[Federal Register Volume 70, Number 45 (Wednesday, March 9, 2005)]
[Notices]
[Pages 11693-11695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4565]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


RAM, INC. d/b/a American Wholesale Distribution Corp.; Denial of 
Registration

    On July 23, 2004, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to RAM Inc., d/b/a American Wholesale Distribution 
Corporation (RAM), proposing to deny its June 5, 2003, application for 
DEA Certificate of Registration as a distributor of List I chemicals. 
The Order to Show Cause alleged that granting RAM's application would 
be inconsistent with the public interest, as that term is used in 21 
U.S.C. 823(h). The order also notified RAM that should no request for a 
hearing be filed within 30 days, its hearing right would be deemed 
waived.
    According to the DEA investigative file, the Order to Show Cause 
was sent by certified mail to RAM at its proposed registered location 
at 3300 Pleasant Valley Lane, Suite C, Arlington, Texas 76015. It was 
received on August 2, 2004, and DEA has not received a request for a 
hearing or any other reply from RAM or anyone purporting to represent 
the company in this matter.
    Therefore, the Deputy Administrator of DEA, finding that (1) thirty 
days have passed since delivery of the Order to Show Cause, and (2) no 
request for a hearing having been received, concludes that RAM has 
waived its hearing right. See Aqui Enterprises, 67 FR 12576 (2002). 
After considering relevant material from the investigative file, the 
Deputy Administrator now enters her final order without a hearing 
pursuant to 21 CFR 1309.53(c) and (d) and 1316.67. The Deputy 
Administrator finds as follows.
    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 1300.02(a). Pseudoephedrine and ephedrine are 
List I chemicals commonly used to illegally manufacture 
methamphetamine, a Schedule II controlled substance. As noted in 
previous DEA orders, methamphetamine is an extremely potent central 
nervous system stimulant, and its abuse is a persistent and growing 
problem in the United States. See e.g., Direct Wholesale, 69 FR 11654 
(2004); Branex, Inc., 69 FR 8682 (2004); Yemen Wholesale Tobacco and 
Candy Supply, Inc., 67 FR 9997 (2002); Denver Wholesale, 67 FR 99986 
(2002).
    The Deputy Administrator's review of the investigative file reveals 
that RAM's owner and only officer is Mr. Mohamad Khorchid. On or about 
June 5, 2003, an application was submitted by Mr. Khorchid on behalf of 
RAM, seeking registration to distribute ephedrine and pseudoephedrine 
List I chemical products. It identified the applicant as ``RAM INC 
American Wholesale Dist. Co.''
    Prior to RAM's February 7, 2003, incorporation, Mr. Khorchid and 
his wife owned and operated American

[[Page 11694]]

Wholesale Distribution Corporation (AWD), also of Arlington, Texas, 
which was registered as a distributor of List I chemical products on 
April 15, 1999, under DEA Certificate of Registration 004169ASY.
    During AWD's 1999 pre-registration inspection, DEA investigators 
discussed requirements for recordkeeping and suspicious order reporting 
with Mr. and Mrs. Khorchid and provided written information regarding 
combination ephedrine and pseudoephedrine drug products used in 
illicitly manufacturing methamphetamine. A juvenile employee of AWD 
[John Doe] was present at this meeting and the three were advised it 
was illegal to sell List I chemical products knowing they would be used 
to manufacture illegal drugs. During this conversation, Mr. Khorchid 
advised investigators that AWD sold sundry items to area convenience 
stores and that List I chemical products would make up about 15% of the 
company's total sales.
    During a July 2001 regulatory investigation, Mr. Khorchid advised 
DEA investigators that 99% of AWD's customers were convenience stores 
and that List I chemical products made up about 10% of its sales. An 
inventory conducted as a part of that investigation showed AWD 
maintained a substantial inventory of ephedrine and pseudoephedrine 
products manufactured or distributed by two companies, Lannett Company, 
Inc. (Lannett) and PDK Labs, Inc. (PDK). The inventory included several 
Max Brand products, which are manufactured by PDK.
    DEA is aware that Lannett and PDK's ephedrine and pseudoephedrine 
products have been discovered by law enforcement agencies at 
clandestine methamphetamine laboratories and other illicit sites 
throughout the country. See Indace, Inc, c/o Seegott, Inc; Malladi, 
Inc., (Indace), 69 FR 67951 (2004) (Suspension of Shipment of ephedrine 
hydrochloride being imported for distribution to PDK Labs, Inc.). 
Further, during this period, no other ephedrine and pseudoephedrine 
manufacturers had as much diversion of their products as Lannett and 
PDK. DEA has previously found that PDK's Max Brand products are the 
precursors ``predominantly encountered and seized at clandestine 
methamphetamine laboratories'' and that ``[c]onvenience stores are also 
the primary source for the purchase of the Max Brand products, which 
are the preferred brand for use by illicit methamphetamine producers, 
and users.'' See Express Wholesale, 69 FR 62086, 62087, 62089 (2004).
    In April 2002, DEA investigators received information that AWD 
employee John Doe, who had a close personal relationship with the 
Khorchids, was falsifying company invoices to account for unlawful 
sales of pseudoephedrine. On June 11, 2002, an undercover operation was 
conducted which resulted in Doe selling a case of Action Brand PSE and 
four dozen bottles of Max Brand PSE to an undercover agent for about 
$1600.00, believing the products would be used to manufacture 
methamphetamine.
    In July 2002, Diversion Investigators obtained Mr. Khorchid's 
consent to perform an administrative inspection of AWD. A review of the 
company's sales records from April 2001 through July 2002 showed AWD 
sold large amounts of Lannet and PDK pseudoephedrine and ephedrine 
products to numerous area convenience stores. In many instances, the 
purchases of these products were well in excess of any potential 
legitimate demand. See Branex, Inc., supra, 69 FR at 8693 (expert 
testimony on the legitimacy of selling listed chemical products in the 
``gray market''); Xtreme Enterprises, Inc., 67 FR 76195, 76197 (2002) 
(same); Value Wholesale, 69 FR 58548 (2004); see also Indace, supra, 69 
FR at 67962 and cases cited therein.
    On July 30, 2002, investigators informed Mr. Khorchid about the 
investigation involving John Doe and requested surrender of the 
company's DEA registration, which was done on October 1, 2002. The 
employee was subsequently prosecuted in state juvenile court and pled 
guilty to conspiring to manufacture a controlled substance 
(methamphetamine).
    During DEA's pre-registration investigation into RAM's pending 
application, Mr. Khorchid advised investigators that the new company's 
prospective customers would continue to be convenience stores and he 
also intended to sell PDK manufactured pseudoephedrine and ephedrine 
products.
    DEA is aware that small illicit laboratories operate with listed 
chemical products often procured, legally or illegally, from non-
traditional retailers of over-the-counter drug products, such as gas 
stations and small retail markets. Some retailers acquire product from 
multiple distributors to mask their acquisition of large amounts of 
listed chemicals. In addition, some individuals utilize sham 
corporations of fraudulent records to establish a commercial identity 
in order to acquire listed chemicals.
    DEA knows by experience that there exists a gray market in which 
certain high strength, high quantity pseudoephedrine and ephedrine 
products are distributed only to convenience stores and gas stations, 
from where they have a high incidence of diversion. These gray market 
products are not sold in large discount stores, retail pharmacies or 
grocery stores, where sales of therapeutic over-the-counter drugs 
predominate.
    DEA also knows from industry data, market studies and statistical 
analysis that over 90% of over-the-counter drug remedies are sold in 
drug stores, supermarket chains and ``big box'' discount retailers. 
Less than one percent of cough and cold remedies are sold in gas 
stations or convenience stores. Studies have indicated that most 
convenience stores could not be expected to sell more than $20.00 to 
$40.00 worth of products containing pseudoephedrine per month. The 
expected sales of ephedrine products are known to be even smaller. 
Furthermore, convenience stores handling gray market products often 
order more product than what is required for the legitimate market and 
obtain chemical products from multiple distributors. See CWK 
Enterprises, Inc., 69 FR 69400 (2004); Prachi Enterprises, Inc., 69 FR 
69407 (2004); Volusia Wholesale, 69 FR 69409; Branex, Inc., supra, 69 
FR at 8693.
    Pursuant to 21 U.S.C. 823(h), the Deputy Administrator may deny an 
application for a Certificate of Registration if she determines that 
granting the registration would be inconsistent with the public 
interest. Section 823(h) requires that the following factors be 
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 of the applicant 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 Deputy Administrator may rely 
on any one or a 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

[[Page 11695]]

Outlet, 64 FR 14269 (1999). See also, Henry J. Schwartz, Jr., M.D., 54 
FR 16422 (1989).
    The Deputy Administrator finds factors one, two, three, four and 
five relevant to the pending application for registration.
    As to factors one through four, RAM's owners and operators have a 
history of distributing List I chemical products which were then 
diverted while the company operated as AWD and an employee with a close 
relationship to the Khorchids, sold listed products to an undercover 
officer believing they would be used to manufacture methamphetamine. 
That employee was subsequently convicted of a state crime involving 
controlled substances. As a result of these activities, Mr. Khorchid 
surrendered AWD's registration and incorporated RAM only a few months 
later. That company now seeks to sell listed products to the gray 
market, including those manufactured by PDK Labs, just as it did when 
operating solely under the AWD name. These four factors weigh against 
granting the pending application.
    With regard to factor five, other factors relevant to and 
consistent with the public safety, the Deputy Administrator finds this 
factor also weighs heavily against granting the application. Unlawful 
methamphetamine use is a growing public health and safety concern 
throughout the United States, including Texas. Ephedrine and 
pseudoephedrine are precursor products needed to manufacture 
methamphetamine and operators of illicit methamphetamine laboratories 
regularly acquire the precursor products needed to manufacture the drug 
from convenience stores and gas stations which, in prior DEA decisions, 
have been identified as constituting the gray market for List I 
chemical products. It is apparent that Mr. Khorchid intends on again 
becoming a participant in this market, just as he did when registered 
under AWD's identity.
    While there are no specific prohibitions under the Controlled 
Substances Act regarding the sale of listed chemical products to these 
entities, DEA has nevertheless found these establishments serve as 
sources for the diversion of large amounts of listed chemical products. 
See, e.g., ANM Wholesale, 69 FR 11652 (2004); Xtreme Enterprises, Inc., 
supra, 67 FR 76195; Sinbad Distributing, 67 FR 10232 (2002); K.V.M. 
Enterprises, 67 FR 70968 (2202).
    The Deputy Administrator has previously found that many 
considerations weighed heavily against registering a distributor of 
list I chemicals because, ``[v]irtually all of the Respondent's 
customers, consisting of gas station and convenience stores, are 
considered part of the gray market, in which large mounts of listed 
chemicals are diverted to the illicit manufacture of amphetamine and 
methamphetamine.'' Xtreme Enterprises, Inc., supra, 67 FR at 76197. As 
in Xtreme Enterprises, Inc., Mr. Khorchid's personal lack of a criminal 
record, his discharge of former-AWD employee John Doe and purported 
intent to comply with the law and regulations, are far outweighed by 
his intent to sell pseudoephedrine products almost exclusively to the 
gray market.
    The Deputy Administrator is particularly troubled by AWD's history, 
indicating its owners and operators, now principals of RAM, cannot be 
trusted to handle the responsibilities of a registrant. Further, RAM's 
continued use of AWD's name in a d/b/a capacity, raises further 
questions about RAM's customer base and the risk that its products will 
be sold to previous customers of AWD and then diverted to illegal 
purposes.
    Based on the foregoing, the Deputy Administrator concludes that 
granting the pending application would be inconsistent with the public 
interest.
    Accordingly, the 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 the pending 
application for DEA Certificate of Registration, submitted by RAM, Inc. 
d/b/a American Wholesale Distribution Corporation, be, and it hereby 
is, denied. This order is effective April 8, 2005.

    Dated: January 14, 2005.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 05-4565 Filed 3-8-05; 8:45 am]
BILLING CODE 4410-09-M