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Diet supplement maker wages war of nutrition

Jared Wheat tells that federal prosecutors have distorted the truth, smeared his reputation and harmed his  dietary supplement business in an effort to convict him of  manufacturing generic prescription drugs and selling them over the Internet.
Image: Employees work at Hi-Tech Pharmaceuticals
Hi-Tech Pharmaceuticals workers on the bottling line at the company's headquarters in Norcross, Ga. Erik S. Lesser / for
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Jared Wheat summons the high dudgeon of a wronged man as he lists his grievances against federal prosecutors. They have distorted the truth, smeared his reputation and harmed his thriving dietary supplement business, he says, in an effort to send him to prison for allegedly manufacturing generic prescription drugs and selling them over the Internet.

“I’ve just gotten the rough end of the stick all around,” Wheat told, sitting at the head of a conference table piled with pill bottles in the headquarters of Hi-Tech Pharmaceuticals, the supplement company he founded in 1994.  “… If you have a fight, you want a fair fight. You don’t want all this other stuff … trying to disprove negatives and fight things that simply are not true.”

Wheat, 36, has a powerful incentive to protest his innocence. He is facing at least 20 years in prison and the forfeiture of his business if he is convicted of the most serious charges against him. Among other things, the prosecution has accused Wheat of engaging in a “continuing criminal enterprise” — a racketeering statute typically used to prosecute organized crime syndicates.

But this is no one-sided fight. Wheat, who runs what he says was once a $30 million-a-year business selling herbal products to major retailers around the nation, is funneling big bucks into the battle.

He said he already has spent close to $3 million in legal fees to challenge almost every aspect of the government’s case. At the same time, Hi-Tech is waging a long-running court battle against the Federal Trade Commission over allegedly deceptive marketing materials, suing the Food and Drug Administration over the agency’s ban on the use of ephedra in diet supplements and contesting a raft of lawsuits, many of which Hi-Tech has filed against competitors. All told, Wheat said, he has about 20 lawyers working on various cases.

‘We'll stand our ground’
“We’re an aggressive company, but we don’t break the law,” he said. “… Basically we’ll stand our ground if we feel we’re right, versus a lot of companies (that) will say they don’t want to litigate against the federal government.”

The case is being closely watched by other players in the supplement industry, who see it and another recent high-profile case — the Feb. 22 conviction of top officials of the company behind the “Smilin’ Bob” ads and the sexual enhancement product Enzyte on fraud and money laundering charges — as evidence that the government is moving to rein in what it sees as the worst actors in the rough-and-tumble trade.  

It also has disquieting overtones for the millions of Americans who consume herbal supplements, professionally made and packaged products purchased from major U.S. retailers that may not be as safe as the sellers would have them believe.

A 45-count indictment unsealed on Sept. 7, 2006, alleged that Wheat, Hi-Tech and other company officials and associates conspired to manufacture “generic” prescription drugs and other controlled substances, including anabolic steroids, in Belize and illegally import them into the United States. It further alleged that they marketed the products as generic prescription drugs from Canada directly to U.S. citizens through various Web sites, and also engaged in mail fraud and wire fraud.

The “continuing criminal enterprise” charge against Wheat was based on an allegation that he organized and participated in an earlier scheme to distribute GHB, a central-nervous system depressant that gained notoriety in the 1990s as a “date rape” drug, and gamma butyrolactone, or GBL, a chemical used in many industrial cleaning solvents and paint thinners.

The indictment did not directly reference Hi-Tech’s successful line of dietary supplements, which it manufactures at its headquarters in Norcross, Ga., and distributes to many major retailers as well as more than 80,000 convenience stores. But subsequent court documents filed by the prosecution quoted unidentified “cooperating sources” as stating that Wheat and Hi-Tech had spiked the company’s diet products with ephedrine alkaloids, even after an FDA ban on the use of the ingredient in dietary supplements was reinstated by a federal appeals court in August 2006. The FDA banned the substance — the active agent in the ephedra plant — in 2004 after finding it presented “an unreasonable risk of illness or injury.”

Wheat, who is scheduled to stand trial this summer, has pleaded not guilty to all charges.

A public counteroffensive
After losing some customers as a result of the case, Wheat has mounted a public counteroffensive, including publishing a rebuttal on the Internet in which he accuses the prosecution of exhibiting “a reckless disregard … for the truth.”

In his piece, Wheat also wrote that “ irresponsibly and inaccurately reported that Hi-Tech Pharmaceuticals … engaged in ‘mob tactics’ to quash a federal investigation” in an April 2007 article on the case. That led to an exchange of e-mail and phone calls that resulted in an exclusive interview with Wheat at Hi-Tech’s sprawling 40,000-square-foot office and warehouse complex just outside Atlanta.

In the 3½-hour interview, Wheat and two of his attorneys — Arthur W. Leach and Victor Kelley — portrayed the government’s case as weaker than chamomile tea.

They freely acknowledged that Wheat and other individuals — but not Hi-Tech Pharmaceuticals — manufactured prescription drugs and other controlled substances at a facility in Belize, but they said the enterprise was legal under Belizean law and the products were intended only for sale in countries where the pharmaceutical companies that control the patents had not sought legal protection for their products, including Ambien, Cialis, Lipitor, Valium, Viagra and Xanax.

They also said that the Internet sites that sold the prescription drugs and other controlled substances directly to customers in the U.S. were operated by others, who purchased their products but over whom they had no control. Among them, they said, were five original co-defendants, all of whom have reached plea deals and are now cooperating with prosecutors.

“As we have told the government, we have a complete defense to the case that has been presented, both for the company and for Jared and all the individuals that remain in the case,” said Leach, a former assistant U.S. attorney turned criminal defense lawyer.

Or, as Wheat put it, “The guilty people have pled guilty. The innocent ones will take this to trial.” 

Attack on former courtroom rival
In addition to attacking the prosecution case on its merits, Wheat bitterly assailed Aaron Danzig, a former assistant U.S. attorney in Atlanta who handled the case before taking a job in private practice in December.

“He’s taken the Mike Nifong approach,” Wheat said, comparing his departed courtroom adversary to the discredited district attorney in the 2006 Duke University rape case.

Wheat particularly pilloried the prosecution’s allegation in court documents filed in March 2007 that he and other company officials had discussed killing an FDA agent and blackmailing Danzig.

The prosecution never produced evidence to back up the allegation, which was contained in documents opposing a motion to release Wheat and Hi-Tech Vice President Stephen Smith on bond, or even identify its source. That led U.S. Magistrate Judge Linda T. Walker to release Wheat on a $7.5 million bond in June 2007 — after he had spent nearly nine months behind bars.

In the interview, Wheat denied that he ever discussed or had knowledge of any such plots.

“I never have done such a thing,” he said. “I’ve never been in as much as a fistfight since I was a 10-year-old kid. I’m not a violent person and Hi-Tech is not that kind of company.”

He accused Danzig of leveling the accusation without proof in an effort to turn up the pressure on him to plead guilty.

‘You're fighting the strongest machine’
“He was trying to keep me detained … so we’d lose our customers, so we would go under, so I could not pay these gentlemen and other people to keep fighting,” he said. “You’re fighting … the strongest machine in the world, being the federal government, and to do so on a shoestring budget just isn’t going to happen.”

He also said that when reported the allegations, two of Hi-Tech’s biggest customers — Wal-Mart and the CVS pharmacy chain — canceled contracts with the company worth $5 million a year.

Among other things, Wheat also accused the former prosecutor of:

  • Inaccurately portraying him in court filings as a “lifelong drug dealer” based on a single conviction for dealing the drug ecstasy at the age of 19. Wheat also denied he was involved in manufacturing a “nutrient supplement” called Verve, which court documents filed by the prosecution said contained GHB and GBL supplied by Wheat.
  • Applied so much pressure to Hi-Tech official and co-defendant Thomas Holda’s wife, Jessica, that she committed suicide and left behind a note blaming Danzig.

“Her anxiety … overcame her and she put a bullet in her head and wrote a suicide note blaming the prosecutor,” Wheat said. “It’s the biggest tragedy to this case. The amount of money it’s cost me to fight this case, losing the CVS and Wal-Mart (accounts), that’s nothing compared to losing the life of a mid-20s girl who had a year-and-a-half-old daughter. That’s just not supposed to happen.”

Ex-prosecutor responds
Danzig, contacted at the Atlanta law office where he now works, said he was “still bound by confidentiality and ethical obligations” to the U.S. Attorney’s Office and could not comment on specific allegations not in the court record.

But, in an e-mail responding to questions from, he pointed to rulings in which judges had rejected defense motions to dismiss the case for prosecutorial misconduct and strike certain accusations from the record.

He also said he was surprised by the personal nature of the attacks.

“I am struck that Mr. Wheat and his counsel raise issue with me personally. I do not harbor any animosity toward either the defendants or the attorneys in this case,” he wrote. “My colleagues and I, along with FDA and DEA agents, identified potential criminal violations and investigated them. The grand jury chose to indict these defendants. To date, five defendants have pleaded guilty to the conspiracy, admitted that the allegations in the indictment are accurate, and agreed to cooperate against the remaining defendants.”

U.S. Attorney David E. Nahmias of the Northern District of Georgia, in a statement released by his office, said, “Personal attacks on prosecutors do not change the law or the facts of a case. Former AUSA Danzig served our office with distinction for five years. His work and that of the other prosecutors and agents in this case is consistent with the high ethical standards set by this office and the U.S. Department of Justice. We will continue to answer specific legal and factual challenges regarding this case if and when they are made in court.”

The prosecution, now led by assistant U.S. Attorney Robert McBurney, is already deep in legal and factual challenges. A recent joint motion by the defense and prosecution noted that “the scope of the charges and the resulting discovery (literally millions of pages) combined with the geographic reach of the case — with evidence derived from Belize in the South, to New Jersey in the North, and to California in the West — make this prosecution unusually complex. … This complexity has been amply demonstrated by the current and expected pre-trial litigation concerning such matters as the legality of foreign searches and the admissibility of reams of scientific evidence.”

Pre-trial skirmishing
Prosecutors have so far prevailed in most pre-trial skirmishing.

U.S. District Judge Jack T. Camp denied the defense’s motion claiming that prosecution on essentially the same charges brought in Belize amounts to “double jeopardy” and has rejected efforts to quash the searches of several defendants’ homes and suppress evidence seized there and in Belize.

But Walker, the magistrate judge, did suggest the prosecution’s case isn’t air-tight when she ordered Wheat freed on bond.

“Stated simply, the government’s presentation … indicates the evidence indicative of Wheat’s involvement in the charged criminal activities is not as strong as the court previously thought when it balanced the factors and ordered detention,” she said.

A key point in the trial, currently scheduled to begin on June 3, will be what — if any — involvement Hi-Tech Pharmaceuticals had in the Belize operation.  If the prosecution can win the case and show Hi-Tech participated in the venture, the government would stand to take control of the company under criminal forfeiture laws.

Was company involved in Belize operation?
Wheat insists that Hi-Tech had “had zero to do with the pharmaceutical business.”

In the interview, Wheat said that Hi-Tech’s only presence in Belize was a small operation cultivating some herbs that grow in the Caribbean and sending them to China so that the active ingredients could be extracted.

But in his e-mail, Danzig pointed to several exhibits the prosecution has introduced as evidence, including a name-change document changing the name of the Belize company from Hi-Tech Pharmaceuticals to Pegasus Resources and invoices for drugs and equipment to be sent to Belize that were paid for with a Hi-Tech Pharmaceuticals check.

For Wheat’s part, he admits to having second thoughts about his decision to launch the Belize operation. But he remains convinced that his business plan, which he said was based on the generic manufacturing operations of companies in China and India that also supply raw ingredients to the U.S. pharmaceutical industry, remains viable.

“If I had it to do over, I wouldn’t,” he said. “But I may do it once I’m vindicated and just have a lot more Vic Kelleys and Art Leaches monitoring the business model.”