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United States v. Arif

United States Court of Appeals, First Circuit

July 18, 2018

MUSTAFA HASSAN ARIF, Defendant, Appellant.


          Benjamin Brooks, with whom Michael Schneider and Good Schneider Cormier & Fried were on brief, for appellant.

          Seth R. Aframe, Assistant United States Attorney, with whom Scott W. Murray, United States Attorney, was on brief, for appellee.

          Before Torruella, Lynch, and Kayatta, Circuit Judges.

          LYNCH, Circuit Judge.

         Mustafa Hassan Arif operated a very profitable online business from Lahore, Pakistan, selling non-prescription drug products that purported to treat or cure hundreds of different diseases and medical conditions. He created and operated over 1, 500 websites containing altered clinical studies, fabricated testimonials, and false indicia of origin to induce consumers in the United States and elsewhere to purchase his products. Through his misdeeds, Arif gained more than $11 million in revenues. He conditionally pled guilty to wire fraud in 2016, preserving two arguments for appeal that the district court had rejected in two thoughtful memoranda. See United States v. Arif (Arif I), No. 15-cr-057 (D.N.H. Sept. 16, 2016); United States v. Arif (Arif II), No. 15-cr-57, 2016 WL 5854217 (D.N.H. Oct. 6, 2016). Arif was sentenced to seventy-two months of imprisonment.

         On appeal, Arif's primary argument is that he was prosecuted under the wrong statute. We reject Arif's argument that prosecutions such as his must be pursued exclusively by the Federal Trade Commission ("FTC") as false advertising cases, and not by the Department of Justice ("DOJ") as wire fraud cases.[1] As an issue of first impression, we hold that Congress did not impliedly repeal the wire fraud statute, 18 U.S.C. § 1343, as to prosecutions that also fall within the reach of the 1938 Wheeler-Lea Amendment to the Federal Trade Commission Act ("FTCA"), 15 U.S.C. §§ 52-57.[2]

         Arif also argues that, as a matter of law, he could not have committed fraud because he "held an honest and sincere belief in the efficacy of his products," and he correctly identified their ingredients.

         Arif's remaining arguments are that his seventy-two month sentence must be vacated because the district court's Guidelines calculation as to the loss amount was erroneous and, further, because the court did not "adequately account" in its sentence for the fact that his penalty would have been lower had he been charged under the FTCA.

         All of Arif's arguments are without merit. Accordingly, we affirm both his conviction and sentence.

         I. Facts

         The following facts are drawn from Arif's conditional guilty plea and from the district court's findings of fact.

         Arif ran an elaborate, multi-million-dollar online business from Lahore, Pakistan, selling non-FDA-approved drugs that purported to cure hundreds of different diseases and medical conditions. He primarily operated his business through MAK International, a "parent company" he owned. Arif also worked with CCNow, a third-party payment processor based in the United States.

         To sell his products, Arif created, maintained, and controlled more than 1, 500 websites. Over 1, 000 of these websites directly offered drugs for sale, with each individual website selling a single drug that purported to treat a single disease or medical condition. The remaining 400 or so websites were "referral" sites, which purported to be "independent and impartial," but were, in fact, conduits to one or more of Arif's websites selling his products.

         Arif organized his websites into subnetworks or groups, each with a unique brand name and color scheme. These included Berlin Homeo (comprising more than 250 sites), Botanical Sources (comprising more than 200 sites), Gordon's Herbal Research Center (comprising more than 120 sites), Healing Plants Ltd. (comprising more than 60 sites), Oslo Health Network (comprising more than 300 sites), and Solutions by Nature (comprising more than 70 sites). He also created two referral networks: "Society for the Promotion of Alternative Health" and "Toward Natural Health." In general, each website within a group "contained the same verbiage," with "the only material difference being the name of the disease or medical condition, the name of the drug, and the variations in the purported ingredients."

         All of the websites contained misleading mail-forwarding addresses that were "intended to make customers more comfortable purchasing the drugs." For instance, websites in the Berlin Homeo network included an address in Germany. Websites in the other networks contained forwarding addresses in Italy, New Zealand, Australia, Norway, Denmark, England, and Scotland. In fact, all of the drugs originated in Pakistan.

         Most of the websites also contained various other false and misleading statements. For instance, many websites in the Solutions by Nature group contained the following (completely fabricated) treatment statistics:

[Name of drug] has been shown in clinical trials to provide a complete [name of disease or medical condition] cure rate for 90% of subjects. [Name of drug] has been proven an effective [name of disease or medical condition] medication for 95% of people, significantly improving their condition. Like no other product, has also been shown to be a highly effective [name of disease or medical condition] treatment in people with severe cases, a response rate of 85%.

         Additionally, certain websites contained links to plagiarized research papers, which "were not written about the drugs they purported to reference." And many touted fictitious testimonials by customers.

         Arif sold the drugs globally, generating approximately $12 million in sales between 2007 and 2014, more than $9 million of which came from customers in the United States. CCNow processed his customers' online payments and then sent the proceeds from its bank account in Minnesota to Arif's bank accounts in Pakistan and the United Kingdom via wire transfers through JP Morgan Chase.

         On April 8, 2015, a federal grand jury in the District of New Hampshire indicted Arif on one count of wire fraud and aiding and abetting the same, in violation of 18 U.S.C. §§ 1353 and 2, and two counts of shipment of misbranded drugs in interstate commerce, in violation of 21 U.S.C. §§ 331(a), 333(a)(2), and 352(a).[3] A superseding indictment was filed on September 9, 2015, adding two additional counts of shipment of misbranded drugs in interstate commerce and aiding and abetting the same.

         Arif waived his right to a jury trial. He filed two pre-trial motions asking the district court to rule, as a matter of law, on his good faith defense (that he lacked the requisite intent to defraud), and on his jurisdictional defense (that the 1938 amendment to the FTCA "preempted" the wire fraud statute as to his offense). The district court denied the motions in two separate orders.

         On October 11, 2016, Arif pled guilty to one count of wire fraud, pursuant to Rule 11(a)(2) of the Federal Rules of Criminal Procedure, reserving the right to appeal the district court's adverse rulings. He was sentenced to seventy-two months of ...

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