[Federal Register Volume 69, Number 37 (Wednesday, February 25, 2004)]
[Notices]
[Pages 8682-8696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4127]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 01-10]


Branex, Incorporated; Revocation of Registration

    On December 28, 2000, the then-Deputy Administrator of the Drug

[[Page 8683]]

Enforcement Administration (DEA), issued an Order to Show Cause and 
Immediate Suspension of Registration to Branex, Incorporated 
(Respondent). The Respondent was notified of a preliminary finding that 
pursuant to evidence set forth therein, it was responsible for, inter 
alia, the diversion of large quantities of pseudoephedrine into other 
than legitimate channels. In addition to the parties presenting 
evidence at a subsequent administrative hearing, the then-Administrator 
also ruled on an interlocutory appeal brought by Government counsel 
regarding the applicability of the Jencks Act to DEA administrative 
proceedings. The Acting Deputy Administrator has considered the record 
in its entirety, and pursuant to 21 CFR 1316.67, hereby issues her 
final order based upon findings of fact and conclusions of law as 
hereinafter set forth.
    The Order to Show Cause--Immediate Suspension Registration alleged, 
in substance, the following:
    1. List I chemicals are legitimate chemicals that also may be used 
in the illicit manufacture of a controlled substance in violation of 
the Controlled Substances Act, 21 U.S.C. 802(34), 21 CFR 1310.02(a). 
Ephedrine and pseudoephedrine are list I chemicals which are commonly 
used to illegally manufacture methamphetamine, a Schedule II controlled 
substance.
    2. Mr. Frank Marquez is the owner and president of the Respondent. 
Respondent is a wholesale distributor of sundry items and over-the-
counter medical preparations in the West Florida area. On November 10, 
1997, Respondent submitted an application for registration as a 
distributor of the listed chemicals pseudoephedrine, ephedrine and 
phenylpropanolamine. In February 1998, DEA conducted a pre-registration 
inspection at which Mr. Marquez was provided a copy of DEA regulations 
related to the handling of listed chemicals. Mr. Marquez was advised of 
the suspicious transaction reporting requirements, and he volunteered 
that he would not engage in cash transactions. The Respondent's 
application for registration to distribute list I chemicals was 
approved on February 19, 1998.
    3. Between July 23 and September 30, 1999, Respondent ordered 
approximately 2,592,000 tablets of pseudoephedrine from one 
manufacturer. In October 1999, Respondent attempted to obtain an 
additional 3-4 million tablets of pseudoephedrine from two other 
manufacturers. These amounts of pseudoephedrine are excessive for the 
short time periods between Respondent's registration with DEA and 
October 1999.
    4. On September 14 and 15, 1999, law enforcement agencies seized 
approximately 11,300 bottles of pseudoephedrine from clandestine 
laboratories in California. The lot numbers of the tablets seized 
matched the lot numbers for tablets purchased by Respondent.
    5. On October 15, 1999, DEA agents seized 4000 bottles of 
pseudoephedrine from a clandestine laboratory in Los Angeles, 
California. The Respondent had previously purchased 5,760 bottles of 
pseudoephedrine bearing the same lot number found on the bottles of 
pseudoephedrine seized in the clandestine laboratory.
    6. On July 31, 2000, DEA investigators served an Administrative 
Inspection Warrant at the Respondent's registered premises. Pursuant to 
the warrant, required records of purchases and sales of listed 
chemicals were acquired. An inventory of the listed chemical product on 
hand was also taken on that date. More then 41 million dosage units of 
pseudoephedrine were on hand.
    7. A subsequent review of purchase records revealed that during the 
period February 1998 to July 2000, Respondent purchased over 1.3 
million bottles of the listed chemical pseudoephedrine from six 
different suppliers, including three manufacturers and three 
distributors. The DEA chemical registrations of two of the Respondent's 
earlier suppliers were revoked or suspended on public interest grounds 
for distribution activity related to the diversion of pseudoephedrine.
    8. During September 2000, Respondent made three sales of 50 case 
lots of pseudoephedrine to a customer who paid cash and picked up the 
product from Respondent's location. Respondent failed to report this 
sale to DEA as a suspicious transaction.
    9. During the month of October 2000, an audit of these records was 
conducted by DEA. An opening inventory of ``zero'' was assigned for the 
audit period beginning on February 19, 1998. The physical count of July 
31, 2000, (388,699 bottles) was used as the closing inventory. A review 
of the purchase records indicated that Respondent received 1,354,164 
bottles of pseudoephedrine. A review of sales records indicated that 
Respondent sold 867,084 bottles. The audit concluded that Respondent 
was unable to account for 98,371 bottles of pseudoephedrine.
    10. The unaccounted for 98,371 bottles of pseudoephedrine product 
contained over nine million 60 mg. tablets. Such a quantity of 
pseudoephedrine is sufficient to illegally manufacture 350 to 400 
kilograms of methamphetamine.
    Based on his preliminary findings, and pursuant to 21 U.S.C. 
824(d), 21 CFR 1309.44(a), as well as the authority granted under 21 
CFR 0.100, the then-Deputy Administrator ordered the immediate 
suspension of the Respondent's DEA Certificate of Registration, 
002330BNY, as a distributor of list I chemicals, effective immediately. 
The suspension was to remain in effect until a final determination was 
reached in these proceedings. By letter dated January 24, 2001, the 
Respondent, through its legal counsel, timely filed a request for a 
hearing on the issues raised by the Order to Show Cause--Immediate 
Suspension of Registration, and the matter was docketed before 
Administrative Law Judge Mary Ellen Bittner (Judge Bittner).
    Following pre-hearing procedures, a hearing was held in Arlington, 
Virginia on July 19 and 20, 23 through 25, and August 7 through 10, and 
28 and 29, 2001. At the hearing, both parties called witnesses to 
testify and introduced documentary evidence. During the July 20 portion 
of the proceeding, and in response to a request by Respondent's counsel 
for certain evidentiary items from the Government, Judge Bittner ruled 
that the Jencks Act, Title 18 U.S.C. 3500, applies to DEA 
administrative proceedings; and further ruled, that following the 
direct examination of Government witnesses and upon timely request by 
Respondent, the Government is required to supply not only statements 
made and adopted by Government witnesses that apply to their direct 
testimony, but also pertinent testimony of such witnesses in prior DEA 
administrative proceedings.
    On July 23, 2001, counsel for the Government filed Government 
Motion in Opposition to Preliminary Ruling Regarding Respondent Request 
for Documents as Jencks Act Material (18 U.S.C. 3500) in the Form of 
Witnesses' Previous Testimony and Affidavits in All Prior DEA 
Administrative Hearings and Motion for Written Ruling in Anticipation 
of Interlocutory Appeal. By memorandum dated July 30, 2001, Judge 
Bittner issued a Memorandum to Counsel and Rulings on Motions, granting 
the Government's Motion for Written Ruling, and further certified the 
issue for interlocutory appeal pursuant to 21 CFR 1316.62. On August 3, 
2001, the then-Acting Administrator received the Government's 
Interlocutory Appeal of the Ruling of the Administrative Law Judge 
Regarding the Applicability of the Jencks Act (18 U.S.C. 3500) to DEA 
Administrative Proceedings Pursuant to

[[Page 8684]]

Title 21 CFR Part 1316, Subpart D. The then-Administrator also accepted 
on behalf of the Respondent a response in opposition to the 
Government's interlocutory appeal.
    In light of arguments raised by the referenced interlocutory appeal 
regarding the applicability of the Jencks Act to DEA administrative 
proceedings, and the likelihood that the matter will again be raised in 
the future DEA proceedings, the Acting Deputy Administrator has 
incorporated in the instant final order the then-Administrator's ruling 
on the interlocutory appeal. The Acting Deputy Administrator further 
adopts herein that then-Administrator's August 16, 2001, Order, 
summarized as follows:
    The Jencks Act, 18 U.S.C. 3500, provides in pertinent part that:
    (a) In any criminal prosecution brought by the United States, no 
statement or report in the possession of the United States which was 
made by a government witness or a prospective Government witness (other 
than the defendant) shall be the subject of subpoena, discovery, or 
inspection until said witness has testified on direct examination in 
the trial of the case.
    (b) After a witness called by the United States has testified on 
direct examination, the court shall, on motion of the defendant, order 
the United States to produce any statement (as hereinafter defined) of 
the witness in the possession of the United States which relates to the 
subject matter as to which the witness has testified. If the entire 
contents of any such statement relate to the subject matter of the 
testimony of the witness, the court shall order it to be delivered 
directly to the defendant for his examination and use.
    (c) The term ``statement'', as used in subsections (b), (c), and 
(d) of this section in relation to any witness called by the United 
States, means--
    (1) A written statement made by said witness and signed or 
otherwise adopted or approved by him;
    (2) a stenographic, mechanical, electrical, or other recording, or 
a transcription thereof, which is a substantially verbatim recital of 
an oral statement made by said witness and recorded contemporaneously 
with the making of such oral statement; or
    (3) a statement, however taken or recorded, or a transcription 
thereof, if any, made by said witness to a grand jury.
    In support of the argument regarding the applicability of the 
Jencks Act to DEA administrative proceedings, Judge Bittner and the 
Respondent relied upon the court ruling Harvey Aluminum v. National 
Labor Relations Board, 335 F.2d 749 (9th Cir. 1964) (Harvey). Prior to 
the decision in that case, the National Labor Relations Board (NLRB), 
pursuant to the decision in NLRB v. Adhesive Products Corp., 258 F.2d 
403 (2d Cir. 1958), had modified its regulations governing 
administrative hearings before the NLRB in an attempt to apply the 
principle announced in Jencks v. United States, 353 U.S. 657 (1957) 
(Jencks decision). However, the Harvey court found the NLRB's attempt 
insufficient. In response to the NLRB's arguments that the Jencks Act 
could not be applied in full measure to its proceedings, the Harvey 
court stated:

    The rule applies to proceedings of the Board because ``the laws 
under which these agencies operate prescribe the fundamentals of 
fair play. Their proceedings must satisfy the pertinent demands of 
due process.'' Whether the compulsion of the rule is constitutional 
or statutory, the Board may not avoid it by adopting regulations 
inconsistent with its requirements.

    Harvey, 335 F.2d at 753. (Citations omitted).
    The Harvey court concluded that the NLRB's regulation did not meet 
the Constitutional requirements of due process.
    Subsequent to the Harvey decision, however, the Supreme Court of 
the United States found in the context of a criminal trial that 
violations of the Jencks Act did not rise to the level of denial of due 
process. ``[A]part from trials conducted in violation of express 
constitutional mandates, a constitutionally unfair trial takes place 
only where the barriers and safeguards are so relaxed or forgotten * * 
* that the proceeding is more a spectacle * * * or trial by ordeal * * 
* than a disciplined contest.'' United States v. Augenblick, 393 U.S. 
348, 356 (1969) (citations omitted). With regard to the Jencks decision 
and the Jencks Act, the Augenblick Court stated: ``Indeed our Jencks 
decision and the Jencks Act were not cast in constitutional terms. They 
state rules of evidence governing trials before federal tribunals * * 
*'' Id. at 356. See also United States v. James Barrett, 178 F.3d 34, 
54 (1st Cir. 1999), cert. denied sub nom. Barrett v. U.S., 528 U.S. 
1176 (2000); Humberto Martin v. United States, 109 F.3d 1177, 1178 (7th 
Cir. 1996); United States v. Joseph Thomas, Sr., 97 F.3d 1499, 1502 
(D.C. Cir. 1996); United States v. Lam Kwong-Wah, 924 F.2d 298, 310 (DC 
Cir. 1991); John K. Lincoln v. Franklin Y.K. Sunn, 807 F.2d 805, 816 
(9th Cir. 1987), cert. denied, 498 U.S. 907 (1990); Martin v. Maggio, 
711 F.2d 1273, 1283 (5th Cir. 1983), cert. denied sub nom. Martin v. 
Louisiana, 449 U.S. 998 (1980); Sperling v. Unites States, 692 F.2d 
223, 227 (2d Cir. 1982). See also Palermo v. United States, 360 U.S. 
343, 345 (1959) (stating with regard to the Jencks decision that the 
Court was ``[e]xercising our power, in the absence of statutory 
provision, to prescribe procedures for the administration of justice in 
the federal courts.'').
    The Acting Deputy Administrator adopts the finding of the then-
Administrator that from the cited authority, it is clear that the 
Jencks Act is a statutory rule of evidence governing federal trials, 
and that due process does not require its application. In light of the 
Supreme Court's decisions in Augenblick and Palermo, the then-
Administrator discounted subsequent lower court decision applying the 
Jencks Act to agency administrative proceedings on a due process basis.
    The then-Administrator concluded that a number of courts, including 
the United States Supreme Court, have expressly recognized that, by 
their plain language and intent, the Jencks decision and the Jencks Act 
apply only to federal criminal trials. See Palermo v. United States, 
360 U.S. at 347-8 (``[In passing the Jencks Act] Congress had 
determined to exercise its power to define the rules that should govern 
in this particular area in the trial of criminal cases * * *''); 
Lincoln v. Sunn, 807 F.2d at 816; Martin v. Maggio, 711 F.2d at 1283; 
Jeffery L. Silverman v. Commodity Futures Trading Commission, 549 F.2d 
28, 34 (7th Cir. 1977); L.G. Balfour Co. v. Federal Trade Commission, 
442 F.2d 1, 25 n.8 (7th Cir. 1971)(``It is clear the Jencks Act does 
not bind the Commission. That statute, enacted to restrict the impact 
of the Jencks case, is by its very terms peculiarly concerned with and 
applicable to criminal judicial proceedings.'').
    In footnote nine of its decision, the Harvey court suggest another 
possible basis for the application of the Jencks Act to NLRB 
proceedings. The court found that 29 U.S.C.A. 160(b) required that NLRB 
proceedings ``shall, so far as practicable, be conducted in accordance 
with the rules of evidence applicable in the federal district courts of 
the United States * * *'' The court then noted that ``[p]roduction of 
statements of the Jencks type would be required in a civil action in 
federal district court * * *'' Harvey, 335 F.2d at 758 n.9. The Harveys 
court thus recognized that by statute, the federal rules of evidence 
were made applicable to NLRB proceedings. The then-Administrator 
concluded that this situation was not applicable to the instant 
proceedings.
    In the Matter of Rosalind Cropper, M.D., 66 FR 41,040 (DEA 2001), 
the

[[Page 8685]]

then-Acting Administrator of DEA noted that the Federal Rules of 
Evidence (FRE) do not directly apply to DEA administrative proceedings. 
Id. at 41,041. The then-Acting Administrator of DEA noted that the 
Federal Rules of Evidence (FRE) do not directly apply to DEA 
administrative proceedings. Id. at 41,041. The then-Acting 
Administrator further noted that unless modified by agency rules, 
evidence is admitted in administrative proceedings in accordance with 5 
U.S.C. 556(d) of the Administrative Procedure Act (APA). Id.
    The then-Administrator reiterated that the Jencks Act is a rule of 
evidence governing criminal trials in federal courts. Augenblick, 393 
U.S. at 356; Palermo, 360 U.S. at 345, 347-8; Lincoln v. Sunn, 807 F.2d 
at 816; Martin v. Maggio, 711 F.2d at 1283; Silverman v. CFTC, 549 F.2d 
at 34; L.G. Balfour Co. v. Federal Trade Commission, 442 F.2d at 25 
n.8. The then-Administrator found the reasoning in Cropper applied with 
equal force to the instant case. As decided in Cropper, evidence is 
admitted in DEA administrative proceedings in accordance with section 
556 of the APA, as modified by agency regulations. Neither the APA, the 
provisions of 21 CFR 1316.59 which govern the submission and receipt of 
evidence in these proceedings, nor any of the other regulations 
governing DEA administrative proceedings found at 21 CFR Part 1316, 
Subpart D, appear to contain any provision applying the Jencks decision 
or the Jencks Act to DEA administrative proceedings. The then-
Administrator noted further that he was unaware of any published DEA 
final order that applied the Jencks Act to these proceedings.
    In light of the cited authority and the plain language of the 
Jencks Act, the then-Administrator found that by its terms, the Jencks 
Act is not applicable and has not been made applicable to DEA 
administrative proceedings. The then-Administrator further found that 
there is no constitutional requirement that the Jencks Act be made 
applicable to DEA administrative proceedings. Accordingly, the then-
Administrator concluded that pursuant to applicable law and regulations 
governing DEA administrative proceedings, neither the principles of the 
Jencks decision nor the Jencks Act are applicable to these proceedings. 
The then-Administrator further concluded that the Federal Advisory 
Committee Act, 5 U.S.C. Appendix, does not apply to DEA administrative 
proceedings, as 5 U.S.C. 556(d) and 21 CFR 1316.46(a) control the 
availability of transcripts of such proceedings.
    Following the then-Administrator's ruling on the interlocutory 
appeal, and at the conclusion of the administrative hearing, both 
parties filed Proposed Findings of Fact, Conclusion of Law, and 
Argument. On December 4, 2002, Judge Bittner issued her Opinion and 
Recommended Ruling, Findings of Fact, Conclusions of Law and Decision 
of the Administrative Law Judge (Opinion and Recommended Ruling) 
recommending that the Respondent's registration as a distributor of 
list I chemicals be revoked. Both the Government and the Respondent 
filed Exceptions to the Administrative Law Judge's Opinion and 
Recommended Ruling. Thereafter on January 21, 2003, Judge Bittner 
transmitted the record of these proceedings to the then-Deputy 
Administrator for a final decision.
    The Acting Deputy Administrator finds that list I chemicals are 
those that may be used in the manufacture of a controlled substance in 
violation of the Controlled Substances Act. 21 U.S.C. 802(34); 21 CFR 
1310.02(a). Pseudoephedrine and ephedrine are list I chemicals commonly 
used to illegally manufacture methamphetamine, a Schedule II controlled 
substance. Phenylpropanolamine, also a list I chemical, is a 
legitimately manufactured and distributed product used to provide 
relief of the symptoms resulting from irritation of the sinus, nasal 
and upper respiratory tract tissues, and is also used for weight 
control. Phenylpropanolamine is also a precursor chemical used in the 
illicit manufacture of methamphetamine and amphetamine. Methamphetamine 
is an extremely potent central nervous system stimulant, and its abuse 
is a growing problem in the United States.
    A ``regulated person'' is one who manufactures, distributes, 
imports, or exports inter alia a listed chemical. 21 U.S.C. 802(38). A 
``regulated transaction'' is inter alia, a distribution, receipt, sale, 
importation, or exportation of a threshold amount of a listed chemical. 
21 U.S.C. 802(39). The Acting Deputy Administrator finds all parties 
mentioned herein to be regulated persons, and all transactions 
mentioned herein to be regulated transactions, unless otherwise noted.
    The Acting Deputy Administrator finds that the Respondent was 
founded in 1982, in Tampa, Florida as a wholesale distributor servicing 
independent grocery and convenience stores, as well as establishments 
operating vending machines. The Respondent's president, Frank Marquez 
(Mr. Marquez), has been with the company since its inception. At the 
time of the hearing, the Respondent had approximately seventeen 
employees on its payroll.
    Mr. Marquez testified that he is a member of the American Wholesale 
Market Association and the National Candy Association. The Respondent, 
through the person of its president, is also director of the Vending 
Association of Florida (an organization comprised of approximately one 
hundred members), and director and vice president of the Florida Candy 
and Tobacco Wholesaler Association. The Respondent supplies its 
customers, merchandise from major domestic suppliers of candy and 
confectionary, meat, salty snacks, fruit juices and beverages, tobacco 
products, sundries and over-the counter medications.
    As noted above, on November 10, 1997, Respondent submitted an 
application for DEA registration as a distributor of the listed I 
chemicals. On or around February 14, 1998, diversion investigators from 
DEA's Tampa District Office (the Tampa District Office) conducted an 
on-site pre-registration inspection of the Respondent's proposed 
registered location. As part of that inspection, investigators provided 
Mr. Marquez with a copy of DEA regulations and reference materials 
commonly referred to as the ``Red Sheet'' and the ``Green Sheet.'' 
These documents direct an applicants' attention to matters involving 
the diversion of ephedrine, pseudoephedrine and phenylpropanolamine to 
the illicit production of emphetamine and methamphetamine. The ``red'' 
and ``green'' notices further direct an applicants' attention to the 
requirement of a DEA registrant to report ``suspicious orders'' of list 
I chemical products. Following the inspection, DEA Diversion 
Investigator Miguel Soler recommended that the Respondent's application 
for registration be approved, and on February 19, 1998, DEA issued to 
the Respondent a DEA Certificate of Registration to distribute the list 
I chemical products listed on its registration application.
    In her Opinion and Recommended Ruling, Judge Bittner found, that 
following the issuance of its DEA Certificate of Registration, the 
Respondent engaged in three different types of distribution businesses: 
(1) Selling pseudoephedrine in bottles and multi-dose blister packs to 
distributors and retailers; (2) supplying customers who stock vending 
machines with a variety of products, including, among others, sodas, 
over-the-counter medications, shavers, snacks, and toiletry items; and 
(3) through its subsidiary All Gourmet, selling high-

[[Page 8686]]

end chocolates, mints, and jellies to specialty retailers such as gift 
shops and firms that make gift baskets.
    Mr. Marquez testified that in 1999 and 2000, candy and snack 
products accounted for about approximately 90 to 92 percent of the 
Respondent's business and that during that two-year period, 
Respondent's aggregate sales were $29 or $30 million. As of the date of 
Mr. Marquez's testimony at the administrative hearing, the value of 
Respondent's inventory of all products that it carried was 
approximately $2 million.
    The Respondent presented further evidence that it services 
approximately 550 independent grocery stores, and that over the two 
years preceding the hearing in this matter, approximately 250 to 300 of 
those stores changed ownership, went out of business or changed names. 
Mr. Marquez testified that in March or April 1999, he decided to sell 
60-count, 60 milligram pseudoephedrine to retail stores. A customer 
list dated June 29, 2001, and admitted into evidence revealed that in 
addition to customers in Florida, the Respondent had 265 
pseudoephedrine customers in various parts of the United States 
including Michigan, Tennessee, Washington, New Jersey, Illinois, 
Oklahoma, and Texas, as well as six additional states.
    Mr. Marquez testified that he hired two salesmen, Habeke Tekelewold 
(Mr. Tekelewold) and Mustafa Ahmad (Mr. Ahmad) who were responsible 
generally for coordinating the Respondent's sale of pseudoephedrine 
products to its various customers, and determining the suitability of 
those customers. Mr. Marquez assigned to Mr. Tekelewold the task of 
ensuring that customers were properly licensed, and checking individual 
stores to further ensure that Respondent's products were properly 
shelved. Mr. Marquez further testified that the Respondent also 
required every potential customer to execute an agreement which, among 
other things, required customers to ``comply with all applicable DEA 
regulations, including reporting suspicious inquiries immediately to 
both DEA and Neil Laboratories, Incorporated.'' At the time of the 
hearing, Neil Laboratories, a DEA-registered manufacturer/distributor, 
was a supplier of list I chemical products to the Respondent.
    Mr. Marquez further testified that the Respondent employed 
specialized procedures for retail customers that wished to purchase 
over-the-counter drug products, including list I chemicals: a 
requirement of written purchase orders for all purchases of listed 
chemical products and the use of credit applications. Mr. Tekelewold 
testified that the Respondent also confirmed the identities of 
prospective retail customers by telephone, and following such contact, 
the Respondent would request copies of available business licenses. 
Upon receipt of those licenses, Respondent's personnel would conduct 
on-site visits.
    Mr. Marquez also testified to specialized procedures for customers 
that wished to purchase list I chemical products for resale: The 
Respondent would obtain a copy of the prospective customers' DEA 
registration and a copy of the principal's driver's license. That 
information would be sent to the Tampa District Office, along with a 
request for review and reply. Investigator Soler testified that on at 
least one occasion, the Respondent notified DEA of a suspicious 
customer, and DEA subsequently issued an advisory to the Respondent not 
to sell list I chemicals to that customer, to which the Respondent 
complied.
    In her Opinion and Recommended Ruling, Judge Bittner referenced 
testimony by Mr. Marquez that in February or March 2000, Respondent 
reduced its retail sale of pseudoephedrine products to 144 bottles per 
month; however, it appeared that some the 144-bottle cases contained 
120-count bottles. Mr. Marquez further testified that toward the middle 
of 2000, he purchased approximately 776 cases of 120-count bottles and 
785 cases of 100-count bottles of pseudoephedrine from Over-The-Counter 
Distribution Company (OTC Distribution), a list I chemical distributor 
located in Dallas, Texas, because the opportunity arose to buy in that 
quantity and Respondent had some difficulty obtaining enough 
pseudoephedrine to meet demand.
    Mr. Tekelewold testified that Respondent imposed a standard fee for 
$110 for overnight shipping of a case of pseudoephedrine and charged 
$50 for regular shipping, which would take approximately two or three 
days. Mr. Marques, testified however, that shipping for receipt the 
next day would cost $60 or $70 and shipping for receipt two days later 
would cost $45 or $50. Further evidence was presented that the choice 
of shipping arrangements was contingent upon how quickly the customer 
wanted to receive the product.
    Mr. Tekelewold further testified that for two years, he owned five 
gasoline stations in Florida, all of which he sold in 1999. According 
to Mr. Tekelewold, those gas stations sold candy, snacks, cold drinks, 
beer, cigarettes, and over-the-counter medication such as Sudafed, 
Tylenol, and Alka-Seltzer, in addition to gasoline. Mr. Tekelewold 
added that he sold these other products because :``[y]ou cannot survive 
only by selling gas * * *''
    In addition, Mr. Tekelewold testified that he did not handle non-
pseudoephedrine products for any of Respondent's customers except the 
gasoline stations he owned. Nevertheless, Judge Bittner noted, and the 
Acting Deputy Administrator concurs, that notwithstanding Mr. 
Tekelewold's testimony that some of Respondent's pseudoephedrine 
customers purchase other products from Respondent, there was no 
evidence to this effect in the record.The Respondent maintains a 
catalogue of its products, and those products are organized by product 
codes. For example Code 290 is ``HBA (Health and Beauty Aid)--
headache.'' Code 301 is listed as ``HBA nasal care.'' Pseudoephedrine 
products distributed by the Respondent are not listed in the Health and 
Beauty Aids section of the catalogue. Rather, the product is listed 
under Code 699--Grocery and General Merchandise. Mr. Marquez testified 
that he listed pseudoephedrine in this manner as a control measure to 
prevent every single customer from asking for these type of products.
    The Government presented evidence regarding DEA's issuance or 
warning letters to DEA-registered handlers of listed chemicals. DEA 
warning letters generally advise chemical registrants that their 
chemical product has been discovered at clandestine laboratory settings 
and how the registrants' distribution patterns may have contributed to 
the diversion of these products to the illicit manufacture of 
methamphetamine. These warning letters are issued by agency's Office of 
Diversion Control under its precursor chemical control program.
    Kevin Lee, a program analyst form the Office of Diversion Control 
testified on behalf of the Government. Mr. Lee testified that there are 
three situations where DEA warning letters are issued: where there is a 
clandestine laboratory seizure; at clandestine laboratory dump sites, 
where discarded bottles and related packaging are discovered; and in 
situations involving precursor trafficking.
    As of the date of the hearing in this matter, DEA had never issued 
a warning letter to the Respondent. However, Mr. Lee reviewed a 
compilation of the Respondent's receipt and purchase of list I chemical 
products from five entities that manufactured and/or distributed list I 
chemicals. With respect to these entities, DEA had issued approximately 
114 warning letters

[[Page 8687]]

regarding the diversion of listed chemicals.
    Further evidence was presented that the Respondent purchased from 
OTC Distribution 28,368 bottles of pseudoephedrine products with the 
same lot number as that which was the subject of a warning letter dated 
November 15, 2000, to Adams Laboratories, Incorporated (Adams). Adams, 
a manufacturer of list I chemicals, had previously sold the product to 
OTC Distribution. DEA sent additional warning letters to Adams on 
January 25 and February 5, 2001. By letter dated February 19, 2001, 
Adams directed its customer Wildcat Wholesale Distribution not to sell 
Adams' list I chemical products to certain named distributors, 
including the Respondent.
    DEA further presented the testimony of the manager of the Precursor 
Compliance Program for the California Bureau of Narcotic Enforcement 
(BNE), who testified that California has the largest number of 
clandestine laboratory seizures in the United States and 
methamphetamine is ``the number one drug problem in the state.'' The 
government witness testified that in 1986, California established a 
clandestine lab enforcement and precursor program to counter illegal 
methamphetamine production in the state. To that end, California has 
also established a warning letter program similar to DEA's whereby 
letters are issued to listed chemical distributors notifying these 
firms that their list I chemical products had been discovered as 
clandestine laboratory setting.
    The government witness further testified that in 2000, the State of 
California issued warning letters to two of the Respondent's list I 
chemical suppliers as a result of their product being found at a 
clandestine setting in the city of San Jose. It was subsequently 
determined that lot numbers of some of the chemical products found at 
that location were the same as those of product shipped to the 
Respondent and other distributors.
    In or around May 2000, the Tampa District Office learned that the 
Respondent had received large quantities of pseudoephedrine from 
various suppliers, including more than twenty-four million tablets from 
OTC Distribution. In response to this information, on July 31, 2000, 
diversion investigators from the Tampa District Office served an 
administrative inspection warrant on Mr. Marquez, authorizing the 
seizure of the Respondent's records of the sale and receipt of 
pseudoephedrine from July 31, 1998 to the date of the warrant.
    By all accounts, Mr. Marquez was cooperative in providing the 
requested records to DEA investigators and taking an inventory of the 
number of pseudoephedrine bottles his company had on hand. That 
inventory was conducted as part of a DEA audit of the Respondent's 
handling of list I chemicals over the then-two year period (1998 to 
2000) of the Respondent's registration with DEA. Diversion Investigator 
Solar also compiled a listing of all sales of pseudoephedrine by the 
Respondent. Specifically, Investigator Solar created a document which 
chronicled the names of the listed chemical products purchased by the 
Respondent, date of purchase, name of company that sold the product to 
the Respondent, lot number, the number of cases, number of bottles per 
case, and the number of pseudoephedrine tablets. Investigator Solar 
then turned over Respondent's invoices and other documentation to the 
National Drug Intelligence Center (NDIC) for completion of the audit. 
NDIC in turn, prepared a spreadsheet of all of the Respondent's 
transaction from the registrant's invoices, and also compiled a listing 
of the Respondent's purchases of pseudoephedrine.
    For the inventory, DEA investigators used an opening date of 
February 19, 1998, with an opening balance of zero. When a zero balance 
is used as part of an accountability audit, it operates as an 
assumption that a registrant does not have any of the audited products 
on hand as of the beginning date of the audit period. A zero opening 
inventory will also result in audit figures that understate any 
shortages or overages that may be uncovered. For example, if a 
registrant has list I chemical products on hand when an audit is 
initiated, but investigators instead decide that a zero balance will be 
used, those products on hand will not be considered a part of the audit 
for which the registrant is accountable. Therefore, for audit purposes, 
a zero opening inventory typically works in favor of the registrant.
    On July 31, 2000, DEA investigators performed a physical count of 
pseudoephedrine bottles on hand which totaled 388,699 bottles. This 
total was used as the closing inventory. Further review of Respondent's 
purchase records revealed that the firm received 1,354,164 bottles of 
pseudoephedrine, and its sales records revealed the sale of 867,084 
bottles of pseudoephedrine between the opening of business on February 
19, 1998 and July 31, 2000. The audit concluded that the Respondent was 
unable to account for 98,381 bottles of pseudoephedrine.
    During the December 29, 2000, execution of Order of Immediate 
Suspension, DEA investigators seized quantities of pseudoephedrine 
products which originated primarily from OTC Distribution. A DEA 
inventory of those products revealed that Respondent had on had 776 
cases (144 bottles each) of 120-count bottles, as well as 785 cases 
(144 bottles each) of 100-count bottles of pseudoephedrine.
    Mr. Marquez testified that following the execution of the Order of 
Immediate Suspension, he along with the Respondent's Operations Manager 
and Warehouse Manager respectively undertook a physical recount of 
Respondent's inventory of pseudoephedrine. The recount revealed that 
Respondent had 775 cases plus 139 bottles (120-count), and 786 cases of 
100-count bottles on hand. These numbers were in keeping with the 
Respondent's computerized inventory. While the recount totals 
apparently did not include additional bottle quantities of 
pseudoephedrine that Mr. Marquez subsequently testified were under 
seal, on June 9, 2001, the Respondent contracted with RGIS (RGIS) 
Inventory Specialist, a firm that specializes in inventories. The 
inventory conducted by RGIS revealed that Respondent had on hand 776 
cases (144 bottles each) of 120-count bottles of pseudoephedrine, 785 
cases plus 139 bottles of 100-count pseudoephedrine, as well as 88 
cases of product known as ``Action Blister.''
    The Government also presented evidence regarding visits by DEA 
investigators to various customers of the Respondent that conducted 
business in Florida and other parts of the United States. One such 
visit was initiated after Mr. Marquez sought from DEA information on a 
potential customer, Abdin International Tobacco (Abdin), Abdin, a DEA-
registered list I chemical distributor located in vicinity of Orlando, 
Florida, sought to purchase pseudoephedrine from the Respondent in or 
around early 2000. DEA's investigation revealed that Abdin sold list I 
chemical products primarily to convenience stores.
    Investigator Solar verified Abdin's registration status with DEA 
and so informed Mr. Marquez. Shortly thereafter on May 16, 2000, 
Respondent sold to Abdin 100 cases of pseudoephedrine (144 bottles of 
120 sixty milligram tablets) for $116,000. On June 1, 2000, the 
Respondent sold another 100 cases of pseudoephedrine (144 bottles of 
120 sixty milligram tablets) to Abdin for $104,400, which was paid by 
bank draft. On September 21, 2000, the Respondent sold an additional 50 
cases of pseudoephedrine

[[Page 8688]]

(144 bottles (120-count) of sixty milligram tablets) to Abdin. This 
particular order was picked up by Abdin's owner who in turn paid 
$50,040 in cash for the order.
    Investigator Soler testified that the above transactions were 
suspicious. He based his conclusion on the quantity of product, which 
Investigator Soler found to be ``very large,'' that Mr. Abdin picked up 
the product from the Respondent's facility, and that one of the orders 
was paid for in cash. There is no evidence in the record that the 
Respondent ever reported any of these transactions to DEA as 
suspicious.
    During his testimony, Mr. Marquez conceded that the owner of Abdin 
paid cash for fifty cases of pseudoephedrine on September 21, 2000. Mr. 
Marquez explained, however, that the merchandise was supposed to be 
paid for with a cashier's check, but Abdin's owner arrived at 
Respondent's facility early open morning representing that he had not 
had time to go to the bank. Mr. Marquez testified that he was further 
informed by Mr. Abdin that the latter had cash from his sales the 
previous day to cover the purchase, and as a result, Mr. Marquez 
accepted the cash payment.
    Judge Bittner concluded that ABdin's cash payment to the Respondent 
of more than $50,000 for the fifty cases of pseudoephedrine on 
September 21, 2000 was suspicious and should have been reported to DEA. 
The Acting Deputy Administrator concurs with Judge Bittner's finding 
with respect to this particular transaction, as well as her finding 
that the suspicious nature of the transaction was not necessarily 
related to the owner of Abdin picking up the order from Respondent's 
warehouse.
    DEA Diversion Investigator Arthur Fierman-Rentas of the Tampa 
District Office testified that on May 29, 2001, he visited five 
convenience stores in the Tampa area which according to Respondent's 
invoices, purchased pseudoephedrine from the Respondent at various 
periods between 1999 and 2000. According to Investigator Fierman-
Rentas, none of the five stores had any list I chemical products on 
display as of the date of his visit.
    One of the establishments visited by Investigator Fierman-Rentas 
was Ali's West Indian African and American (Ali's) which purportedly 
purchased thirty-nine cases of pseudoephedrine from the Respondent 
between 1999 and 2000. Investigator Fierman-Tentas testified that upon 
his arrival at that location, Ali's former premises were occupied by an 
establishment with the business name Third World Grocers. The clerk 
present at the location informed investigator Fierman-Rentas that Ali's 
had gone out of business three years earlier. The clerk further stated 
that he had never heard of the Respondent, his store had no record of 
transactions involving listed chemicals, and stocked no listed chemical 
products. Nevertheless, evidence adduced at the hearing revealed that 
Respondent maintained a file folder for Ali's which contained an 
address sheet, a Department of Revenue certificate, and at least one 
order form dated February 14, 2000. The order form bore the customer's 
name, address and information that 576 bottles of pseudoephedrine were 
ordered at a price of $2,016 plus $50 shipping.
    Investigator Fierman-Rentas also visited Main Grocery, a Tampa area 
grocery-convenience store, which purportedly purchased forty-one cases 
of pseudoephedrine from the Respondent between 1999 and 2000. The owner 
of Main Grocery told Investigator Fierman-Rentas that he had owned the 
store since March 2001, had never heard of Respondent, and had no 
invoices from Respondent available. It appears from the record that the 
Respondent had discontinued its sale of pseudoephedrine to Main Grocery 
prior to its change of ownership.
    DEA's investigation further disclosed that during 1999 and 2000, 
the Respondent sold forty-five cases of pseudoephedrine in Super Food 
Supermarket, a convenience store located in Tampa. Investigator 
Fierman-Rentas testified however, that the location Respondent listed 
for Super Food Supermarket was occupied by an establishment with the 
business name, Y & S Supermarket. The individual present informed DEA 
investigators that he had owned the store since February 10, 1999, but 
he had no invoices from Respondent available, and did not know if 
Respondent had sold pseudoephedrine to the store.
    Investigator Fierman-Rentas also testified to his visit of Flamingo 
Food Mart. The store manager was not present at the time of the 
inspection, but the clerk at that location agreed to assist the 
investigator by telephoning the store manager. When subsequently 
contacted, the store's manager informed DEA personnel that he had never 
heard of Respondent, did not have any invoices of transactions with the 
Respondent and did not sell list I chemicals. Investigator Fierman-
Rentas also asked the clerk at Rainbow Food Place Number 2 to telephone 
the store manager, who was not present at the time of the inspection. 
That store's manager subsequently informed Investigator Fierman-Rentas 
that his bookkeeper had all his invoices and he could not remember 
whether or not the store had bought list I chemical products from 
Respondent. A subsequent visit to Rainbow Food Place Number I yielded 
similar results, where the clerk informed Investigator Fierman-Rentas 
that the owners of the store had been killed the previous year, that 
there were no invoices of transactions involving the Respondent, and 
that he had never heard of Respondent.
    Senior Diversion Investigator Ira Wald, also of the Tampa District 
Office testified that on May 24, 2001, he visited seven additional 
stores in Florida that according to Respondent's records, were 
customers for pseudoephedrine products: Georgia discount Store, Cedar 
Market, Quick Trip Number 1, and Stop 1 in St. Petersburg, Quick Trip 
Number 2 in Largo, Munchee's No. 101 in Clearwater, and Munchee's No. 
102 in Dunedin.
    DEA's investigation revealed that the Respondent supplied Georgia 
Discount Store with forty-three cases of pseudoephedrine between 1999 
and 2000. While at the location for that customer, Investigator Wald 
spoke to a clerk, who said that he had heard of Respondent but had no 
records. Although the sign on the store read ``Georgia Meat Market,'' 
Respondent's invoices listed the name of the store as ``Georgia 
Discount Store.'' While list I products displayed on the shelves of the 
store were of the brand-name variety containing thirty-milligrams of 
pseudoephedrine per dosage unit, there were no products with lot 
numbers corresponding to those on Respondent's invoices for this 
customer. Additional testimony from a witness for the Respondent 
revealed that this customer specialized in the sale of meat products.
    DEA's investigation revealed that between 1999 and 2000, the 
Respondent supplied Cedar Market, a grocery store, with thirty-nine 
cases of pseudoephedrine. According to Investigator Wald, the manager 
of that location claimed that he had not heard of Respondent, there 
were no invoices, and there was no pseudoephedrine or other list I 
chemical products on display.
    DEA's investigation revealed that between 1999 and 2000, the 
Respondent supplied Quick Trip Number 1, a gas station, with forty-one 
cases of pseudoephedrine. Investigator Wald found the pseudoephedrine 
product ``Mini-Thins'' in stock, but the lot numbers did not correspond 
to those on Respondent's invoices. The clerk present did not have any 
invoices and had not heard of Respondent.
    With respect to Quick Trip Number 2, a convenience store, DEA's 
investigation

[[Page 8689]]

revealed that between 1999 and 2000, the Respondent supplied this 
establishment with forty-one cases of pseudoephedrine. A review of the 
record regarding this customer, as well as a review of Respondent's 
sale of pseudoephedrine to Munchee's 101 (to which the Respondent 
supplied thirty-five cases of pseudoephedrine between 1999 and 2000), 
revealed that there were no list I chemical products on display, the 
respective clerks had never heard of Respondent and did not have 
invoices of any transactions involving the Respondent. Likewise, 
according to Investigator Wald, Munchee's No. 102, a convenience and 
grocery store that was supplied thirty-nine cases of pseudoephedrine by 
the Respondent between 1999 and 2000, had no list I products in stock. 
The clerk at Munchee's 102 informed DEA personnel that he was not the 
manager, had not bought merchandise from, or ever heard of Respondent, 
and did not have any invoices for its products.
    With respect to Stop 1, a grocery store, DEA's investigation 
revealed that between 1999 and 2000, the Respondent supplied this 
establishment with thirty-seven cases of pseudoephedrine. Investigator 
Wald testified that Stop 1 carried a brand name product containing 
pseudoephedrine, but the clerk had never heard of Respondent and did 
not maintain invoices for its products.
    DEA Diversion Investigator Deborah George of the agency's Orlando, 
Florida office, testified to her visits to the following Orlando-area 
customers of the Respondent on June 1, 2001: Jules Gifts, Inc., La 
Belle Creole, and S & A Gift Shop in Orlando, and Publix Supermarket, 
Fresh Supermarket & Gifts, Bargain Zone Grocery, and Little Bargain 
Zone 2 in Kissimmee. At the time of her visits, Investigator 
George did not identify herself as a DEA investigator or speak to 
owners or managers, but looked in the stores to see whether 
Respondent's listed chemical products were on the shelf.
    Investigator George testified that a review of the Respondent's 
records revealed a customer known as Jules Gifts; however, a subsequent 
check of that location revealed that the business was a residence. Mr. 
Marquez acknowledged that the address listed on Jules Gifts' Florida 
Department of Revenue registration was the owner's residence, but that 
Mr. Tekelewold assured him that he had been to the store and made sure 
that the product was going to a real retail business. Mr. Marquez also 
acknowledged that there was no document in the customer file indicating 
a different shipping address and that a United Parcel Service record of 
shipment that Respondent offered into evidence showed the residential 
address as the location where pseudoephedrine products were eventually 
shipped.
    Investigator George testified to her visit to the location of a 
customer listed in the Respondent's records as La Belle Creole. It was 
later determined that La Belle Creole was a restaurant named Havana's 
2. Investigator George did not go into the restaurant. Mr. 
Tekelewold testified that La Belle Creole was a grocery store and a 
customer of the Respondent until July 2000.
    Investigator George testified that the address listed for S&A Gift 
Shop was inside a Sheraton hotel, and that she did not see any of 
Respondent's products in the shop. Mr. Tekelewold testified that the 
gift shop had been a Respondent customer until July or August 2000. 
Investigator George further testified that she did not see any of 
Respondent's listed chemical products in the Publix Supermarket, Little 
Bargain Zone 2, or Fresh Supermarket & Gifts, although she did 
see listed chemical products from other vendors at these locations. At 
Bargain Zone Grocery, Investigator George saw one display of individual 
packages of Max grand pseudoephedrine with six tablets in each package. 
Investigator George testified that she drove past Sonia's Deli & 
Grocery in Kissimmee, but did not enter the premises. Investigator 
George further testified that she did not visit various other 
Respondent customers at six additional locations because of information 
that persons associated with those establishments were under 
indictment.
    As part of its investigation of the Respondent's distribution 
practices, DEA also sought information about the company's shipment of 
pseudoephedrine products to customers in the State of New Jersey. To 
that end, on June 7, 2001, Diversion Investigators Suckcha Tharp and 
Andrew Breiner of DEA's Newark, New Jersey field office visited the 
Middle Eastern Market, the Al-Madena Deli, and the Neighborhood 
Supermarket, all in Paterson, New Jersey. These visits were initiated 
to corroborate information in the Respondent's invoices that these 
entities had been Respondent's customers between March and July 1999. 
The following day, the investigators visited the Getty Deli and the S&M 
Golden Mini-Mart, also in Paterson, for the same purpose. The owners of 
the Middle East Food Market and Al-Madena Deli told the investigators 
that they had acquired the stores after 1999, but had never purchased 
any of Respondent's products. The manager of the Neighborhood 
Supermarket said that his family had owned the store since 1982, but 
had never purchased any of Respondent's products.
    Similarly, the owners of the Golden Mini-Market and the Getty Deli 
both told the investigators that they had owned their respective stores 
for five years, but had never purchased any products from Respondent 
and did not have any in the store. A salesclerk of the Big Apple Meat 
Corporation further informed the investigators that the store had not 
purchased any products from Respondent in the year and a half that he 
had worked there. The investigators did not see any list I chemical 
products at any of the visited stores.
    Despite the above evidence suggesting that the Respondent had not 
engaged in regulated transactions with the above New Jersey-area 
customers, Mr. Marquez testified, and Respondent's records confirmed, 
that Respondent sold to six convenience stores in Paterson: Middle East 
Food Market, Al-Madena Grocery, Getty Deli, Big Apple Market, S&M 
Golden Mini-Market, and Neighborhood Supermarket, along with the Four 
Corner Store in Passaic, New Jersey. Specifically, the Respondent's 
invoices indicated that it sold 576 100-count bottles of 60-milligram 
pseudoephedrine (Revive brand product) to Middle East Food Market in 
April, May, and July 1999; four boxes of Revive 60 milligram to Al-
Madena Grocery Deli in April, May, and July 1999; four boxes of Revive 
60 milligram to Getty Deli in April, May, and July 1999; four boxes of 
Revive 60 milligram to Big Apple Meat Corporation in March, May, and 
July 1999; four boxes of Revive 60 milligram to S&M Golden Mini Market 
in March, May, and July 1999; and four boxes of Revive 60 milligram to 
Neighborhood Supermarket in March and May 1999. Mr. Ahmad also obtained 
written statements from three of Respondent's Paterson customers in 
which the customers stated in essence, that despite previous 
information provided to DEA investigators, they had in fact purchased 
list I chemical products from the Respondent at various times.
    Evidence was also presented at the administrative hearing regarding 
the Respondent's sale of list I chemical products to customers in the 
State of Michigan. Diversion Investigator Barbara Dobric of DEA's 
Detroit office, testified that in late May and early June 2001 she 
along with Diversion Group Supervisor Jim Geldhof visited twenty-three 
retail customers of Respondent in the metropolitan Detroit area to 
ascertain whether they had purchased

[[Page 8690]]

pseudoephedrine from Respondent. Among the retail establishments 
visited by DEA investigators were Dollar City Plus, a dollar store, and 
Duke's Oil, a gas station in Detroit. These retailers informed DEA that 
they had never dealt with Respondent because they ordered only from 
distributors in Michigan.
    DEA investigators learned from another purported customer, Woodward 
and Harmon Mini Mart in Highland Park, that the store had been at the 
same location for four years, but had never dealt with Respondent and 
did not sell list I chemical products. While at the location of yet 
another purported customer, Dollar Value in Redford, the owner told 
Investigator Dobric that he did not know if he had ever bought from 
Respondent and he had no invoices that would refresh his recollection. 
Investigator Dobric testified that the owners of two additional 
establishments did not have invoices of any purchases of list I 
chemicals, and therefore, could not remember whether or not they had 
purchased these products from the Respondent. One customer, a gasoline 
station located in Oak Park, informed Investigator Dobric that it had 
purchased product from Respondent and provided her with copies of 
invoices.
    Investigator Dobric also testified that DEA's inspections of ten 
additional customers of the Respondent, comprised primarily of gasoline 
stations, mini mart/convenience stores, and tobacco shops, revealed 
that they had in fact purchased list I chemical products from the 
Respondent, but could produce no invoices. Five other customers 
informed Investigator Dobric that their establishments had undergone 
name and/or ownership changes, and therefore could not provide 
information about prior owners. One establishment, the Tobacco and 
Cigar Shop, was vacant.
    The Government also presented evidence that sought to compare the 
Respondent's marketing of its bottled pseudoephedrine products and the 
marketing and distribution of Sudafed and other list I chemical 
products by nationally recognized pharmaceutical companies. As part of 
its evidentiary presentation, the Government introduced into evidence a 
declaration dated October 18, 2000, from Susan O'Connor, Pfizer's 
product manager for Sudafed for the two years prior to August 2000. 
Evidence presented during the hearing showed that since approximately 
1997, Sudafed had been sold only in blister packages; prior to that 
time it was also sold in bottles. Ms. O'Connor stated that until 1997, 
Sudafed was available as a 60-mg. tablet, but the product was 
discontinued because of low demand for it.
    Ms. O'Connor testified that Pfizer sold the 30-milligram strength 
product in packages of 24, 48, or 96 tablets, and delayed-released 
formulations of 120 milligrams in packages of ten and twenty caplets 
and of 240 milligrams in packages of five and ten caplets. She further 
stated that according to data from Information Resources, Incorporated, 
258,260,252 Sudafed 30-milligram tablets, 39,551,717 Sudafed 120-
milligram delayed-release caplets, and 6,594,430 Sudafed 240-milligram 
delayed-release caplets were sold at retail in the period August 1999 
through April 2000. According to her estimates, Pfizer sends 
approximately eighty-percent of its shipments directly to retailers and 
sends the remaining shipments to various wholesalers. Among Pfizer's 
major customers are drug chains, grocery chains, and mass merchandisers 
such as Wal-Mart, Target, Walgreen's, etc., and that non-retailer 
shipments are to ``reputable wholesalers.''
    With respect to comparisons between Pfizer's sale of 
pseudoephedrine products, and those of Pfizer's known competitors, Ms. 
O'Connor stated that she first heard of OTC Distributors from DEA and 
that, according to information provided to her by DEA, OTC Distributors 
sold approximately 92,162,540 60-mg. pseudoephedrine tablets between 
August 1999 and April 2000. According to Ms. O'Connor, ``[i]f a new 
brand had sales of that amount of pseudoephedrine in grocery chains or 
other known retail outlets, I am sure that I would have been aware of 
the brand's existence, since that volume of sales would represent 
competition for Sudafed.''
    The Government also presented testimony from Kara Pollard, product 
manager for Sudafed at Pfizer, who testified that as of the date of her 
testimony, the total annual factory dollar sales for Sudafed 30-
milligrams were approximately $50 million and the total sales for the 
entire Sudafed line would be about $190 million. Ms. Pollard also 
testified that year-to-date sales for 2001 had increased about 
seventeen percent over the same period the prior year due to a recall 
of products containing phenylpropanolamine. Ms. Pollard further 
testified that the average retail price varies among the more than 
twenty-four Sudafed products according to the package configuration and 
the type of retailer. Ms. Pollard characterized chains such as Wal-Mart 
as ``self-distributing,'' i.e., retail chains that buy product directly 
from manufacturers and store it in their own warehouses. It was Ms. 
Pollard's conclusion that sales to convenience stores are not a 
significant percentage of Pfizer's pseudoephedrine sales.
    The Government also introduced into evidence a declaration from 
Irene Day, project manager for over-the-counter cough and cold 
medications at L. Perrigo Company (Perrigo). Ms. Day testified that 
Perrigo is the largest manufacturer of over-the-counter pharmaceutical 
products for the store brand market, that one of its products is a 
nasal decongestant which contains as its sole active ingredient thirty 
milligrams of pseudoephedrine and that Perrigo does not manufacture a 
single-active-pseudoephedrine product that contains sixty milligrams of 
pseudoephedrine. Ms. Day also testified that Perrigo sells its 
pseudoephedrine products in blister packs containing 24, 48, or 906 
tablets, and that because these packages each contain less than three 
grams of base pseudoephedrine, they meet the safe harbor provision of 
the Methamphetamine Control Act of 1996. Ms. Day further testified that 
for the period August 1999 through April 2000, Perrigo sold a total of 
299,329,130 tablets of thirty-milligram single-active pseudoephedrine, 
that approximately fifty percent of Perrigo's shipments go to its 
retail customers' distribution centers, that most of the remainder go 
to drug or food wholesalers, and that Perrigo ships to a few small 
retail customers directly.
    The Government also presented an expert witness in the area of 
statistical analysis of convenience stores and their sale of 
pseudoephedrine. Jonathan Robbin, a consultant in marketing information 
systems and databases, tesified on behalf of the Government as an 
expert in statistical anaysis and quantitative marketing research. With 
respect to the expert statistical analysis offered by Mr. Robbin, the 
Deputy Administrator adopts the following Findings of Act, as set forth 
in Judge Bittner's Opinion and Recommended Ruling:
    Mr. Robbin analyzed data from the United States Economic Census, 
which, among other things, includes information on the kinds of goods 
that different types of retail stores sell. The Economic Census is 
undertaken by the United States Department of Commerce every five 
years, and elicits from every business establishment in the United 
States information that includes, among other things, the business's 
operations, size, gross income, organization, and number of employees. 
Businesses are required to respond to the Economic Census and Mr. 
Robbin testified that the response rate is about ninety percent. The 
Census Bureau processes the data

[[Page 8691]]

collected in the census and publishes various reports reflecting that 
data. The Census Bureau makes aggregate data, tabulated by various 
criteria, available and also performs tabulations for specific 
purposes.
    Mr. Robbin further analyzed data from the Syndicated Research Study 
by Mediamark Research, Inc. (Mediamark), which analyzes consumer buying 
behavior, information from Information Resources International, which 
tracks data from the bar scanners of retail stores, and a report from 
the National Association of Convenience Stores (NACS). The NACS 
membership consists primarily of large convenience store chains, but 
its survey included nonmember stores that receive Convenience Store 
News, a trade publication that is distributed without charge to stores 
in the industry. Mr. Robbin also reviewed invoices reflecting 
Respondent's sale of pseudoephedrine to various customers. Mr. Robbin 
testified that the objective of his study was ``to be able to say with 
some certainty whether or not [pseudoephedrine] was being distributed 
in a manner that was congruent with normal marketing practice and 
meaningful from a commercial point of view. * * *''
    Mr. Robbin defined ``convenience store'' as ``a store that sells 
goods to be consumed on the premises or to be consumed shortly after 
they are bought,'' and includes nearly 30,000 convenience stores in the 
United States that do not have gasoline pumps and another 70,000 that 
have them. Mr. Robbin testified that the average convenience store 
occupies about 1350 square feet, has revenues of between $600,000 and 
$800,000 per year, and employs from two to five people. Mr. Robbin 
further testified that ninety percent of a convenience store's 
customers come from within a ten mile radius, and half of them come 
from within three miles of the store. Mr. Robbin also noted that 
convenience stores do not have large stockrooms and therefore do not 
carry a large inventory of diverse products.
    Mr. Robbin used various data ``to establish a reasonable 
expectation'' of how much pseudoephedrine a convenience store would 
sell; calculated ``a reasonable dollar volume of sales to consumers of 
decongestant tablets containing pseudoephedrine,'' given how much of 
this product Respondent sold to certain convenience stores in Florida; 
and then contrasted how much a store would reasonably be expected to 
sell with the quantities that Respondent's customers purchased from it.
    Mr. Robbin testified that data from the 1997 Economic Census showed 
that drugstores, supermarkets, and discount stores accounted for 92.3 
percent of all sales of non-prescription medications, and convenience 
stores with and without gasoline pumps accounted for about 1.75 percent 
and less than one percent, respectively, of sales of these products. 
The National Association of Convenience Stores reported that beauty and 
health care products comprised 1.31 percent of in-store sales in 
convenience stores in 1999.
    In the Economic Census, Merchandise Line (ML) 160 consists of all 
health and beauty aids, including both prescription and non-
prescription drugs, vitamins, and minerals. Merchandise Line 162 is a 
subset of ML 160, and includes a variety of over-the-counter items such 
as headache remedies, eye drops, allergy remedies, and cough drops, as 
well as decongestants such as pseudoephedrine. The products in ML 162 
represent 6.5 percent of the dollar sales of ML 160. Mr. Robbin 
testified that the Economic Census form for convenience stores attached 
to gasoline stations does not include ML 162, presumably because few 
such retailers sell over-the-counter medications, so he imputed what 
convenience stores' sales of ML 162 would be from the data relating to 
ML 160; Mr. Robbin concluded that 0.4 percent of sales by convenience 
stores with gasoline pumps are of non-prescription drugs. Mr. Robbin 
further testified that about 10,000 convenience stores without gasoline 
pumps sell non-prescription medicines, and about 23,000 of the 
convenience stores with gasoline pumps sell these products. Mr. Robbin 
testified that the Census Bureau had not observed any sales of ML 162 
by any florist, novelty and gift store, or liquor store.
    Mr. Robbin analyzed data from Mediamark to compare the percentage 
of consumers who purchase non-prescription drugs from drugstores, 
department stores, grocery stores, and discount stores, to the 
percentage of consumers who purchase these items from convenience 
stores. Specifically, Mr. Robbin used Sudafed as a surrogate for 
Respondent's product to indicate how many consumers of pseudoephedrine 
purchased it at a convenience store rather than at one of the more 
traditional retailers. Mr. Robbin concluded that seven million 
households, or 4.92 percent of all purchasers of non-prescription drugs 
from drug, department, grocery, or discount stores, had purchased 
Sudafed in 2000, and that 4.35 percent of all purchasers who bought 
over-the-counter medications at a convenience store bought Sudafed. Mr. 
Robbins further concluded that 0.21 percent of adults who shopped at 
convenience stores purchased Sudafed. Mr. Robbin analyzed data from 
Information Resources, Incorporated as to monthly sales of Sudafed and 
determined that Sudafed represented 1.14 percent of the sales of ML 
162. Mr. Robbin then estimated that equal amounts of generic store 
brands and of two competitive brands of pseudoephedrine, Contac and 
Actifed, were also sold, so that overall sales of pseudoephedrine 
represent 4.56 percent of the sales of items in ML 162. Mr. Robbin 
however qualified this estimate in that he thought it overstated the 
amount of pseudoephedrine sold.
    Mr. Robbin further testified to a formula that he employed to 
determine the retail price of goods by dividing the wholesale price by 
one minus the gross margin, and that in-store margins for the 
convenience store industry were 31.2 percent in 1998 and 30 percent in 
1999. Thus, the expected retail price would be the wholesale price 
divided by .7. Mr. Robbin then reviewed various data with respect to 
sales of pseudoephedrine, including invoices for 212 of Respondent's 
Florida customers, and he estimated that the monthly sales of 
pseudoephedrine by various types of retailers in 1999, as summarized by 
the following table:

------------------------------------------------------------------------
                                                         Pseudoephedrine
                    Kind of Business                          Sales
------------------------------------------------------------------------
Supermarkets, grocery stores...........................           $618
convenience stores.....................................             27
specialty food stores..................................             34
pharmacies, drug and proprietary stores................            663
cosmetics, beauty supplies and perfume stores..........             21
other health and personal care stores..................            208
department stores......................................          1,921
electronic shopping and mail order stores..............          3,376
gasoline stations with convenience stores..............             32
------------------------------------------------------------------------

    Mr. Robbin assigned each of Respondent's customers to a retail 
category (e.g., grocery store, convenience store, convenience store 
with gasoline pump). These classifications were assigned based on the 
name of the customer (if the name included ``grocery store,'' he 
assumed the customer was a grocery store), photographs that the 
Government provided of some stores, and information from sources of 
commercial addresses. Mr. Robbin testified that probably half of the 
customers of Respondent that he listed as grocery

[[Page 8692]]

stores (which would be expected to sell more pseudoephedrine than 
convenience stores do) were in fact convenience stores.
    Mr. Robbin then estimated for each customer how much 
pseudoephedrine it would be expected to sell per month based on the 
estimates described above, and calculated how much it did sell based on 
how much it purchased from Respondent and assuming that the store 
marked up the product thirty percent and sold all that it purchased. 
For example, Mr. Robbin noted that BP Super Stop, presumably a 
convenience store that sold gasoline, purchased $22,428 of 
pseudoephedrine from Respondent over a fourteen-month period, or $1,602 
per month. With a thirty percent markup, retail pseudoephedrine sales 
would have amounted to $2,289, but Mr. Robbin's analysis of Economic 
Census and other data predicted that this customer would have had 
pseudoephedrine sales of $32.41 per month, for an index of actual to 
expected sales of 70.6.
    Mr. Robbin testified that he calculated Z statistics, standard 
deviates measured in terms of standard deviations; according to Mr. 
Robbin, ``it tells us in standard deviant units how far we are from the 
average.'' More simply, Mr. Robbin testified that he ``;* * * would not 
expect a convenience store to sell this amount of pseudoephedrine under 
any circumstances in the normal sale of these goods through the 
channels that the Census and other sources tell us these goods are 
sold.''
    Mr. Robbin noted that Americans consume, on average. 147 cold pills 
per person per year, so that a bottle of Respondent's pseudoephedrine 
product would be almost a year's supply for the average consumer. 
According to Mr. Robbin, ``[i]t is inconceivable that people will come 
in and out of these stores and regularly month to month [buy] a year's 
supply of the drug. * * *''
    With respect to Respondent's grocery store customers, Mr. Robbin 
testified that the index of actual to expected sales was considerably 
lower, most ranging from 2.4 to 4.3, but sill more than two standard 
deviations to the mean. Mr. Robbin testified that 1.96 standard 
deviations of the mean in the two-tailed test of significance would 
encompass 95 percent of all cases under the normal curve, and that 
three standard deviations would encompass 99 percent of cases.
    Mr. Robbin emphasized that the Economic Census represents one 
hundred percent of the data, not samples, and that aggregate data has a 
lower variance than would a database of individual establishments. 
Because Mr. Robbin did not have access to the variance of individual 
stores, he asked the Census Bureau for a tabulation of individual 
records. Mr. Robbin testified that the Census Bureau tabulation ``gave 
me condifence * * * in making the statement that these data are 
reflecting reality.'' Mr. Robbin stated in his report:

    In summary, most of the stores to which [Respondent] has 
supplied pseudoephedrine products have a very small or no likelihood 
of selling them over the counter to consumers seeking remedies for 
nasal congestion from allergies, colds or other conditions. This 
conclusion is strongly supported by data from the United States 1997 
Economic Census and current observations of two independent 
marketing information companies, Mediamark Research, Inc., and 
Information Resources International.
    Mr. Robbin further testified that his finding is that the goods 
that [Respondent] has provided to these stores are not following the 
normal channel of distribution for goods of this kind, that they are 
going to a nontraditional market that is not known to sell any 
substantial or meaningful quantities of these goods, and that there 
is no logical explanation in common marketing practice to explain 
this phenomenon.

    Mr. Marquez testified that he disagreed with Mr. Robbin's analysis. 
According to Mr. Marquez, small independent convenience stores do not 
provide data to researchers, the owners of such stores may well fail to 
fill out the Economic Census forms or fill them out inaccurately, and 
as a result, there are no statistics on what these stores sell. Mr. 
Marquez further testified that the smallest quantity of any product 
Respondent would sell to a store would be $800 to $3,000 per week, and 
that a retail establishment would not carry a product that did not 
produce more revenue than $27 per month. Mr. Marquez further testified 
that he believed that Respondent's customers were capable of selling 
pseudoephedrine under the conditions that Respondent had established, 
and that ``we checked the stores and made sure they were selling the 
product.''
    Mr. Marquez further testified that he did not question why a 
convenience store would be purchasing so much pseudoephedrine every 
month ``because they wouldn't be buying it if they wouldn't be selling 
it.'' Asked on cross-examination who he thought would buy a bottle of 
120-count 60-milligram pseudoephedrine for $9.95 or $19.95, Mr. Marquez 
responded, ``I've seen it, you know, when I go the 7-11 or places. It's 
mostly blue collar workers, people that work out on the street or work 
out in the hot sun, and they've got problems breathing, or it's too 
humid and people need that kind of medication.'' Mr. Marquez testified 
that it was ``[n]ot at all'' unusual for Respondent to sell 576 bottles 
of 60-count 60-milligram pseudoephedrine to retail stores. Mr. Marquez 
concluded that he did not believe that most Sudafed and pseudoephedrine 
products are not sold in convenience stores, and that the information 
in the NACS State of the Industry Report came from national chain 
stores, not small family-owned convenience stores.
    As noted above, and pursuant to 21 U.S.C. 824(d), the then-Deputy 
Administrator issued an immediate suspension of the Respondent's DEA 
Certificate of Registration. While the above cited evidence provides 
ample grounds for an immediate suspension pursuant to section 824(D), 
these grounds also provide the basis for the revocation of the 
Respondent's DEA Certificate of Registration. See Yemen Wholesale 
Tobacco and Candy Supply, Inc., 67 FR 9997, 9998 (2002).
    Pursuant to 21 U.S.C. 824(a), the Acting Deputy Administrator may 
revoke a registration to distribute list I chemicals upon a finding 
that the registrant has committed such acts as would render such 
registration under section 823 inconsistent with the public interest as 
determined under that section. Pursuant to 21 U.S.C. 823(h), the 
following factors are considered in determining the public interest:
    (1) Maintenance of effective controls against diversion of listed 
chemicals into other than legitimate channels;
    (2) Compliance with applicable Federal, State, and local law;
    (3) Any prior conviction record under Federal or State laws 
relating to controlled substances or to chemicals controlled under 
Federal or State law;
    (4) Any past experience in the manufacture and distribution of 
chemicals; and
    (5) Such other factors as are relevant to and consistent with the 
public health and safety.
    As with the public interest analysis for practitioners and 
pharmacies pursuant to subsection (f) of section 823, these factors are 
to be considered in the disjunctive; the Acting Deputy Administrator 
may rely on any one or combination of factors, and may give each factor 
the weight she deems appropriate in determining whether a registration 
should be revoked or an application for registration denied. See, e.g., 
Energy Outlet, 64 FR 14269 (1999). See also Henry J. Schwartz, Jr., 
M.D. 54 FR 16422 (1989).
    As an initial argument, the Government asserted that Respondent's 
conduct in distributing listed chemical products to convenience stores 
under

[[Page 8693]]

the management of Mr. Marquez are sufficiently apparent to make out a 
violation under 21 U.S.C. 841(c)(2). The Government further outlined 
the primary requirement of section 841(c)(2) that must be proven by a 
preponderance of evidence: the knowing or having reasonable cause to 
believe that the listed chemical will be used to manufacture a 
controlled substance. In support of a finding under the above 
provision, the Government argued that the Respondent's main business 
was purportedly the distribution of candy and snacks, yet, in 2000, the 
company purchased large quantities of pseudoephedrine ``in anticipation 
of an unavailability or allocation of listed chemical product.'' The 
Respondent argued in response that there are no statutory restrictions 
under the Controlled Substances Act with respect to ``attempts'' to 
obtain list I chemical products, and the Government has failed in its 
burden of proof in establishing what constitutes ``excessive'' 
ordering.
    The Government also argued that the ``traditional'' market serves 
legitimate need with 30 mg. pseudoephedrine products packaged in 
blister packs and sold predominantly at pharmacy chains, supermarkets 
and discount stores. This, the Government contrasted with what it 
characterized as the ``non-traditional'' market where ``products are 
packaged in 60 mg. large count bottles and are sold in convenience 
stores or other places where such products are not usually sold.'' The 
Government concluded that small convenience stores are a source for 
diversion of listed chemical products. Conversely, the Respondent 
argued, inter alia, that the occurrence of diversion cannot, standing 
alone, rise to the level of a revocation action since ``all persons in 
the regulated trade are susceptible to diversion and, at various times, 
have fallen victim to it.''
    The Government further argued that in keeping with the holding in 
United States v. Prather, 205 F.3d 1265 (11th Cir. 2000), where the 
defendant was convicted of, among other things, distributing 
pseudoephedrine knowing of having reasonable cause to believe that it 
would be used to manufacture a controlled substance, the Respondent as 
the defendant in Prather, had ``reasonable cause to believe'' that its 
listed chemical products would be used to manufacture a controlled 
substance.
    In recent DEA decisions, the agency has found that gas stations and 
convenience stores (which the Government argues are part of the ``non-
traditional'' market) constitute sources for the diversion of listed 
chemical products (See, e.g., Sinbad Distributing, 67 FR 10232, 10233 
(2002); Xtreme Enterprises, Inc., 67 FR 76195 (2002); K.V.M. 
Enterprises, 67 FR 70968 (2002)). However, in deference to my 
predecessor's ruling in Mediplas Innovations (67 FR 41256 (2002) 
(``Mediplas'')), a finding regarding convenience stores a conduits for 
the diversion of listed chemicals does not necessarily translate to a 
finding regarding the existence of the so-called ``traditional'' versus 
the ``non-traditional'' markets for products containing ephedrine and 
pseudoephedrine. Rather, in Mediplas, the then-Deputy Administrator 
found that there was little probative value to such evidence, and the 
probative weight of evidence regarding traditional and non-traditional 
markets ``is minimal without some form of further extrinsic evidence to 
support these arguments.'' Id. at 41264. The Acting Deputy 
Administrator notes further, my predecessor's conclusion that a 
registrant's sale of large quantities of list I chemicals do not, in 
and of themselves, demonstrate that the chemicals may be diverted. Id.
    In the instant proceeding however, the Acting Deputy Administrator 
finds that the Government has met the test outlined in Mediplas, and 
established through extrinsic evidence the typical market for listed 
chemical products. In keeping with this finding, the Acting Deputy 
Administrator concurs with Judge Bittner's conclusion that the 
Government met the Mediplas evidentiary requirement by showing that 
Respondent sold pseudoephedrine to customers that did not have a 
reasonable expectation of being able to resell the product to a 
legitimate customer base. Specifically, the Government presented a 
relevant comparison analysis involving the marketing and sale of 
bottled pseudoephedrine products to a relatively small market by OTC 
Distribution (a supplier of listed chemicals to the Respondent) versus 
that of nationally recognized pharmaceutical manufacturers and 
distributors of those products (i.e., Pfizer and the L. Perrigo, 
Company). The Acting Deputy Administrator also finds telling, the 
testimony of Pfizer and Perrigo representatives that neither were aware 
of OTC Distribution as a possible competitor.
    More persuasive however, was the testimony and documentary evidence 
prepared by the Government expert in statistical analysis, Jonathan 
Robbin. In arriving at a finding regarding Mr. Robbin's testimony, the 
Acting Deputy Administrator has given due consideration to the 
Respondent's contentions that Mr. Robbin's report, among other things, 
contained selective sales data regarding Sudafed products, did not 
properly assess the breadth of the market for Sudafed products, and 
that convenience stores and grocery stores can serve the same needs as 
large grocery stores in the absence of large chain establishments.
    Notwithstanding these arguments, the Acting Deputy Administrator 
nevertheless finds compelling Mr. Robbin's conclusion of the 
unlikelihood that convenience stores would sell more than $27.00 worth 
of pseudoephedrine per month to consumers purchasing decongestant 
products, as purportedly sold by Respondent's customers. The Acting 
Deputy Administrator further credits Mr. Robbin's finding regarding the 
inconceivability of customers purchasing a year's supply of list I 
chemical products from convenience stores and related establishments on 
a monthly basis.
    The Acting Deputy Administrator also finds persuasive the 
conclusion of Mr. Robbin that pseudoephedrine products supplied by the 
Respondent to its customers did not follow the normal channel of 
distribution for goods of this kind. This finding is given further 
credence when one considers the quantities of pseudoephedrine the 
Respondent sold to its convenience store customers and the exorbitant 
price some of these customers were willing to pay the Respondent for 
those products. The Acting Deputy Administrator finds that the 
compelling nature of Mr. Robbin's market study cast doubt on the 
legitimacy of the Respondent's regulated transactions with a 
substantial segment of its customers, and brings some context to 
matters relating to the diversion of the Respondent's listed chemical 
products.
    On a related note, the Acting Deputy Administrator finds that Mr. 
Marquez was made aware through the DEA pre-registration process that 
pseudoephedrine is subject to diversion. Nevertheless, despite the 
variety of non-list I products purportedly sold by the Respondent, the 
purchase of goods by its customers were limited to pseudoephedrine. 
Notwithstanding Mr. Marquez's testimony that it was not unusual to sell 
576 bottles of 60-count, 60 milligram pseudoephedrine to retail stores 
(at a retail price as high as of twenty dollars a bottle), and in light 
of market analysis of the Government expert regarding the expected sale 
of these products, the Acting Deputy Administrator finds that there is 
justified concern over the Respondent's sale of large quantities of 
listed chemicals to its customers. Therefore,

[[Page 8694]]

the Acting Deputy Administrator concurs with the finding of Judge 
Bittner that the Respondent had reason to believe that the 
pseudoephedrine it sold, particularly in the quantities sold to its 
convenience store customers, was likely to be diverted. See, MDI 
Pharmaceuticals, 68 FR 4233 (2003).
    With respect to the factors enumerated under 21 U.S.C. 823(h), and 
in addition to the analysis outlined above, the Acting Deputy 
Administrator finds that factor one, maintenance of effective controls 
against diversion, is further applicable to the Respondent's sale of 
pseudoephedrine products to Abdin. For purposes of 21 U.S.C. 830(b)(1), 
an uncommon method of payment, such as cash, renders the sales of 
pseudoephedrine suspicious. United States v. Grab Bag Distributing, et 
al., 189 F. Supp. 2d 1072 (2002); United States v. Akhtar, 95 F. Supp. 
2d 668 (S.D. Tex. 1999) (a defendant admitted that four ephedrine 
transactions were unusual because they were made in cash and because 
they were for progressively larger quantities of ephedrine). Such 
transactions are required to be reported to DEA pursuant to 21 CFR 
1310.05(a)(1) (2000). As noted in Judge Bittner's Opinion and 
Recommended Ruling, Mr. Abdin paid more than $50,000 in cash for fifty 
cases of pseudoephedrine purchased from the Respondent on September 21, 
2000. The Acting Deputy Administrator therefore adopts Judge Bittner's 
conclusion that this cash payment made the transaction suspicious, and 
as a result, Respondent should have reported the same to DEA.
    With respect to statements of customers regarding their purported 
purchase of pseudoephedrine from the Respondent, Judge Bittner found 
the evidence generally insufficient to support the revocation of 
Respondent's DEA Certificate of Registration under factor one. 
Specifically, Judge Bittner found that because a period of at least 
nine months had passed since Respondent sold list I chemicals to these 
establishments, and the fact that these establishments were under no 
obligation to maintain records of their dealings with the Respondent, 
evidence of their failure to account for listed chemical purchases did 
not support a revocation action involving the Respondent's DEA 
registration. Judge Bittner found however, that one exception in this 
regard was the Respondent's shipment of pseudoephedrine to Jules Gifts, 
Incorporated, an Orlando-based gift shop situated at a residential 
address, and such shipment supported a finding that the Respondent's 
continued registration would not be in the public interest.
    In keeping with Judge Bittner's finding regarding the overall 
insufficiency of the customer statements, the Acting Deputy 
Administrator further notes that many of DEA's interviews were of store 
clerks (as opposed to store owners), new owners of business 
establishments with no apparent knowledge of any actions by previous 
owners, or shop owners who simply could not recall whether there 
existed a business relationship between their establishment and the 
Respondent. Moreover, several Michigan area customers informed DEA 
investigators of their business relationship with the Respondent but 
could produce no invoices. Therefore, to the extent that these factors 
were present, evidence regarding customer verifications by DEA 
investigators were not considered under factor one by the Acting Deputy 
Administrator in rendering here final decision. Nevertheless, the 
Acting Deputy Administrator finds that customer verifications of eight 
other customers are applicable under factor five as outlined below.
    With regard to factor two, compliance with applicable Federal, 
State an local law, the Government argues, in part, that an 
accountability audit of Respondent's handling of listed chemical 
products between the date of its registration and July 31, 2000, 
disclosed a shortage of approximately 98,381 bottles of 
pseudoephedrine. However, in its Proposed Findings of Fact and 
Conclusions of Law and Argument, the Respondent argued that the audit 
contained ``substantial arithmetic errors.'' The Respondent argued in 
essence that in preparing its audit, the Government did not provide a 
correct accounting of information contained within Respondent's sales 
invoices and the Government-prepared summaries of those invoices.
    As one example, the Respondent noted that a Government exhibit 
which consists of sales invoices, as well as a summary sheet for a 
customer of the Respondent list sales transactions for November 11, 
1999, December 15, 1999 and February 21, 2000 as 288 bottles. The 
Respondent argued however that that actual invoice for these 
transactions yielded a count of 576 bottles, not 288 bottles as listed 
on the Government prepared summary. The Respondent used this, as well 
as other examples to assert that the Government's audit as not 
reliable.
    In her Opinion and Recommended Ruling, and following here review of 
invoices in evidence for the Respondent's Florida customers, Judge 
Bittner agreed with the Respondent that there were ``numerous apparent 
mistakes in the [Government's] compilation.'' In support of her 
finding, Judge Bittner appended to her opinion a separate compilation 
of the purchases of pseudoephedrine by the Respondent's Florida 
customers. Under the ``Comments'' heading of the Appendix, Judge 
Bittner noted several instances where the compilation of Respondent's 
purchases prepared by DEA indicates the purchase of 288 bottles, when 
it appeared from the invoice that purchases were for 576 bottles. As a 
result of the apparent conflict between the Government prepared 
summaries, and the information contained on the face of the actual 
invoices, Judge Bittner concluded that ``the record does not establish 
the extent of a shortage, if any, and therefore [the Government audit 
is unreliable].''
    On December 19,2002, counsel of the Government filed Exceptions to 
the Opinion and Recommended Ruling, Findings of Fact, Conclusions of 
Law, and Decision of the Administrative Law Judge. In its Exceptions, 
the Government argues in relevant part, that the audit and computation 
were conducted by NDIC directly from invoices acquired from Respondent. 
The Government argued that Investigator Soler took custody of the 
Respondent's records and sales files and that Government exhibits 
memorializing sales to specific retailers were prepared by Investigator 
Soler. The Government further argued that the compilation prepared by 
Investigator Soler did not include every one of Respondent's customers, 
and did not form the basis of the audit.
    As a general rule, recordkeeping discrepancies involving list I 
chemicals constitute violations of 21 U.S.C. 830(a) and 842(a)(10) and 
21 CFR 1310.03 and 1310.06. Mediplas at 41263. The Government asserts 
that the Respondent violated record keeping provisions by its failure 
to account for listed chemicals, and thus a finding in support of the 
revocation of Respondent DEA registration should be made under factor 
two.
    The Acting Deputy Administrator has conducted an extensive review 
of all relevant evidence regarding the audit, including Government 
exhibits and the testimony of Investigator Solar. From that interview, 
it is clear that information on the face of several of the DEA-prepared 
compilations is not consistent with the actual invoices of Respondent's 
purchases that the compilations purport to represent. What

[[Page 8695]]

is unclear from the record however is whether these incongruous records 
(the compilations and invoices) were used together in conducting the 
audit or whether the compilations were excluded from consideration.
    What is particularly problematic in determining what credence, if 
any, should be given to the audit results, is the insufficiency of 
evidence regarding the methodology used in conducting the audit. The 
lack of specifics in this regard leaves the matter of the compilations 
and their impact on the audit results, an open question. 
Notwithstanding the assertion by the Government that summaries prepared 
by a DEA investigator did not form the basis of the audit, there is no 
testimony to that effect in the record. Yet, the Government witness 
testified to the compilations as part of the DEA's investigation of the 
Respondent. Under these circumstances, the Acting Deputy Administrator 
finds the record incomplete with respect to the manner in which the 
audit was conducted, and unclear as to whether the in consistent 
information contained within the DEA-prepared compilations played any 
part in the audit results. Accordingly, the Acting Deputy Administrator 
adopts the finding of Judge Bittner that the Government-prepared 
accountability audit and computation are unreliable, and thus, 
inapplicable to a finding under the factor two analysis enunciated 
above.
    The Acting Deputy Administrator agrees with counsel for the 
Government that factor two is relevant to the Respondent's failure to 
report to DEA that a regulated transaction with Abdin included an 
uncommon method of payment, as required by 21 CFR 1310.05(a)(1). Aqui 
Enterprises, 67 FR 12576 (2002).
    With regard to factor three, any prior conviction record under 
Federal or State laws relating to controlled substances or to chemicals 
controlled under Federal or State law, there is no evidence in the 
record that the Respondent or its owners have been convicted of any 
offenses as contemplated by this provision.
    With respect to factor four, past experience in the manufacture and 
distribution of chemicals, the Acting Deputy Administrator has combined 
the evidence pertaining to this factor with those contained under 
factor two, controls against diversion and compliance with applicable 
law. See, Service Pharmacy, Inc., 61 FR 10791, 10795 (1996).
    With regard to factor five, such other factors relevant to and 
consistent with the public safety, the Acting Deputy Administrator 
incorporates the matters above into this factor, and finds factor five 
relevant to a finding that the Respondent's continued registration with 
DEA would be inconsistent with the public interest.
    The Acting Deputy Administrator also finds factor five relevant to 
customer statements regarding their purported purchase of 
pseudoephedrine from the Respondent. As noted above, Judge Bittner 
found that evidence regarding most of these statements was generally 
insufficient to support the revocation of the Respondent's DEA 
Certificate of Registration. The Respondent added that the actions or 
inactions of the Respondent's customers to fulfill the Government's 
investigative demands cannot be the basis for revocation of the 
Respondent's registration.
    The Acting Deputy Administrator agrees with the Respondent's 
assessment that its customers were under no obligation to assist DEA 
investigators or produce records of regulated transactions with the 
Respondent. However, the Acting Deputy Administrator also recognizes 
the importance of the DEA investigative process, particularly as it 
relates to verification of customers who purchase list I chemicals from 
DEA-registered distributors. These regulatory inspections serve a vital 
role in protecting the public health and safety, and are of particular 
importance in helping to stem the diversion of listed chemical 
products. The importance of the DEA investigative process, and 
specifically the verification of customer information, has been 
highlighted in prior DEA rulings; the agency has made findings under 
factor five where DEA investigative personnel were unable to 
corroborate customer information of handlers of list I chemicals. Shani 
Distributors, 68 FR 62324 (2003); CHM Wholesale Co., 67 FR 9985 (2002); 
See Aqui Enterprises, supra, at 12578.
    In the instant matter, it appears that the investigative process 
was, to some degree, compromised because of the inability of DEA 
personnel to verify the Respondent's sale of pseudoephedrine to various 
customers. The inability to verify these transactions may have been 
attributed to a number of factors, including, but not limited to, 
Respondent's poor record keeping, its distribution to customers that 
could not later account for the product, and/or distribution to 
customers that were not candid with DEA investigators about their 
business relationships with the Respondent or their receipt of listed 
chemicals.
    Nevertheless, the Acting Deputy Administrator is deeply concerned 
with the circumstances surrounding the consistent denials by several of 
the Respondent's customers when questioned about their purchase of 
pseudoephedrine from the Respondent. The Acting Deputy Administrator 
finds it somewhat inconceivable, and beyond mere coincidence that 
several of these customers with apparent longtime business ties to the 
Respondent (having purportedly purchased large quantities of 
pseudoephedrine from the Respondent) would, in practically uniform 
fashion, become totally unfamiliar with such a significant business 
relationship. If, on the other hand these denials are to be believed, 
then further doubt is cast upon the Respondent's ability to responsibly 
handle listed chemicals because of the apparent inability to adequately 
track the distribution of these products. What is certain here, is the 
record is unclear as to the disposition of large quantities of 
pseudoephedrine products that were purportedly sold to business 
entities in Florida, New Jersey and Michigan.
    For example, with respect to Ali's West Indian African and American 
located in the Tampa area, DEA personnel were informed in May 2001 that 
Ali's had discontinued business three years prior, and Third World 
Grocers had been operating at that location during that same period. 
The record in this proceeding indicates that the Respondent shipped 
bottles of pseudoephedrine to this establishment in 1999 and 2000. 
Further review of the Respondent's invoices does not reflect shipments 
of pseudoephedrine to Third World Grocers or anyone associated with 
this concern. It appears that these products were shipped to Ali's 
during a period when the store changed ownership. However, there is no 
evidence in the record regarding the disposition of large quantities of 
pseudoephedrine that were shipped to the former business address of 
Ali's.
    The same circumstances were present with regard to the Respondent's 
sale of pseudoephedrine products to Superfood Super Market, another 
Tampa area customer. Invoices of the Respondent reveal the sale of 
pseudoephedrine to Superfood Super Market, however, the location where 
these products were delivered was occupied by a business concern by the 
name of Y &S Supermarket. When questioned by a DEA investigator, the 
owner of Y & S claimed to have never heard of the Respondent and that 
his store did not sell list I products. Of greater concern however, is 
the record in this matter does not shed any light on the disposition of 
large quantities of pseudoephedrine that were purportedly shipped to 
this location.

[[Page 8696]]

    Similarly, with respect to the sale of pseudoephedrine to Cedar 
Market, the Respondent's records reveal that the customer purchased 
caseload quantities of pseudoephedrine from the Respondent in 1999 and 
2000, but according to a DEA investigator the store's management had 
not heard of the Respondent. The Acting Deputy Administrator also finds 
curious, the Respondent's sale of forty-three cases of pseudoephedrine 
to Georgia Meat Market, an establishment that specialized in the sale 
of meat products, and the fact that the Respondent's invoices 
identified these transactions as having been made to a discount store.
    With regard to Respondent's New Jersey customer, Getty Deli, the 
Acting Deputy Administrator finds disturbing, evidence in the record of 
the Respondent's apparent distribution of listed chemicals to this 
customer, which is totally at odds with the recollection of Getty's 
owner who in a written statement, denied ever purchasing or selling any 
products of the Respondent. In Michigan, and despite distribution 
records to the contrary, DEA investigators conducting verifications of 
Respondent's customers were told by the owners of Dollar City Plus, a 
dollar store, Duke's Oil, a Detroit-area gas station, and Harmon Mini 
Mart in Highland Park, that they had never dealt with the Respondent or 
only ordered from distributors in Michigan.
    While not asserting any wrongdoing on the part of any of the above-
referenced business establishments, the Acting Deputy Administrator 
remains concerned about the circumstances surrounding DEA's 
unsuccessful attempts at conducting customer verifications. The 
consistent, across-the-board denials by these firms of any business 
ties to the Respondent left DEA personnel in an untenable situation and 
rendered them unable to establish the validity of the distributions of 
a highly abused product. Consequently, DEA's inability to corroborate 
the Respondent's records of regulated transactions raise questions not 
only to the accuracy of the Respondent's distribution records and the 
legitimacy of its customer base, but most significant, raise further 
questions about the ultimate disposition of the listed chemical 
products purportedly distributed to those customers. Therefore, with 
respect to the eight customers referenced above, the Acting Deputy 
Administrator finds that DEA's inability to verify the distribution of 
list I chemicals to these establishments is relevant under factor five.
    As noted above, the Government filed exceptions to the Opinion and 
Recommended Ruling of Judge Bittner. The Acting Deputy Administrator 
has addressed in this final order each of the matters raised in the 
Government's exceptions, specifically, arguments raised with respect to 
the interlocutory appeal, the results of the DEA accountability audit 
of Respondent's handling of pseudoephedrine products, and evidence of 
DEA site visits to purported customers of the Respondent. Therefore, 
those matters will not be revisited here.
    On December 23, 2002, the Respondent also filed exceptions to Judge 
Bittner's recommended ruling. In its exceptions, the Respondent argued 
in relevant part, that ``its post-hearing submission * * * fully and 
completely provides a basis for the conclusions that [Respondent's] 
continued registration is not inconsistent with the public interest.'' 
While not addressing any specific matter raised by the Opinion and 
Recommended Ruling of the Administrative Law Judge, the Respondent 
asserts generally that the evidence in this proceeding does not support 
the revocation of its DEA Certificate of Registration. By not providing 
counter-arguments to any specific factual finding, legal conclusion or 
recommendation of the Administrative Law Judge, the Acting Deputy 
Administrator is limited in giving any consideration to the 
Respondent's generally stated exceptions. As a result, the Respondent's 
exceptions to the Opinion and Recommended Ruling are not sufficient to 
impact the ruling in this matter.
    Accordingly, the Acting Deputy Administrator of the Drug 
Enforcement Administration, pursuant to the authority vested in her by 
21 U.S.C. 823 and 824 and 28 CFR 0.100(b) and 0.104, hereby orders that 
DEA Certificate of Registration, 002330BNY, previously issued to 
Branex, Incorporated, be, and it hereby is, revoked. the Acting Deputy 
Administrator further orders that any pending applications for renewal 
or modification of said registration be, and they hereby are, denied. 
This order is effective March 26, 2004.

    Dated: February 10, 2004.
Michele M. Leonhart,
Acting Deputy Administrator.
[FR Doc. 04-4127 Filed 2-24-04; 8:45 am]
BILLING CODE 4410-09-M