Mar.21, 2010

A Springfield, Mo., business owner has pleaded guilty in federal court to his role in a conspiracy to fraudulently market dietary supplements over the Internet with illegal claims that these supplements could prevent, treat or cure a number of diseases. Several Web sites were used to sell more than $17.4 million worth of products in 2005 and 2006, according to Beth Phillips, United States Attorney for the Western District of Missouri.

Charles Thao, 42, pleaded guilty before U.S. District Judge Richard E. Dorr to his role in conspiracies to violate the Food, Drug and Cosmetic Act, to defraud the United States, to commit wire fraud, to commit mail fraud and to commit money laundering.

Under the terms of the plea agreement, Thao agreed to dissolve his business, Nutrapha Research, LLC, and agreed not to reorganize that company under any name for similar business purposes. Nutrapha and an earlier company owned by Thao, Medycinex, purchased dietary supplements and sold them over the Internet.

Thao admitted that he and his wife, co-defendant Mai Lor, 25, also of Springfield, contracted with co-defendant Tony T. Pham, 41, of Grand Rapids, Mich., to market and distribute the dietary supplements. Co-conspirators claimed that six products 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.

Under federal law, a dietary supplement may not claim to treat, cure or prevent a specific disease or class of diseases. None of the dietary supplements sold by Thao and his co-conspirators 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 of them 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.

Lor pleaded guilty on Friday, Feb. 5, 2010, to her role in the conspiracy to commit wire fraud. Lor was co-owner of Medycinex. At Thao’s direction, Lor also formed Bio Nutrasource, LLC, located in Springfield, to carry on the business previously conducted by Medycinex.

False testimonials

Pham pleaded guilty on July 2, 2009, to his role in the conspiracy to violate the Food, Drug and Cosmetic Act and to one count of wire fraud. Pham owned and operated Techmedica Health, Inc., located in Grand Rapids. Pham admitted that he used Techmedica to repackage, sell, market, and distribute unapproved new drugs and misbranded drugs over the Internet. 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. 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, operated several Web sites using mirror image technology. 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. 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, Thao also agreed to forfeit to the government $17,421,059 (for which he and his co-defendants are jointly and severally liable), which represents the amount of proceeds obtained as a result of the offenses, three real estate properties in Springfield, three vehicles and the funds credited to various bank accounts.

Under federal statutes, Thao is subject to a sentence of up to 20 years in federal prison without parole for conspiracy to commit money laundering, and up to five years in federal prison without parole on each of the other three conspiracy counts to which he pleaded guilty today, plus a fine up to $250,000 or twice the gross gain on each of the four counts. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.