I’ll Have the Genetically Engineered Salmon, Please

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While it may have an odd sounding name — “genetically engineered salmon” — you may now have a new lunch or dinner option.  The FDA announced last week that it issued the first approval for a genetically engineered animal intended for food, the AquAdvantage Salmon by AquaBounty Technologies, Inc.  At the same time, the FDA issued two guidances for manufacturers who wish to voluntarily label their products as containing ingredients from genetically engineered or non-genetically engineered sources: a draft guidance on labeling foods derived from Atlantic salmon, and a final guidance on foods derived from genetically engineered plants.


Dietary Supplement Crackdown is Certain to Increase Lawsuits

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Last week the Food and Drug Administration (“FDA”) announced the results of a year-long investigation of dietary supplements, which resulted in civil injunctions and criminal actions against 117 manufacturers and/or distributors of “tainted products falsely marketed as dietary supplements.”  See FDA press release.

To provide a brief history, Congress first defined the term “dietary supplement” in its 1994 Dietary Supplement Health and Education Act (DSHEA) as a product taken by mouth that contains a dietary ingredient intended to supplement the diet.  This characterization placed dietary supplements under the regulatory umbrella of foods and not drugs.  As a practical matter, dietary supplements face laxer regulatory standards compared to their prescription counterparts.  For example, unlike with prescription drugs, no prerequisites based on efficacy or safety exist for dietary supplements prior to their entry in the marketplace.

Largely because of the lax regulatory scheme and limited enforcement powers of the FDA, adulterated, misbranded and mislabeled dietary supplements have made their way to market.   The FDA has attempted to control the problems plaguing the dietary supplement industry for decades.  For example, in December 2010, the FDA sent a letter to manufacturers expressing “concern about undeclared or deceptively labeled ingredients in products marketed as dietary supplements.”  See press release.  However, five years ago, the FDA placed the onus on manufacturers and distributors to police themselves and “ensure that their products compl[ied] with the law.”  Id.   In other words, self-police and self-report.

Last week, the FDA supplemented (pun intended) its own limited enforcement powers by joining forces with the U.S. Department of Justice, the Internal Revenue Service’s Criminal Investigation Division, the Federal Trade Commission, the U.S. Postal Inspection Service, the Department of Defense and the U.S. Anti-Doping Agency to take action against alleged violators.  See FDA press release.    The synchronized operation resulted in arrests, seizure of investment accounts, real estate and even luxury cars.  In addition, the FDA has issued warnings for more than 100 products found to contain hidden active ingredients, which could lead to additional recalls of dietary supplements.

According to the Washington Post, sales of dietary supplements in 2013 reached $13 billion.  See article.  According to one study examining reasons for use, it was reported that more than half of American adults use some form of dietary supplements.  See study.  The most common supplements fall into three categories: (1) body-building agents; (2) weight-loss aids; and (3) sexual enhancers.

From a products liability perspective, increased popularity and use often translates to inflated numbers of consumers that are eligible to join class actions or bring individual civil lawsuits in the wake of a major recall or government investigation.  Thus, as consumers become more aware of the health risks associated with some dietary supplements, they may opt to renew gym memberships instead of refilling dietary pill bottles—and file a lawsuit or two.  At the Monitor, we will keep a close eye on this developing area of the law.

Under the False Claims Act, Even Dead Men Have To Pay

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The saying goes that there are two certainties in life: taxes and death.  But maybe that saying should be amended to include the False Claims Act.  Last month, DOJ settled an FCA case brought against the estate of the former owner and president of a bank in Arkansas.  United States v. Estate of Layton P. Stuart, et al., No. 1:15-cv-01044-RDM (D.D.C.).  The case underscores just how far DOJ will go to enforce FCA claims, no matter whether the defendant has since left the building.

Earlier this year, DOJ filed suit against, and promptly settled with, the estate Layton P. Stuart, the former owner, president and CEO of One Financial Corporation and its wholly owned subsidiary, One Bank & Trust.  The suit capped a peculiar series of events.  DOJ alleged that Stuart and One Financial violated the False Claims Act by making false statements about the financial condition of One Financial and One Bank to induce the Department of the Treasury to invest Troubled Asset Relief Program (TARP) funds in One Financial.  Specifically, the United States alleged that in 2008 and 2009, Stuart applied for a TARP investment on behalf of One Financial.  As part of the application process, Stuart purportedly made false statements about the financial condition of One Financial and One Bank and about the intended use of the TARP funds.  In particular, Stuart allegedly concealed serial frauds that he and other One Financial directors and One Bank executives had been committing, and intended to continue committing, on One Bank.  The schemes involved Stuart’s diversion of One Bank funds for personal use, including Stuart’s purchase of luxury vehicles for his wife and children.  For example, the investigation uncovered evidence that Stuart (1) had created a series of sham trusts that he used to divert money from Financial One; (2) had diverted $2.185 million into his personal accounts within two weeks of receiving TARP funds in 2009; and (3) had caused Financial One to incur over $17 million in losses.

Stuart was terminated from One Financial and One Bank in September 2012.  Six months later, he passed away.  However, it wasn’t until July 2015 that DOJ filed suit under the FCA.  (In the interim, a civil forfeiture action had been filed against the assets of Stuart’s estate and the sham trusts he had created.)  The civil forfeiture action was settled and dismissed contemporaneously with the False Claims Act settlement with the Stuart estate and trusts.  Under these settlements, in addition to the $4 million recovered by the United States, $6.9 million will be received by One Bank and $4 million will be returned to the Stuart trusts.

Beyond stating the obvious — don’t make material misrepresentations when applying for federal funds — the peculiar facts of this case make it difficult to distill any takeaway lessons.  What is clear, though, is that DOJ will continue to aggressively use the FCA to prosecute fraud regardless of whether the wrongdoer is deceased.

FDA Invites Public to Help Define “Natural”

When last we blogged about the ongoing battle over “natural” labeling, litigation over use of the word “natural” to describe food products containing genetically modified organisms (“GMOs”) was on the rise.  Several courts requested guidance from the FDA, while others piggybacked on these requests by staying or dismissing their casesRead the full article →