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Indictment Accuses Four of $7M Medtech Fraud

Among the four defendants named in a federal indictment is the felon Kenneth Jackson, who had previously served seven years of prison time after being convicted of 117 felony counts.

Brian Buntz

Four men have been charged with defrauding investors of millions in a case that centers around a needle destruction device known as the Sharps Terminator, which required a PMA before it was commercialized. The 31-count indictment was filed in the U.S. District Court, Northern District of Ohio (Cleveland).

Despite the PMA requirements, one of the men in the indictment, Kenneth Jackson, founded the company Medical Safety Solutions in 2007, and joined by the other three defendants, allegedly sold private stock in the company while lying to investors about the technology.

"These men traveled around the country and deliberately misled investors," Steven M. Dettelbach, U.S. Attorney for the Northern District of Ohio, said in an FBI news release. "They left financial hardship in their wake. Now they will be held accountable for their actions."

While the company first applied for a PMA for the technology in October 2012 and a patent for the device a year earlier, the company fraudulently sold roughly 10 million shares of the company's private stock. The indictment says that Jackson, along with codefendants William Schureck, Daryl Dane Donohue, and Dennis Deciancio, lied to investors about the Sharps Terminator. Specifically, the four are accused of claiming that either the PMA for the device was forthcoming or had been already granted. The indictment maintains that the four used a false FDA identification number in their talks with investors, while also claiming that it had been patented (only a provisional patent application had been filed for the item). In addition, they were said to have falsely claimed that the device was ready for mass production and that FDA representatives had inspected its production facilities when they in fact had not.

The indictment says that in April of 2009, Jackson sent an email to an investor lying about a non-existent FDA inspection that said in part: "Good News! The FDA is now in the process of inspecting our facility and evaluating our production procedures for the Sharps Terminator. Tuesday, April 7, 2009 they were given all of our clinical and non-clinical test data to evaluate and compare with the claims we want to make for the product." The investor would go on to invest roughly $262,000 in the company.

The indictment cites other examples of how the company founders lied to investors. By 2013, the scheme reportedly cost investors more than $7 million.   

Jackson had an extensive criminal record. In 1992, he was convicted of 117 felony counts that included numerous counts of unlicensed sale of securities, sale of unregistered securities, in addition to charges related to passing bad checks, perjury, theft, and aggravated theft. Jackson had been found guilty of orchestrating a $13 million Ponzi scheme related to the Vision Television Network. He was incarcerated from 1992 to 1999.

Following his release from prison, Jackson began working in the medical device industry. An SEC order banned him from being a corporate officer or a director of a public company. Jackson founded a private company in 2001 known as E Med Future, which later went public. The company marketed a product known as Needlezap that incinerated hypodermic needles. The device went on to receive a PMA in 2003

After being forced out of E Med Future for financial impropriety at the behest of the company's board of directors, Jackson went on to found a new medical device company in 2005, known as Safe Medical Solutions, which was said to be founded by William Allonas under Jackson's instruction. While the indictment says the company was initially founded to continue making the Needlezap medical devices, it eventually was re-envisioned as the developer of the Sharps Terminator.

Refresh your medical device industry knowledge at MEDevice San Diego, September 1-2, 2015.

Brian Buntz is the editor-in-chief of MPMN and Qmed. Follow him on Twitter at @brian_buntz.

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