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AMERICAN THERAPEUTICS' FORMER CEO VEGESNA RECEIVES STIFFEST SENTENCE YET FOR ROLE IN GENERIC SCANDAL, INCLUDING TWO-YEAR JAIL TERM, $50,000 FINE AND PROBATION

Executive Summary

American Therapeutics' former CEO and president Raju Vegesna was sentenced to two years of incarceration and a $50,000 fine on one count of interstate travel or use of interstate facilities in aid of racketeering. Vegesna also received a suspended sentence, probation for three years, and a community service requirement of 1,000 hours on a second count of racketeering. He was sentenced in Baltimore federal court July 26. Vegesna, 42, is required to report to the court on Sept. 26 to begin his two-year jail term. Vegesna's attorney has asked that the former ATI exec be allowed to serve his term in a federal prison camp in McKean, Pa. First Assistant U.S. Attorney Gary Jordan had sought a four-year prison term for Vegesna and a fine of $250,000 for the first count, which concerns payments made to Mohammed Azeem's consulting firm, Pharmagen Consultant, Inc., to pay for former FDAer Charles Chang's trip to the Orient in July 1987. For the second count, which charges Vegesna with directing the shipment of furniture and computer equipment to Chang, Jordan recommended that the court impose a suspended sentence, probation for three years, a fine of $250,000, and a requirement of community service. The maximum sentence Vegesna could have received was five years imprisonment and a fine of $250,000 for each count. In support of the government's sentencing recommendations, Jordan asserted that Vegesna "paid more money to FDA officials" than any other individual convicted to date. According to a government memorandum submitted to the judge for sentencing, Vegesna's "unlawful payments totalled over $60,000." These payments were made to four former employees of FDA's Generic Drug Division: Chang, David Brancato, Jan Sturm, and Walter Kletch. The memorandum maintains that "Vegesna's criminal conduct was the most extensive and egregious" and that "he chose to violate the law on 12 occasions in the span of 14 months." Jordan said that Vegesna also made extensive "efforts to cover his tracks" by destroying incriminating documents and replacing them with false substitutes to mislead Rep. Dingell's (D-Mich.) House Energy & Commerce/Oversight Subcommittee investigation. Vegesna's attorney Nathan Lewin (Washington, D.C. firm of Miller, Cassidy, Larroca & Lewin) asked the judge for leniency. The defense had originally requested that Vegesna be placed under house arrest at his home in St. James, New York. However, Jordan said that having Vegesna under house arrest in his "palatial estate" would "make a mockery" of the seriousness of his wrongdoing. Judge Hargrove also denied Lewin's request that Vegesna be allowed to visit his father in India before he begins to serve his sentence. In response to objections raised by Jordan, Hargrove asked that Vegesna surrender his passport unless he could provide a "real guarantee" to the government that he would be available to begin serving his sentence in September. In handing out the sentence, Hargrove called Vegesna's actions "more reprehensible in many ways" than those of the other individuals already convicted. "More people were touched by [Vegesna] than by any other defendant," Hargrove declared. The judge also pointed out that no other defendant "destroyed records" or used a "phony consulting firm." The government's sentencing document says that in 1984, Vegesna "diverted ATI funds to Pharmagen Consultant, which...Mohammed Azeem, in turn, spent at [Vegesna's] direction." The money from the Pharmagen fund went to pay for a $15,000 sports car for Vegesna's daughter, a $77,000 down payment on Vegesna's$1 mil. home, and "various Vegesna investments" totalling$175,000. Money for illegal payments to FDAers Brancato, Bart Ho and Harvey Greenberg also came from the fund. Ho and Greenberg, however, refused the money. In an attempt to explain Vegesna's actions, Lewin noted that other generic company representatives were also giving gratuities to FDAers in return for favoritism in drug reviews and, if Vegesna had not followed suit, he would have been at a "disadvantage." The defense's sentencing memorandum notes that the "business culture" of India encourages businesspersons to give gifts to government officials to ward off unfavorable actions against their businesses. However, Jordan countered that if Vegesna had "truly thought" his deeds were acceptable, he would not have tried to "hide" them. Vegesna came to the U.S. from India in 1975. Jordan noted that Vegesna paid former FDAer Sturm $10,000 in April 1987 for secret trade information regarding certain drugs that he had misappropriated from FDA files. The government's sentencing memorandum points out that ATI obtained approval for some of those same drugs and that ATI's ANDAs for a generic version of Maxzide, clorazepate dipotassium, thiothixene and trazodone HCl sped through the review process. ATI's generic version of Maxzide, clorazepate and thiothixene were the first generic versions approved. Vegesna's level of cooperation with the investigation was not comparable to the other company representatives, Jordan emphasized. He noted that Vegesna did not decide to cooperate until October 1989, one year after he learned that he was a target of the investigation. Vegesna admitted to giving Sturm the$10,000, but failed to disclose a $20,000 gratuity to Sturm for his help with the trazodone approval, Jordan said. The U.S. attorney added that the $20,000 is "the single largest gratuity" to date. Vegesna also failed to acknowledge the $8,000 he paid to Kletch. In an attempt to justify Vegesna's delay in cooperating, Lewin explained that Vegesna feared that if he came forward his daughter's prearranged wedding in India might have been called off and that his Indian background prevented him from testifying against others. The second most severe sentence, in regards to jail time, was given to Azeem, who received six months in prison for offering illegal cash gratuities to a number of FDA employees with the remainder of a two-year sentence suspended ("The Pink Sheet" June 11, T&G-3). In terms of fines, former Quad exec Dilip Shah received the biggest fine: $250,000 for giving illegal gratuities to FDA reviewers.

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