Stephen J. Heldman, Denial Of Application, 4032-4035 [E7-1326]

Agencies

• Drug Enforcement Administration
• Department of Justice

[Federal Register Volume 72, Number 18 (Monday, January 29, 2007)]
[Notices]
[Pages 4032-4035]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1326]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration


Stephen J. Heldman, Denial Of Application

    On November 18, 2005, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Stephen J. Heldman of Cincinnati, Ohio (Respondent). The 
Show Cause Order proposed to deny Respondent's pending application for 
a DEA Certificate of Registration as a distributor of the List I 
chemicals ephedrine and pseudoephedrine on the ground that his 
registration would be inconsistent with the public interest. See 21 
U.S.C. 823(h) & 824(a).
    The Show Cause Order specifically alleged that Respondent was 
proposing to distribute products containing pseudoephedrine and 
ephedrine, which are precursor chemicals used to manufacture 
methamphetamine, to non-traditional retailers of these products such as 
convenience stores and gas stations. See Show Cause Order at 1-2.

[[Page 4033]]

The Show Cause Order alleged that these retailers are sources for the 
diversion of these products into the illicit manufacture of 
methamphetamine. See id.
    The Show Cause Order next alleged that during a pre-registration 
investigation, Respondent indicated that he had no prior experience in 
handling List I chemical products, that he was unaware of the problem 
of diversion of these products into the illicit manufacture of 
methamphetamine, and that he was proposing to store listed chemical 
products in a commercial self-storage locker which had inadequate 
security. See id. The Show Cause Order also alleged that while 
Respondent told investigators that he intended to distribute only 
traditional products containing pseudoephedrine, the primary business 
of one of his two proposed suppliers is the distribution of combination 
ephedrine products which are sold by gray market retailers. See id.
    The Show Cause Order further alleged that during customer 
verifications, DEA investigators determined that several of 
Respondent's proposed customers obtained List I chemical products from 
other suppliers and had no intention of purchasing these products from 
him. See id. at 3. Finally, the Show Cause Order alleged that during an 
August 2005 investigation of another DEA registrant, DEA investigators 
determined that Respondent had obtained List I chemicals without being 
registered to do so. See id.
    On November 25, 2005, the Government initially attempted to serve 
the Show Cause Order by Certified Mail, Return Receipt Requested, by 
sending it to the address Respondent gave on the application for his 
proposed registered location. The mailing, however, was returned 
unclaimed. Thereafter, on January 17, 2006, the Government served the 
Show Cause Order by First Class Mail. Since that date, neither 
Respondent, nor anyone purporting to represent him, has responded. 
Because (1) more than thirty days have passed since the service of the 
Show Cause Order, and (2) no request for a hearing has been received, I 
conclude that Respondent has waived his right to a hearing. See 21 CFR 
1309.53(c). I therefore enter this final order without a hearing based 
on relevant material found in the investigative file and make the 
following findings.

Findings

    Pseudoephedrine and ephedrine are List I chemicals that, while 
having therapeutic uses, are easily extracted from lawful products and 
used in the illicit manufacture of methamphetamine, a schedule II 
controlled substance. See 21 U.S.C. 802(34); 21 CFR 1308.12(d). As 
noted in numerous DEA orders, ``methamphetamine is an extremely potent 
central nervous system stimulant.'' Sujak Distributors, 71 FR 50102, 
50103 (2006); A-1 Distribution Wholesale, 70 FR 28573 (2005). 
Methamphetamine is highly addictive; its abuse has destroyed lives and 
families and ravaged communities. Moreover, because of the toxic nature 
of the chemicals used to make the drug, its manufacture creates serious 
environmental harms. David M. Starr, 71 FR 39367 (2006).
    On October 27, 2003, Respondent, a sole proprietor, applied for a 
registration as a distributor of List I chemicals at the address of his 
residence in Cincinnati, Ohio. According to the investigative file, on 
January 15, 2004, a DEA Diversion Investigator (DI) contacted 
Respondent requesting additional information. The DI also contacted 
Respondent on additional occasions to request information. On October 
11, 2004, Respondent sent a letter to the DI providing the requested 
information. In this letter, Respondent informed the DIs that the List 
I chemical products would actually be kept in a storage unit at a 
commercial storage facility.
    On December 16, 2004, the DIs conducted an on-site inspection of 
the facility. Respondent's proposed use of the facility raised 
substantial concerns. According to the investigative file, the entrance 
gate to the facility remained open long enough to allow unauthorized 
persons to obtain access to the facility. Moreover, while Respondent's 
storage unit had an alarm system, the alarm sounded only at the 
facility's office and not at the local police station. Furthermore, 
during the visit, the facility's office was unoccupied. Finally, the 
DIs noted that it was unclear who would be responsible for handling the 
products that were delivered to the storage facility.
    During the course of the investigation, the DIs determined that 
Respondent engages in the business of distributing assorted products to 
convenience stores, gas stations, truck stops and liquor stores. 
Respondent told the DIs that he had no experience in the distribution 
of List I chemical products and that he had no knowledge of the 
diversion of these products into the illicit manufacture of 
methamphetamine.
    Respondent provided the DIs with a list of proposed customers for 
List I products. A substantial number of the proposed customers were 
Ameristop Food Marts, a chain of company-owned and franchise-owned 
convenience stores in Ohio and adjacent states. One of the DIs 
contacted the buyer for Ameristop Corporation, who informed him that 
all company-owned stores and most of the franchise-owned stores were 
supplied by Liberty Distribution, a subsidiary of Ameristop Corp. The 
buyer acknowledged that Respondent had supplied some items to ten 
Ameristop stores but stated that Ameristop would discourage its stores 
from buying List I chemical products from Respondent or any other 
independent vendor.
    Subsequently, on August 23, 2005, DEA DIs executed an 
Administrative Inspection Warrant at R J General Corporation, a 
Cincinnati-based firm which was soon to become--as in that day--an ex-
DEA registered distributor of List I chemical products. During the 
inspection, the DIs interviewed Mr. John Meinerding, who admitted that 
R J General had sold List I chemical products to Respondent on various 
dates between January 7, 2004, and December 8, 2004. Of note, on 
October 11, 2004, Respondent had faxed a letter to DEA in which he 
stated that his firm was a ``wholesale distributor.'' Moreover, in 
response to a question regarding whether he would engage in retail 
sales of List I chemical products, Respondent answered: ``No.''

Discussion

    Under 21 U.S.C. 823(h), an applicant to distribute List I chemicals 
is entitled to be registered unless the registration would be 
``inconsistent with the public interest.'' In making this 
determination, Congress directed that I consider the following factors:

    (1) maintenance by the applicant of effective controls against 
diversion of listed chemicals into other than legitimate channels;
    (2) compliance by the applicant with applicable Federal, State, 
and local law;
    (3) any prior conviction record of the applicant 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.

Id.

    ``These factors are considered in the disjunctive.'' Joy's Ideas, 
70 FR 33195, 33197 (2005). I may rely on any one or a combination of 
factors, and may give each factor the weight I deem appropriate in 
determining whether an application for registration should be denied. 
See, e.g., Starr, 71 FR at 39367; Energy Outlet, 64 FR 14269 (1999). 
Moreover, I am ``not required to make findings as to all of the 
factors.'' Hoxie

[[Page 4034]]

v. DEA, 419 F.3d 477, 482 (6th Cir. 2005); Morall v. DEA, 412 F.3d 165, 
173-74 (D.C. Cir. 2005). In this case I conclude that Factors One, Two, 
Four, and Five establish that granting Respondent's application would 
be inconsistent with the public interest.

Factor One--Maintenance of Effective Controls Against Diversion

    The investigative file establishes that Respondent does not have 
effective controls against diversion. In this case, it is unclear who 
would have access to List I chemical products upon their delivery to 
the storage facility and whether they would be handled in a manner 
which would prevent theft. See 21 CFR 1309.71(b). Furthermore, 
Respondent's proposed use of a commercial storage facility raises 
substantial questions about the adequacy of his security controls. 
Among other things, it appears that unauthorized persons can easily 
gain access to the facility. Moreover, Respondent has no control over 
the selection of the facility's other tenants or the persons they bring 
onto the property. See Sujak Distributors, 71 FR 50102, 50104 (2006). 
As I have previously explained, the use of commercial storage 
facilities presents an unacceptable risk that a criminal may gain 
access to the property and steal List I chemical products.
    Finally, while the facility has an alarm system, the alarm sounds 
only at the facility's office. This raises the further question of 
whether the facility provides effective monitoring twenty-four hours a 
day. I thus conclude that Respondent does not maintain effective 
controls against diversion and that this factor alone is dispositive in 
concluding that granting him a registration would be inconsistent with 
the public interest.

Factor Two--The Applicant's Compliance With Applicable Laws

    The investigative file contains disturbing evidence that Respondent 
repeatedly purchased List I chemicals products from R J General Corp., 
between January 7, 2004, and December 8, 2004. Moreover, in a letter 
which Respondent faxed to the DIs, he expressly stated that he did not 
engage in the retail sale of List I chemical products.
    Federal regulations clearly state that ``[n]o person required to be 
registered shall engage in any activity for which registration is 
required until the application for registration is approved and a 
Certificate of Registration is issued by the Administrator to such 
person.'' 21 CFR 1309.31(a). Respondent did not have a registration, 
and the regulations no longer exempt an applicant from the requirement 
of obtaining a registration prior to distributing List I chemical 
products. Id. 1309.25.
    Based on the evidence in the file, I conclude that Respondent 
violated federal law by distributing List I chemicals without the 
required registration. See 21 U.S.C. 822(a)(1). As I have previously 
noted, ``[r]egistration in one of the essential features of the 
Controlled Substances Act.'' Sato Pharmaceutical, Inc., 71 FR 52165, 
52166 (2006). Respondent's engaging in the distribution of List I 
chemicals without first obtaining a registration is a serious violation 
of the Act. I therefore conclude that this factor also provides 
sufficient reason by itself to deny Respondent's application.\1\
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    \1\ Because of the seriousness of this misconduct, I conclude 
that even though there is no evidence that Respondent has ever been 
convicted of an offense related to listed chemicals, this factor is 
entitled to no weight.1
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Factor Three--The Applicant's Experience in Distributing List I 
Chemicals

    Beyond the misconduct discussed above, Respondent stated in his 
letter to the DIs that he had no experience in the sale of List I 
chemical products. Were there no evidence of Respondent having engaged 
in illicit activity, I would nonetheless conclude that his lack of 
experience bars his registration.
    Because the regulatory scheme imposed by federal law is complex and 
the risk of diversion is substantial, this is not a line of business 
that is suitable for a new entrant to learn through on-the-job 
training. Accordingly, numerous DEA final orders have made clear that 
an applicant's lack of experience in distributing List I chemicals is a 
factor which weighs heavily against granting an application for a 
registration. Tri-County Bait Distributors, 71 FR 52160, 52163 (2006); 
Jay Enterprises, 70 FR 24620, 24621 (2005); ANM Wholesale, 69 FR 11652, 
11653 (2004). I therefore conclude that this factor further supports 
the denial of Respondent's application.

Factor Four--Other Factors That Are Relevant to and Consistent With 
Public Health and Safety

    Numerous DEA orders recognize that convenience stores and gas-
stations constitute the non-traditional retail market for legitimate 
consumers of products containing pseudoephedrine and ephedrine. See, 
e.g., Tri-County Bait Distributors, 71 FR at 52161; D & S Sales, 71 FR 
37607, 37609 (2006); Branex, Inc., 69 FR 8682, 8690-92 (2004). DEA 
orders also establish that the sale of certain List I chemical products 
by non-traditional retailers is an area of particular concern in 
preventing diversion of these products into the illicit manufacture of 
methamphetamine. See, e.g., Joey Enterprises, 70 FR 76866, 76867 
(2005). As Joey Enterprises explains, ``[w]hile there are no specific 
prohibitions under the Controlled Substances Act regarding the sale of 
listed chemical products to [gas stations and convenience stores], DEA 
has nevertheless found that [these entities] constitute sources for the 
diversion of listed chemical products.'' Id. See also TNT Distributors, 
70 FR 12729, 12730 (2005) (special agent testified that ``80 to 90 
percent of ephedrine and pseudoephedrine being used [in Tennessee] to 
manufacture methamphetamine was being obtained from convenience 
stores''); OTC Distribution Co., 68 FR 70538, 70541 (2003) (noting 
``over 20 different seizures of [gray market distributor's] 
pseudoephedrine product at clandestine sites,'' and that in eight month 
period distributor's product ``was seized at clandestine laboratories 
in eight states, with over 2 million dosage units seized in Oklahoma 
alone.''); MDI Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding that 
``pseudoephedrine products distributed by [gray market distributor] 
have been uncovered at numerous clandestine methamphetamine settings 
throughout the United States and/or discovered in the possession of 
individuals apparently involved in the illicit manufacture of 
methamphetamine'').
    Significantly, all of Respondent's proposed customers participate 
in the non-traditional market for ephedrine and pseudoephedrine 
products. Moreover, many of Respondent's proposed customers have other 
suppliers. Finally, Respondent's lack of knowledge regarding the 
diversion of List I chemicals into the illicit manufacture of 
methamphetamine is also disconcerting.
    DEA orders recognize that there is a substantial risk of diversion 
of List I chemicals into the illicit manufacture of methamphetamine 
when these products are sold by non-traditional retailers. See, e.g., 
Joy's Ideas, 70 FR at 33199 (finding that the risk of diversion was 
``real, substantial and compelling''); Jay Enterprises, 70 FR at 24621 
(noting ``heightened risk of diversion'' should application be 
granted). Under DEA precedents, an applicant's proposal to sell into 
the non-traditional market weighs heavily against the granting of a 
registration under factor five. So too here.

[[Page 4035]]

    Because of the methamphetamine epidemic's devastating impact on 
communities and families throughout the country, DEA has repeatedly 
denied an application when an applicant proposed to sell into the non-
traditional market and analysis of one of the other statutory factors 
supports the conclusion that granting the application would create an 
unacceptable risk of diversion. Thus, in Xtreme Enterprises, 67 FR 
76195, 76197 (2002), my predecessor denied an application observing 
that the respondent's ``lack of a criminal record, compliance with the 
law and willingness to upgrade her security system are far outweighed 
by her lack of experience with selling List I chemicals and the fact 
that she intends to sell ephedrine almost exclusively in the gray 
market.'' More recently, I denied an application observing that the 
respondent's ``lack of a criminal record and any intent to comply with 
the law and regulations are far outweighed by his lack of experience 
and the company's intent to sell ephedrine and pseudoephedrine 
exclusively to the gray market.'' Jay Enterprises, 70 FR at 24621. 
Accord Prachi Enterprises, 69 FR 69407, 69409 (2004).
    The investigative file in this case supports even more adverse 
findings than those which DEA has repeatedly held are sufficient to 
conclude that granting an application would be inconsistent with the 
public interest. Here, Respondent clearly lacks effective controls 
against diversion, has no experience in the elicit wholesale 
distribution of List I chemical products, and yet intends to distribute 
these products to non-traditional retailers, a market in which the risk 
of diversion is substantial. Furthermore, the file establishes that 
Respondent violated federal law by distributing List I chemicals 
without a registration. Given these findings, it is indisputable that 
granting Respondent's application would be ``inconsistent with the 
public interest.'' 21 U.S.C. 823(h).

Order

    Pursuant to the authority vested in me by 21 U.S.C. 823(h), and 28 
CFR 0.100(b) & 0.104, I order that the application of Respondent 
Stephen J. Heldman, for a DEA Certificate of Registration as a 
distributor of List I chemicals be, and it hereby is, denied. This 
order is effective February 28, 2007.

    Dated: January 20, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. E7-1326 Filed 1-26-07; 8:45 am]
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