A subsidiary of a publicly traded company pleads guilty to multiple fraud offenses


US Compounding Inc pleads guilty to multiple offenses and its vice president indicted

Photo: Rob Byron/Adobe Stock

Photo: Rob Byron/Adobe Stock

US Compounding Inc, (USC), a subsidiary of DMK Pharmaceuticals Corporation, has plead guilty to multiple fraud cases before US District Judge Arun Subramanian. Along with the company pleading guilty, Sam Glover, a former USC executive, was charged and indicted with conspiring to violate the Food, Drug, and Cosmetic Act (FDCA).

“Distributing prescription drugs with sham prescriptions is wrong and illegal. The corporate resolution entered into today, and the indictment of Sam Glover, an executive who oversaw and allegedly perpetuated that scheme, reflects this Office’s commitment to holding accountable those who seek to violate laws designed to ensure that the drugs distributed across the United States are safe, necessary, and legal,” said Damian William, US Attorney for the Southern District of New York, in a Department of Justice release.1

According to the release, in 2015, while USC was a privately-held corporation, a sales representative for the company, ‘Sales Rep 1’, entered into an illegal agreement with a veterinarian, ‘the Veterinarian’. Through the agreement, Sales Rep 1 would use the Veterinarians state veterinary license to generate false prescription orders to vindicate shipping prescription drugs right to consumers, including consumers living in the Southern District of New York. This exchange is in violation of the FDCA, and the consumers lacked legitimate prescriptions for those drugs.

Per the agreement made with Sales Rep 1, the Veterinarian was promised a 10% commission on all sales generated using his credentials, despite Sales Rep 1, his supervisor, Glover, and the vice president of sales at USC all knowing that those prescriptions were a sham. Through this scheme, Glover, Sales Rep 1, and the sales team under them generated $1 million in sales annually, making up about one-third of Sales Rep 1’s total sales of USC drugs.

USC was then acquired in March 2016 by DMK Pharmaceutical Corporation (DMK), which at the time was named Adamis Pharmaceutical Corporation (Adamis). USC, through the acquisition, still retained essential functions by operating as a wholly owned subsidiary of Adamis. A lot of its staff remained employed, including Glover. An executive at Adamis, ‘Adamis Executive’, was informed of the scheme and the Veterinarian’s role in it, leading Glover, in conjunction with Sales Rep 1 and Adamis Executive, to continue the fictitious prescription scheme while attempting to enter a sham consulting agreement with the Veterinarian. The new scheme would have the Veterinarian paid an hourly rate for consultations, but the payments would in reality be for covering up the commission payments the Veterinarian was receiving. If ever questioned, Glover and the others would claim the Veterinarian was a USC consultant and maintain that was what the payments were for.

“US Compounding, Inc. and its former executive, Sam Glover, allegedly committed various frauds and violated the Food Drug and Cosmetic Act by falsifying prescription orders. Despite scrutiny by members of the company who suspected the orders were unverified, the company’s leadership continued to allow the requests and collect profits as a result. This investigation is part of the FBI’s larger effort to ensure that both individuals and organizations who devise complex fraud schemes are prevented from furthering their illegitimate arrangements and making money off mistruths” said Christie M. Curtis, Federal Bureau of Investigation (FBI) acting assistant director in charge.1

The head of the USC pharmacy responsible for fulfilling prescription drug orders, ‘Pharmacist-1’, resigned in around December 2019 as a result of USC’s continued scheme of fulfilling drugs orders with unverified prescriptions submitted by its sales representatives. Pharmacist-1 was replaced by ‘Pharmacist-2’, but they too refused to fulfill further orders for unverified prescription drugs submitted by USC’s sale representatives. Pharmacist-2 brought up concerns to Glover and the Adamis Executive about USC’s prescription practices, but the concerns were initially dismissed. Eventually, Pharmacist-2 persuaded Adamis to adopt a new veterinary software platform to remove USC's sales representatives’ involvement from the process of creating or submitting prescriptions.

Still, Glover, the Adamis Executive, and Sales Rep 1 permitted sales representatives to continue submitting fraudulent prescriptions using the new software, bypassing the controls Pharmacist-2 pushed to implement. As a result, Pharmacist-2 and 2 other pharmacists employed at USC resigned in around September 2020, along with a 4th pharmacist employed at USC resigning the following week. Through the new software, USC sales representatives continued to falsely claim that drug orders were supported by valid prescriptions, even though they were not.

Then, in around July of 2020, USC sales representatives stopped submitting false prescriptions under the Veterinarian’s name. This move was a response to increased perceived scrutiny of USC’s operations. USC sales representatives began to instead falsely classify direct-to-consumer sales of prescription drugs as office stock sales to the Veterinarian, asserting that the Veterinarian was prescribing these drugs to USC’s customers. USC's internal sales data indicated that sales of a specific prescription drug to the Veterinarian's practice rose proportionally as direct-to-consumer sales of that drug decreased.

About a year later, in around April 2021, the Arkansas State Board of Pharmacy issued an Order and Notice of Hearing addressed to the pharmacist who succeeded Pharmacist-2. Before the hearing, USC entered into a consent order in which it agreed to stop all operations in Arkansas. USC also agreed to surrender its licenses as a pharmacy and wholesale distributor in Arkansas. As part of the resolution, USC admitted to several factual points1:

  • USC “failed to ensure prescribing veterinarians were licensed in the state into which product was ordered and/or shipped”
  • USC “allowed for issuance of veterinary legend products directly to consumers without receipt of a legal prescription”
  • USC “provided remuneration directly to a veterinarian in connection with a veterinary prescription”
  • USC “provided veterinary prescriptions drugs to animal owners without the authorization of a licensed veterinarian and a prescription”
  • USC “filled veterinary prescriptions for patients that did not have a valid practitioner-patient relationship”

The US Attorney’s Office for the Southern District of New York came to its agreement with USC based on the nature, seriousness, and extent of the offense, as well as a consideration of USC and its parent company’s cooperation efforts in the federal criminal investigation. Adamis, upon learning of the investigation in May 2021, cooperated through its Audit Committee, conducting an internal investigation and addressing inquiries from the US Attorney’s Office. Adamis also took remedial actions on behalf of USC, including halting USC operations, dismissing employees involved in the crime, and engaging a 3rd party to conduct cross-company enterprise risk assessment to evaluate several factors.

Per the plea agreement, USC agreed to pay approximately $4.2 million in forfeiture and could face a criminal fine of up to $16.9 million. Additionally, Glover was charged with one count of conspiring to violate the FDCA, which could lead to a maximum sentence of 5 years in prison.


U.S. Compounding, Inc pleads guilty to multiple fraud offenses and company vice president indicted in scheme to distribute drugs nationally using false prescriptions. News release. United States Department of Justice. July 9, 2024. Accessed July 10, 2024. https://www.justice.gov/usao-sdny/pr/us-compounding-inc-pleads-guilty-multiple-fraud-offenses-and-company-vice-president?utm_medium=email&utm_source=govdelivery

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