't require treatment. Because the husband's symptoms were severe, he was given two doses of the antidote, physostigmine, derived from another plant.

The next day, a 20-year-old woman was treated in a hospital emergency room about an hour after drinking a cup of the tea. Her symptoms included impaired thinking that progressed to stupor. Her stomach was pumped, and she was given a laxative and also activated charcoal to prevent absorption of the poison. Ten hours later, she was discharged.

On March 24, a 10-year-old boy became unusually agitated and restless an hour after drinking the tea. His parents took him to an emergency room, where he was given two doses of antidote. The parents and another son, 18 years old, also drank the tea. Both parents were diagnosed with belladonna poisoning but required no treatment. The older son had left for school immediately after drinking his tea.

The treating doctors reported their cases to the New York City Poison Control Center and obtained samples of packaged tea from each family for analysis. The day of the last case, the health department alerted FDA and issued a news release on the hazard.

FDA's New York district office sent Gregson Joseph of the district to investigate immediately with city health officials. His first stop was the poison control center.

"Doctors at the center told me the 18-year-old's family didn't know where he was," Joseph says. "The school reported he didn't show up."

While at the center, Joseph took samples from an opened bag of the tea consumed by the family (also sampled and tested by the city), and from an intact bag the family had given the center.

Next, Joseph, William Meggs, M.D., of the center, and a health department sanitarian went to Maspeth, N.Y., to inspect Bonita Foods, the firm listed on the tea label.

They learned that Ecuadorean Tropical Products, Inc., doing business as Bonita, had imported the tea from Ecuador. "Robert Burgos, the firm's president, said Bonita had imported only a few pounds," Joseph says, "but he'd left the import records at his home, so he wasn't sure."

Bonita repacked the tea in half-ounce bags, and sold it to Casa America, a local store owned by Burgos' father and managed by his brother. Burgos gave Joseph copies of invoices showing sales to Casa America of four cases, 24 bags per case, on March 17, 1994, and one case on March 23. None was left at Bonita, Joseph was told.

The investigators then went to Casa America. They found that, by order of the police, the manager earlier that day had removed the tea from the shelf. Only 24 bags had been sold. Joseph took a sample, and Meggs and the sanitarian embargoed the rest. The manager agreed to put a notice in the store telling customers who might have bought the tea not to consume it, but to return it to the store.

Joseph delivered his samples to FDA's Northeast Regional Laboratory for testing. From the poison control center, he learned the 18-year-old victim had returned home, but was disoriented and couldn't account for his whereabouts all day.

On March 25, Joseph returned to Bonita. Burgos had brought in the import records, which showed importation of a 25-pound bag of Paraguay Tea, listing it as "Aromatic Dry Leaves." He told Joseph that his father had bought the tea during a trip to Ecuador in February.

Joseph notified the health department, which sent two sanitarians to Bonita. Joseph collected a sample, as did the sanitarians, who then embargoed the remaining tea.

That same day, FDA's regional laboratory provided Joseph with preliminary results. Analysts Samuel Walker and Samuel Matthew had identified atropine, scopolamine, and hyoscyamine belladonna alkaloids in the tea by HPLC analysis, and the laboratory's mass spectroscopist, Thomas Barry, confirmed the findings with more sophisticated testing.

The health department issued a second press release reporting some results of the investigation.

On March 30, Joseph returned to Bonita. Burgos' father told him he had purchased this Paraguay Tea in Guayaquil.

On April 4, FDA issued an import alert to increase sampling of imported dried plant materials to be used in spices, teas, or other foods.

On Nov. 2, Joseph watched as health department sanitarian Compton Tucker destroyed with antifreeze and ammonia or bleach all the embargoed tea, valued at about $1,300.

--Dixie Farley

FDA Consumer magazine (October 1995)