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Guilty Plea in Dietary Supplements Marketing Scam

Internet businesses generated nearly $12 million with false claims

July 8, 2009

Several Web sites were used to sell nearly $12 million worth of the products in 2005 and 2006, according to Matt J. Whitworth, Acting United States Attorney for the Western District of Missouri.

Tony T. Pham, 40, of Grand Rapids, Mich., pleaded guilty before U.S. District Judge Richard E. Dorr to charges contained in an April 2, 2009, superseding indictment. Pham owned and operated Techmedica Health, Inc., located in Grand Rapids.

He admitted that he used Techmedica to repackage, sell, market, and distribute unapproved new drugs and misbranded drugs over the Internet. In addition to the conspiracy, Pham pleaded guilty to one count of wire fraud related to payments in the form of a wire transfers to a bank account.

Pham also admitted that since April 6, 2004, he participated in a conspiracy to buy and sell unapproved new drugs and misbranded drugs and to defraud the United States by impeding the lawful functions of the Food and Drug Administration to prevent the introduction of unapproved new drugs and misbranded drugs in interstate commerce.

Under federal law, a dietary supplement may not claim to treat, cure or prevent a specific disease or class of diseases. Pham claimed that six products that he sold over the Internet had been proven reliable through clinical testing for the treatment and prevention of diabetes, irritable bowel syndrome, gout, high cholesterol, high blood pressure, heartburn and diarrhea. In reality, no clinical testing had been performed.

None of the dietary supplements are generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under any of the conditions recommended in their labeling.

Therefore, each of these dietary supplements is a new drug. None were approved by the FDA, and their labels do not bear adequate directions for use; therefore, they are also categorized as unapproved drugs and misbranded drugs.

The dietary supplements that were marketed as unapproved new drugs and misbranded drugs included Diabeticine (later renamed Diamaxol, and also known as Glucolex), Digestrol (also known as Digesticine), Uricinex (also known as Uricaid), Cholestasys Rx (later renamed Cholestasys), Hyperexol and Prolipamy.

Pham sold $11,954,648 worth of those products in 2005 and 2006, using several different Web sites. Web sites used by Techmedica contained materially false testimonials, product information, and identification of medical professionals.

Techmedica fabricated fraudulent customer identities using photographs purchased from Istockphoto.com, the complaint said. Testimonials attributed to these fraudulent identities touted the effectiveness of the unapproved new drugs and misbranded drugs.

Techmedica also posted one of the Istockphoto.com photographs on their Web sites to fabricate a non-existent physician, Dr. Judy Hamilton, for the purpose of lending authenticity to and endorsing product claims about Diabeticine for customers with Type I and Type II diabetes.

The person identified as Dr. Hamilton was in fact a model from California. This same model's photograph was also used by Pham on another Web site to fabricate a non-existent nurse, Bethany Hunt, RN, to tout the effectiveness of the unapproved new drugs and misbranded drugs.

Techmedica, through Pham, in an effort to defraud the United States by impeding, obstructing, and defeating the lawful functions of the FDA, operated several Web sites using mirror image technology. The use of this technology assured that when each of these Web sites was accessed from an FDA network computer, they displayed a “sanitized” version of the Web site containing medical claims that attempted to comply with the federal Food, Drug, and Cosmetic Act (FDCA).

However, when each of these Web sites was accessed from a computer whose IP address could not be traced to the FDA, they displayed claims that the dietary supplements could cure, mitigate, treat, and prevent diseases, so that these supplements were sold as unapproved new drugs and misbranded drugs.

By pleading guilty, Pham also agreed to forfeit to the government $11,954,648, which was derived from the proceeds of the offenses, for which he and his co-defendants are jointly and severally liable.

Under federal statutes, Pham is subject to a sentence of up to 25 years in federal prison without parole, plus a fine up to $500,000 or twice the gross gain.

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