What the Blackstone Labs Indictment Means for Payment Service Providers

Last month, six people associated with Blackstone Labs were charged in an indictment to market and sell illegal dietary supplements for use in bodybuilding and weight loss. The indictment is significant because of the size and reach of Blackstone Labs, and because of the way it is alleged to have deceptively labeled products for years. The company website, which processes payment using major credit cards, illustrates how difficult it can be for payment service providers and supplement distributors to identify problematic and potentially dangerous dietary supplements on their own.

According to the Blackstone Labs indictment, the defendants sold hundreds of thousands of illegal products - including ones containing anabolic steroids, selective androgen receptor modulators (SARMs), and other prohormones - in the US and worldwide, marketing them as legal dietary supplements. Anabolic steroids, which are controlled substances, and SARMs, which are investigational new drugs, are prohibited for use in dietary supplements, pursuant to the Federal Food, Drug, and Cosmetic Act. These substances can cause kidney failure, liver damage, and other permanent health problems when used improperly.

The charges against the operators of Blackstone Labs highlight one important takeaway for PSPs and supplement distributors: never take your merchants or manufacturers at their word. Just because products are labeled as dietary supplements does not mean they conform to FDA requirements. There is no guarantee that products marketed as "safe," "natural," or "legal" are, in fact, any of those things. Payment service providers onboarding supplement or pharmaceutical merchants, and distributors adding new third-party supplements to their catalog, must diligently vet the products being sold. Otherwise, they can be on the hook for expensive regulatory fines and even government intervention. To effectively evaluate merchants like these, it helps to stay abreast of recent high-risk trends.

Furthermore, merchants engaged in deceptive practices may be at a higher risk of money laundering to conceal their activities. In the case of Blackstone Labs, principals Phillip Braun and Aaron Singerman were charged with three counts of money laundering each. According to the indictment, the two "established Fight Pharm so that they could shift the sale of drugs and other products from Blackstone to Fight Pharm and to hide such sales from FDA."

The difficulty in identifying problematic dietary supplements may only get worse as this $40 billion industry grows. The FDA reported earlier this year that there are as much as 80,000 unique dietary supplements now available to consumers in the US. That number is likely to grow, especially if the FDA considers allowing CBD to be included in food products after changes to CBD rules in the 2018 Farm Bill.

FDA Commissioner Scott Gottlieb said the administration is launching new efforts to strengthen regulation of dietary supplements. While this may increase safety for consumers, it may also lead to increased scrutiny of dietary supplement merchants and the PSPs that onboard them. Payment service providers wanting to take advantage of the lucrative supplement industry should consider partnering with a monitoring and compliance company such as LegitScript to onboard with confidence. Contact us to learn more about how our expert solutions can help you.