For ex-pot kingpin, new trouble—health supplements

Pot kingpin to CEO?   

Jared Wheat has been on the government's radar for more than two decades. Twenty years ago, he was convicted as a drug smuggler who operated a massive marijuana ring in the South. Now, Wheat must pay a $40 million judgment and recall health supplements that a judge says falsely claim to burn fat and cure erectile dysfunction.

A federal court this week ordered Wheat, 42-year-old CEO of Hi-Tech Pharmaceuticals, to surrender to U.S. Marshals on Friday to be incarcerated until full recall conditions for his supplements have been met.

Wheat is still facing off with the Federal Trade Commission after being hit with the $40 million judgment last September for not complying with a court ordered recall by July 14.

Adding to the drama, Wheat was found collapsed in a men's room during his fourth day in court with the FTC in late August. He was showing signs of a heart attack, and was taken to a hospital. However, that didn't stop the judge from continuing the hearing and ultimately ordering Hi-Tech Pharmaceuticals to complete the product recall by the end of the month.

Numerous phone calls and emails to reach Wheat through his attorney Jack Wenik were not returned.

Read MoreThe 'deceitful' infomercial king and his pyramid scheme: Investigators

This isn't the first time Wheat has been ordered incarcerated for not complying with a court-ordered recall. A 2004 battle with the FTC led investigators to the current charges.

Jared Wheat
Erik S. Lesser
Jared Wheat

In 2004, Wheat was incarcerated after being hit with a nearly $16 million judgment for three supplements produced by his Norcross, Georgia-based company. Wheat has since paid off the $16 million, but investigators say that while Wheat was behind bars in Jesup, Georgia, he devised a plan to produce four new supplements—despite a court order forbidding him.

"Amazingly while he's in jail, he decides he needs to make more money, sell more product," Jim Kohm, associate director of the Enforcement Division at the FTC, told CNBC. "He was calling the shots for the whole thing and he was doing so in jail."

Investigators said Wheat created a print advertising campaign for the new supplements with the names "Fastin," "Lipodrene," "Benezedrine" and "Stimerex-ES" with claims including "Rapid Fat Loss," "Thermogenic Fat Burner" and "Treatment for Erectile Dysfunction."

"The campaign starts while he is in prison and then when he gets out he continues to run the campaign and then they sold millions and millions of dollars of this product," Kohm said. Investigators say the ad campaign was widely targeted toward women and ran in magazines including Cosmopolitan, OK! and Martha Stewart Weddings.

Hi-Tech Pharmaceutical’s product Fastin advertised in Cosmopolitan.
CNBC
Hi-Tech Pharmaceutical’s product Fastin advertised in Cosmopolitan.

The FTC quickly caught onto Wheat's activities and won a court order that he pay an additional $40 million judgment. But Wheat has yet to pay the $40 million and says he's broke.

"He is still telling the court that he can't afford to pay the judgment, yet he's driving a $135,000 Lamborghini and has withdrawn millions and millions of dollars from the company," Kohm said.

Hi-Tech Pharmaceuticals shipping trucks
CNBC

Along with judgment, the court had ordered Hi-Tech Pharmaceuticals to recall all four supplements by this past July. However, months after that deadline, all four supplements were still on shelves of large national chains in August.

CNBC last month also spotted shipping trucks at Hi-Tech Pharmaceutical's loading docks in Georgia, emblazoned with the same claims the company and the FTC are battling over.

When Wheat was back in court in August, his legal team asked the judge to keep him out of jail, arguing the recall would be handled more efficiently with him physically at Hi-Tech. FTC officials responded that the company has shown a lack of effort to withdraw its products from store shelves. On Tuesday, U.S. District Judge Charles A. Pannell Jr. issued his order that Wheat surrender Friday.

—By CNBC's Andrea Day and Valerie Patriarca