Supplement Maker Under Criminal Indictment Facing Mounting Hardships

It’s been a trying year for Hi-Tech Pharmaceuticals Inc., a manufacturer of dietary supplements, and its owner, Jared Wheat.

First, U.S. District Court Judge Willis B. Hunt, Jr. ruled that Hi-Tech’s DMAA-containing products worth millions of dollars—and seized by the government in 2013—were adulterated and subject to forfeiture. Then, Wheat was arrested in October after he and his company were indicted by a grand jury on 18 criminal counts.

As a condition of his pretrial release in the criminal case, Wheat agreed to stop selling DMAA (1, 3-dimethylamylamine). FDA has described DMAA as an “amphetamine derivative" that could pose a health risk to consumers, although Hi-Tech has insisted it comes from geranium plants and is safe.

Life hasn’t gotten any easier for Wheat since his release from custody. Among the hardships facing the Georgia businessman, as described by his lawyers in court papers:

· The government in October seized DMAA-containing products from Hi-Tech worth nearly US$19 million;  

· About $3.4 million was seized from two of Hi-Tech’s bank accounts, resulting in several checks being returned for insufficient funds; and

· Hi-Tech has laid off roughly 70 factory workers, with the possibility of additional layoffs in the future.

“Over the ensuing weeks, it has become increasingly apparent that the ability of Hi-Tech to survive as a business is in jeopardy," attorneys representing Wheat and Hi-Tech disclosed on Nov. 10 in a motion filed in federal court.

The motion requested a modification of Wheat’s conditions of release so that Hi-Tech could resume sales of products containing DMAA.

“The impact of Hi-Tech’s inability to sell and continue to manufacture DMAA-related products has been devastating to Hi-Tech’s business and, along with the seizure of the bank accounts, is putting the business in increasingly dire circumstances," Wheat’s attorneys wrote.

The prohibition on sales of DMAA, the motion argued, should be lifted because it stemmed from “the government’s improper use of a criminal case to gain an advantage in a civil action." The 18-count criminal indictment against Hi-Tech, Wheat and another Hi-Tech executive, John Brandon Schopp, doesn’t involve DMAA, Wheat’s lawyers proclaimed.

Hunt’s ruling on DMAA is now before the U.S. Court of Appeals for the Eleventh Circuit.

Wheat’s lawyers also suggested the government secured their client’s agreement to stop selling DMAA while he was under “duress," rendering the agreement unenforceable. In partial support of their argument, they noted Wheat had been several hours behind on his prescription medications at the time he arrived in court for his appearance because agents had not permitted him to take several medications the morning of his arrest.

“Third, an amendment of the bond condition is justified by the change in circumstances between the time the DMAA ban was entered and the subsequent events, which have resulted in a threat to the existence of Hi-Tech as a business," the motion asserted.

On Dec. 13, U.S. Magistrate Judge Alan J. Baverman denied the motion to remove the prohibition against Hi-Tech manufacturing and selling DMAA-containing products.

“Defendants are bound by the rulings issued by Judge Hunt that DMAA-containing products for human consumption constitute adulterated food under the FDCA [Federal Food, Drug & Cosmetic Act], unless and until [the] said order is reversed by the Eleventh Circuit," Baverman wrote in his order. “The introduction of adulterated food into interstate commerce is a crime."

In a brief interview Wednesday, Wheat said his lawyers are preparing to file an appeal of the magistrate’s order to U.S. District Court Judge Amy Totenberg.

Previously, a different judge ruled on a request for the return of approximately $3.4 million in funds seized from Hi-Tech’s bank accounts. Hi-Tech had filed an emergency motion, arguing the indictment and affidavits in support of search warrants failed to establish probable cause that a significant portion of the funds seized was “tainted."

In denying the motion, U.S. Magistrate Judge Catherine M. Salinas agreed with the U.S. Department of Justice (DOJ) that the issue was “moot" because the government filed a “Bill of Particulars" and began a civil forfeiture action. Salinas also pointed out the government agreed to return about $424,000 that was improperly obtained.

In support of the bank seizures, DOJ’s civil complaint cited undercover purchases of Hi-Tech’s products, and subsequent FDA testing of the products, revealing the presence of Schedule III anabolic steroids. The government also said it expected additional discovery to produce further evidence that the defendants engaged in unlawful activity, justifying its seizure of the funds.

Hi-Tech filed a Dec. 4 motion to dismiss the complaint, asserting the government failed to allege sufficient facts to show the $3 million is forfeitable. The purchases above, Hi-Tech noted, did not specify the amount of money that was exchanged in the transactions.

“The limited facts alleged in the complaint," Hi-Tech’s lawyers wrote in their motion, “require rank speculation that two allegedly illegal product sales somehow justify the seizure of over $3 million in operating funds—operating funds of a business which conducts extensive legitimate activities."

Gov. Actions Have Jeopardized Hi-Tech’s ‘Very Survival’

The bank seizures had an immediate impact on Hi-Tech’s business, resulting “in approximately 30 Hi-Tech checks (worth more than $600,000) issued to vendors being returned for insufficient funds, as well as three checks written to attorneys representing Hi-Tech or Mr. Wheat," Wheat’s attorneys wrote in their Nov. 10 motion.

Hi-Tech, the motion added, also had to lay off about “70 factory workers, with other layoffs of additional employees in the offing."

According to Wheat’s lawyers:

· Hi-Tech manufactures and sells around 215 products under its brand or related brands;

· Thousands of retailers—including major outlets—sell Hi-Tech’s supplements;

· The company also sells its products to consumers through various retail websites; and

· Hi-Tech is a contract manufacturer for other dietary supplement companies.

Asked why the loss of DMAA sales has been so hard on Hi-Tech’s business given its diversity of products, Wheat told INSIDER, “You have the 80-20 rule. Eighty percent of your revenue comes from 20 percent of your products, and we’re not quite that heavy, but it hit us pretty hard because we had a lot of very popular SKUs [stock keeping units] that had DMAA in it."

In the Nov. 10 motion, Wheat’s lawyers described the government’s recent actions—including the seizure of nearly $19 million in DMAA-containing products—as “devastating to Hi-Tech’s business," jeopardizing “its very survival."

The demise of Hi-Tech, Wheat’s attorneys said, would result in the loss of at least 200 jobs.

“Hi-Tech will eventually be unable to pay its current counsel to represent the corporation and Mr. Wheat in this far-reaching and complex criminal indictment, and to defend against forfeiture of their funds and property," they added.

However, Wheat noted in the interview Wednesday that there have been no additional layoffs.

“We’re going to make it," he said.

He also expressed optimism that Totenberg—the federal judge—would rule in his favor, allowing him to resume sales of DMAA.

Added Wheat: “And sometime early summer, we should have a decision in the Eleventh Circuit, which will bring an end to this four-year fight one way or another."

FDA and DOJ both declined to comment for this article.