GNC and Its "Unconscionable Sales"

17 Counts of Misconduct
Link to News Story
  
November 18, 2015
 
On October 22nd, Oregon Attorney General Ellen Rosenblum filed a lawsuit in Multnomah Circuit Court against General Nutrition Corporation for selling nutritional and dietary supplements containing two illegal ingredients:  picamilon and BMPEA.  The suit claims the company “misrepresented certain products as lawful dietary supplements when they are actually unapproved drugs that may not be lawfully sold in the United States.”  According to Ms. Rosenblum, “It is scary to know that certain products sold by GNC contain an ingredient that is not even labeled—let alone approved in the United States.”  The suit seeks significant monetary penalties for the company’s violations of Oregon’s consumer protection statutes.
 
The company was slapped with the following 17 counts of misconduct:
 
First Claim for Relief:
Count 1:  Misrepresenting that Products Containing Picamilon are Lawful Dietary Supplements
Count 2:  Misrepresenting that Products Containing BMPEA are Lawful Dietary Supplements
Count 3:  Misrepresenting that Picamilon is a Lawful Dietary Ingredient
Count 4:  Misrepresenting that BMPEA is a Lawful Dietary Ingredient
Count 5:  Failure to Disclose that a Product Contained BMPEA
Count 6:  Failure to Disclose that Acacia Rigidula Products Were at Significant Risk of Adulteration with                 BMPEA
 
Second Claim for Relief:
Count 7:  Misrepresenting that Picamilon is a Lawful Dietary Ingredient
Count 8:  Misrepresenting that BMPEA is a Lawful Dietary Ingredient
Count 9:  Misrepresenting that Products Containing Picamilon are Lawful Dietary Supplements
Count 10:  Misrepresenting that Products Containing BMPEA are Lawful Dietary Supplements
 
Third Claim for Relief:
Count 11:  Causing Likelihood of Confusion that Picamilon is Approved or Certified as a Lawful Dietary                     Ingredient
Count 12:  Causing Confusion that Products that Contain Picamilon are Approved or Certified as Lawful                     Dietary Supplements
Count 13:  Causing Confusion that BMPEA is Approved or Certified as a Dietary Ingredient
Count 14:  Causing Confusion that Products Containing BMPEA are Lawful Dietary Supplements
 
Fourth Claim for Relief:
Count 15:  Unconscionable Sales of Acacia Rigidula Products Spiked with BMPEA
Count 16:  Unconscionable Sales of Products with the Unlawful Ingredient BMPEA
Count 17:  Unconscionable Sales of Products with the Unlawful Ingredient Picamilon
 
Just yesterday, the Justice Department unsealed an indictment against USPlabs, which sold the best-selling workout supplement Jack3d, and six of its executives who now face criminal charges for the unlawful sale of nutritional supplements.  The Justice Department said the indictment and subsequent arrests were part of a larger sweep by several agencies aimed at stemming the sale of unproven nutritional supplements.
 
The indictment indicates that USPlabs used a synthetic stimulant made in China to make Jack3d and OxyElite Pro but told retailers that the supplements were manufactured from plant extracts.  Of the six executives facing criminal charges, four were arrested yesterday with the remaining two expected to surrender.  OxyElite Pro has been associated with several accounts of liver injuries in 2013, and several of its users needed liver transplants.
 
The Federal Trade Commission filed lawsuits against Health Nutrition Products and NPB Advertising Inc, alleging that they sold or advertised deceptive or unproven workout or weight loss supplements.  NPB Advertising, Inc. capitalized on the green coffee bean diet fad by using false weight-loss claims and fake news websites to market Pure Green Coffee.  Last week, the Department filed civil cases against several other companies, including Clifford Woods, Viruxo, and Optimum Health.  The FTC also filed a lawsuit against Sunrise Nutraceuticals LLC, indicating the company deceptively claims its dietary supplement Elimidrol lessens withdrawal symptoms and increases a user’s likelihood of overcoming opiate addiction.
 
The Oregon Attorney General’s case against GNC purports that the company “repeatedly violated the UTPA (Oregon’s Unlawful Trade Practices Act) by misrepresenting that various products that GNC sold in Oregon were lawful dietary supplements when in fact these products were adulterated and unlawful because they contained either picamilon or BMPEA, potentially dangerous ingredients that do not meet the legal definition of a dietary ingredient and may not be lawfully used in dietary supplements.
Picamilon is a synthetic chemical designed to cross the blood brain barrier and is a prescription drug used in some countries but not the United States to treat various neurological conditions.  BMPEA is a synthetic chemical similar to amphetamine that is banned by the World Anti-Doping Organization.  In addition to selling products that were labeled as containing picamilon and BMPEA, Defendant sold products that it knew or should have known had been spiked with BMPEA, without disclosing in the product’s label that the product contained this unlawful ingredient.” 
 
Section 17 of the Complaint further states that, “Picamilon was developed by researchers in the former Soviet Union and is currently a prescription drug in Russia used to treat a variety of neurological conditions.  It has never been approved as a prescription or over-the-counter drug in the United States.”
Court documents show that as early as May 22, 2007, Jennifer Jakel, GNC’s Senior Project Manager for Technical Research, knew that picamilon was a synthetic drug created by Russia and not a lawful dietary ingredient in the United States.  “When GNC sells products containing picamilon in Oregon, it represents that the product is a lawful dietary supplement that contains lawful dietary ingredients.”  Products containing picamilon were falsely labeled and sold as if they were lawful dietary supplements when in fact they were not.
 
In June of this year, the Attorney General’s office issued an Investigative Demand to GNC which demanded the production of documents and information relating to its sales of picamilon.  The Demand “clearly discussed the likelihood that picamilon was not a lawful dietary ingredient.”  Despite the notice, “GNC continued to sell products that contain picamilon nationally and in Oregon.”
 
Section 33 of the Complaint goes on to describe BMPEA as “a chemical similar to amphetamine.  It was first synthesized in the 1930s as a replacement for amphetamine, but for unknown reasons it was never studied in humans.  There are anecdotal reports that BMPEA is associated with hemorrhagic stroke.  Because of its amphetamine-like qualities, BMPEA is banned for use by athletes by the World Anti-Doping Agency.”
 
As early as November 2, 2013, Jennifer Jakel, GNC’s Senior Project Manager for Technical Research, was notified by PubMed that an FDA study found that 43% of the dietary supplements tested that were labeled as containing a natural ingredient from the acacia rigidula (AR) plant had been “spiked” with BMPEA.  The same study was published two weeks later on November 18, 2013 in USA Today.  The next day, “Ms. Jakel circulated the USA Today article to approximately 100 recipients at GNC headquarters,” including GNC’s Senior Vice President Guru Ramanathan and GNC’s Vice President/General Counsel David Sullivan.  One Senior Vice President even offered to do a “database search to find all SKUs” associated with affected products.
 
“Despite widespread knowledge that the AR products sold by GNC were at high risk for having been spiked with BMPEA…(including its General Counsel)…GNC continued to sell products that contained AR without testing these products to determine whether the product was adulterated with BMPEA or informing consumers of the risk that these products were adulterated…GNC also continued to sell products that were labeled as containing BMPEA even though it knew or should have known from the 2013 FDA study that BMPEA is a synthetic substance similar to amphetamine and was not a lawful dietary ingredient.”
 
On March 12, 2014, the European Union’s Food Standards Agency contacted GNC and notified them that products containing AR could not be sold in the EU.  In November of 2014, Danish and Swedish regulatory agencies issued warnings that dietary supplements containing AR that were spiked with BMPEA may cause hemorrhagic stroke.  According to the Attorney General’s Complaint, “This newsletter was widely distributed throughout GNC headquarters.”
 
“In December 2014, Health Canada (the Canadian Equivalent to FDA) announced a recall of the AR labeled dietary supplement ‘Jet Fuel Superburn’ because it was spiked with undisclosed BMPEA.  At the time of the Health Canada recall, GNC sold Jet Fuel Superburn and other dietary supplements labeled as containing AR and at risk of containing BMPEA, and continued to sell those products in Oregon and the United States even after the Health Canada recall.”
 
Of seven different products sold by GNC labeled as containing AR, all but one (Green Coffee Bean+Energy) tested positive in 2013 for the presence of BMPEA.  Before Green Coffee Bean could be independently tested, it was quickly reformulated.  On November 19, 2013, Charlie Chiaverini, National Brand Manager for Rightway Nutrition (maker of Green Coffee Bean+Energy) wrote to GNC employee Bob Emilian asking, “Obviously you would like for us to reformulate as fast as possible and replace the inventory in the stores in warehouse with new inventory yes.”  Mr. Emilian replied, “Yes for starters.”
 
After November 2013, when GNC knew that AR products were at significant risk of having been adulterated with BMPEA, GNC sold at least 27 AR products that were in fact adulterated with BMPEA and at least 105 AR products in Oregon and the rest of the country without disclosing that these products were at significant risk of having been adulterated with BMPEA.  Products sold that were labeled as containing BMPEA were falsely labeled as if they were a lawful dietary supplement.
 
GNC has responded that the claims made by the Oregon Attorney General are “without merit” and that “GNC intends to vigorously defend against these allegations.”  In a statement issued last night in response to the sharp sell-off and multi-year lows seen in GNC’s stock price yesterday, the company stated that, “GNC is committed to maintaining the trust and confidence of our customers, and we have rigorous policies and procedures in place with respect to third party vendors and suppliers to ensure that they meet the highest standards of compliance and accountability…We also demand that all GNC employees adhere to the highest legal and ethical standards and have a zero tolerance policy for actions that deviate from those standards.”
 
Here at Street Watchdog Research, we do not believe Attorney General’s Rosenblum’s allegations are “without merit.”  In fact, GNC’s motion to remove the case to Federal Court may prove to be disastrous as seen by the combined DOJ, FTC, USPS, & FDA actions yesterday.
 
Disclosure:  We are short GNC.  We do not have a financial relationship with the company.