9972 Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices 

1Combination ephedrine-guaifenesin products 

are currently approved for use as a bronchodilator 

for the treatment of asthma. The FDA is, however, 

currently proposing to remove these products from 

its over-the-counter (OTC) drug monograph and to 

declare them not safe and effective for OTC use. See 

70 FR 40232 (2005). 

2According to the investigative file, in 2002, law 

enforcement agencies seized 452 illicit 

methamphetamine laboratories in Colorado. 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

MK Distributing, Inc.; Denial of 

Application 

On May 25, 2005, the Deputy 

Assistant Administrator, Office of 

Diversion Control, Drug Enforcement 

Administration, issued an Order to 

Show Cause to MK Distributing 

(Respondent) of Arvada, Colorado. The 

Show Cause Order proposed to deny 

Respondent’s pending application for a 

DEA Certificate of Registration as a 

distributor of list I chemicals, on the 

ground that its registration would be 

inconsistent with the public interest. 

See Show Cause Order at 1 (citing 21 

U.S.C. 823(h)). 

More specifically, the Show Cause 

Order alleged that on November 18, 

2003, Respondent’s owner, Frederick H. 

Gates, had applied for a registration to 

distribute ephedrine and 

pseudoephedrine, which are precursor 

chemicals used in the illicit 

manufacture of methamphetamine. Id. 

at 1–2. The Show Cause Order alleged 

that Respondent’s customer base ‘‘is 

comprised primarily of gas stations, 

convenience stores, and independent 

grocers,’’ and that these establishments 

are ‘‘sources for the diversion of listed 

chemical products.’’ Id. at 2. 

The Show Cause Order further alleged 

that on April 1, 2003, Mr. Gates had 

purchased Respondent and that between 

that date and October 2003, Respondent 

had distributed 18,351 bottles and 3,720 

packets of combination ephedrine (25 

mg) products under the DEA registration 

of its previous owner. Id. at 2–3. The 

Show Cause Order alleged that Mr. 

Gates’ use of the previous owner’s 

registration violated DEA regulations 

that prohibit the assignment or transfer 

of a registration without the written 

consent of the Administrator. Id. at 3 

(citing 21 CFR 1309.63). 

The Show Cause Order also alleged 

that between May and October 2003, 

Respondent sold 1,056 bottles and 672 

packets of ephedrine to the Barn Store, 

a small independent grocer, and that 

these sales were ‘‘far in excess of 

legitimate demand for these products.’’

Id. Relatedly, the Show Cause Order 

alleged that during the same period, 

Respondent sold 849 bottles and 312 

packets of ephedrine products to a 

combination gas station/convenience 

store, and that these sales were also ‘‘far 

in excess of legitimate demand for these 

products.’’ Id. The Show Cause Order 

thus concluded by alleging that all of 

Respondent’s customers are part of the 

non-traditional market for list I 

chemical products, that its sale of these 

products ‘‘is inconsistent with the 

known legitimate market and * * * 

end-user demand for [these] products,’’

and that granting its application ‘‘would 

likely lead to increased diversion of list 

I chemicals.’’ Id. at 4. 

On June 6, 2005, the Show Cause 

Order, which also notified Respondent 

of its right to request a hearing, was 

served by certified mail, return receipt 

requested, as evidenced by the signed 

return receipt card. Since that time, 

neither Respondent, nor anyone 

purporting to represent it, has 

responded. Because (1) more than thirty 

days have passed since service of the 

Show Cause Order, and (2) no request 

for a hearing has been received, I 

conclude that Respondent has waived 

its right to a hearing. See 21 CFR 

1309.53(c). I therefore enter this final 

order without a hearing based on 

relevant material contained in the 

investigative file and make the 

following findings. 

Findings 

Methamphetamine and the List I 

Chemical Market 

Both ephedrine (in combination with 

guaifenesin) and pseudoephedrine 

currently have therapeutic uses and are 

generally available as non-prescription 

products.1 See Tri-County Bait 

Distributors, 71 FR 52160, 521612 

(2006). Both chemicals are, however, 

regulated under the Controlled 

Substances Act because they are easily 

extracted from non-prescription 

products and used in the illicit 

manufacture of methamphetamine, a 

schedule II controlled substance. See 21 

U.S.C. 802(34); 21 CFR 1308.12(d). 

Methamphetamine is a powerful and 

addictive central nervous system 

stimulant. See Gregg Brothers Wholesale 

Co., 71 FR 59830 (2006). The illegal 

manufacture and abuse of 

methamphetamine pose a grave threat to 

this country. Methamphetamine abuse 

has destroyed numerous lives and 

families and ravaged communities. 

Moreover, because of the toxic nature of 

the chemicals used to make the drug, its 

manufacture causes serious 

environment harms.2 Id. 

In numerous cases, DEA has shown 

through expert testimony that only a 

small percentage of pseudoephedrine 

sales occur at gas stations and 

convenience stores and that these stores 

constitute a non-traditional market for 

the legitimate commerce in these 

products. See, e.g., T. Young Associates, 

Inc., 71 FR 60567, 60568 (2006); D & S 

Sales, 71 FR 37607, 37608–09 (2006); 

Branex, Inc., 69 FR 8682, 8690–92 

(2004). DEA has further established that 

the monthly expected sales of 

combination ephedrine products by 

non-traditional retailers such as 

convenience stores and gas stations to 

meet legitimate demand, i.e., the 

purchase of the products for their 

medically approved use as a 

bronchodilator to treat asthma, is 

between $0 and $25, with an average of 

$12.58. See, e.g., T. Young Associates, 

Inc., 71 FR at 60567 n.2 & 60568 (2006); 

Tri-County Bait Distributors, 71 FR 

52160, 52161–62 (2006); D & S Sales, 71 

FR 37607, 37608–09 (2006). DEA has 

also shown that a monthly retail sale of 

$60 to meet legitimate consumer 

demand for ephedrine products ‘‘would 

occur about once in a million times in 

random sampling.’’ T. Young, 71 FR at 

60568 (int. quotations and citations 

omitted). 

Findings Pertinent to Respondent 

Respondent is a Colorado corporation 

which is located at 6150 W. 55th 

Avenue, Arvada, Colorado. On 

November 18, 2003, Respondent’s 

owner, Mr. Frederick H. Gates, 

submitted an application for a 

registration to distribute the list I 

chemicals ephedrine and 

pseudoephedrine. Respondent is a 

wholesaler of pornographic magazines, 

DVDs, videos, toys and novelty items in 

the Colorado Springs area. Respondent’s 

customer base is largely comprised of 

non-traditional retailers of list I 

chemical products. See, e.g., T. Young 

Associates, Inc., 71 FR at 60568. 

Respondent was previously owned by 

Mike and Jane Kleppen, who 

incorporated the firm in November 

2001; this entity held a DEA registration 

to distribute list I chemicals which was 

last renewed on December 9, 2002. 

According to the investigative file, on 

April 1, 2003, the Kleppens sold the 

business to either Mr. Gates or another 

firm owned by him. The Kleppens did 

not, however, surrender MK 

Distributing’s DEA registration. 

Between April 1, 2003, and October 8, 

2003, Respondent continued to 

distribute large quantities of 

combination ephedrine products using 

the registration issued to MK 

Distributing under its previous owners. 

On the latter date, two DEA Diversion 

Investigators (DIs) went to MK 


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Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices 9973 

3All of the data used in the sampling were for 

sixty-count bottles. Respondent also sold ephedrine 

packets to several of these entities. 

4These figures were either rounded up or down 

to the nearest dollar. 

Distributing’s warehouse and met with 

Jane Kleppen. The DIs questioned Ms. 

Kleppen as whether the new owners 

had obtained a DEA registration. Ms. 

Kleppen advised the DIs that on April 

1, 2003, MK Distributing had been 

purchased by a firm called ‘‘Pleasures,’’

and that the latter firm had not applied 

for a DEA registration because of its 

inability to obtain a tax identification 

number. 

The DIs informed Ms. Kleppen that 

the new company was not authorized to 

use the registration. One of the DIs then 

asked Ms. Kleppen to voluntarily 

surrender the DEA registration; Ms. 

Kleppen agreed and signed a voluntary 

surrender form. Ms. Kleppen then 

surrendered the list I products that were 

in Respondent’s warehouse. 

Ms. Kleppen told the DIs that the 

original certificate of registration was at 

her residence and that there were 

additional list I products on 

Respondent’s four delivery vans. 

Accordingly, the following day, the DIs 

returned to Respondent and obtained 

the original certificate from Ms. 

Kleppen. Ms. Kleppen then turned over 

to the DIs additional list I products, 

which were subsequently returned to 

the supplier. 

As stated above, on November 18, 

2003, Mr. Gates (Respondent’s new 

owner) applied for a registration. On 

July 1, 2004, the same two DIs returned 

to Respondent’s warehouse to conduct a 

pre-registration investigation. During 

this visit, Mr. Gates told the DIs that he 

expected that list I products would be 

approximately ten percent of 

Respondent’s total sales. When asked 

what ephedrine was used for, Mr. Gates 

told the DIs that it was used by truck 

drivers to stay alert, for weight loss, and 

methamphetamine. 

As part of the application process, 

Respondent was required to complete a 

questionnaire. On this questionnaire, 

Mr. Gates stated that ‘‘[t]he new owners 

of MK Distributing, LLC[,] have sold 

18,351 bottles of Ephedrine 25 mg, and 

3,720 packets of ephedrine 25 mg before 

DEA investigators * * * pulled’’ the 

registration. Mr. Gates also provided a 

list of the monthly purchases of list I 

products by Respondent’s customers 

from May through October 2003. 

A representative sampling of this 

information shows that Respondent was 

selling massive amounts of combination 

ephedrine products to its gas station/ 

convenience store customers.3 Between 

May and September, Respondent sold 

720 bottles (for a monthly average of 

144) to the Kwik-Way Dublin, 960 

bottles (for a monthly average of 192) to 

the Corner Store, and 654 bottles (for a 

monthly average of 130.8) to Lil T 

Foods. During the same period, 

Respondent sold 1147 bottles (for a 

monthly average of 229.4) to the Broken 

Wheel, 1200 bottles (for a monthly 

average of 240) to PHA, and 692 bottles 

(for a monthly average of 138.40) to 

Centron. Finally, Respondent sold 828 

bottles (for a monthly average of 165.60) 

to R & S, 768 bottles (for a monthly 

average of 153.6) to the South Circle 

Station, and 993 bottles (for a monthly 

average of 198.6) to the Conoco Union 

gas station. 

According to the investigative file, the 

DIs were told by an employee at one 

store that the retail price of the sixtycount bottles was $7.99. This figure is 

consistent with other information that 

DEA has obtained during investigations 

in Colorado. See Wild West Wholesale, 

72 FR 4042, 4043 (2007) (finding that 

retail price was $5.99 for 48-count 

combination ephedrine product). 

At an average retail price of $7.99 per 

bottle, the monthly average sales of the 

above stores were: Kwik-Way Dublin, 

$1151; Corner Store, $1534; LiL T 

Foods, $1045; Broken Wheel, $1833; 

PHA, $1918; Centron, $1106; R & S, 

$1323; South Circle, $1227; and Conoco 

Union, $1587.4 The average monthly 

sale for all of these stores was $1414. As 

explained above, through expert 

testimony, DEA has established that the 

monthly expected sales range of 

combination ephedrine products at a 

non-traditional retailer to meet 

legitimate consumer demand is between 

$0 and $25, with an average of $12.58; 

a monthly retail sale of $60 to meet 

legitimate consumer demand at a nontraditional retailer would occur about 

once in a million times in random 

sampling. 

Because these sales so greatly exceed 

the monthly expected sales range to 

meet legitimate demand, I further find 

that most of Respondent’s products 

were diverted into the illicit 

manufacture of methamphetamine. 

Moreover, even if these stores sold 

Respondent’s products at a lower retail 

price (such as the price found in Wild 

West Wholesale for a smaller quantity), 

I would still find that Respondent’s 

sales were so excessive that its products 

were diverted. 

Discussion 

Under 21 U.S.C. 823(h), an applicant 

to distribute list I chemicals is entitled 

to be registered unless the registration 

would be ‘‘inconsistent with the public 

interest.’’ In making this determination, 

Congress directed that I consider the 

following factors: 

(1) Maintenance by the applicant of 

effective controls against diversion of 

listed chemicals into other than 

legitimate channels; 

(2) Compliance by the applicant with 

applicable Federal, State, and local law; 

(3) Any prior conviction record of the 

applicant under Federal or State laws 

relating to controlled substances or to 

chemicals controlled under Federal or 

State law; 

(4) Any past experience of the 

applicant in the manufacture and 

distribution of chemicals; and 

(5) Such other factors as are relevant 

to and consistent with the public health 

and safety. 

Id. 

‘‘These factors are considered in the 

disjunctive.’’ Joy’s Ideas, 70 FR 33195, 

33197 (2005). I may rely on any one or 

a combination of factors, and may give 

each factor the weight I deem 

appropriate in determining whether an 

application for registration should be 

denied. See, e.g., David M. Starr, 71 FR 

39367 (2006); Energy Outlet, 64 FR 

14269 (1999). Moreover, I am ‘‘not 

required to make findings as to all of the 

factors.’’ Hoxie v. DEA, 419 F.3d 477, 

482 (6th Cir. 2005); Morall v. DEA, 412 

F.3d 165, 173–74 (D.C. Cir. 2005). 

In this case, I conclude that an 

analysis of factors one, two, and three is 

not necessary. I hold that factors four 

(Respondent’s experience) and five 

(Respondent’s intent to distribute to the 

non-traditional market) conclusively 

establish that granting Respondent’s 

application would be inconsistent with 

the public interest. 

Factors Four and Five—The Registrant’s 

Past Experience in the Distribution of 

Chemicals and Other Factors Relevant 

To and Consistent With Public Health 

and Safety 

As found above, the illicit 

manufacture and abuse of 

methamphetamine have had pernicious 

effects on families and communities 

throughout the nation. Cutting off the 

supply source of methamphetamine 

traffickers is of critical importance in 

protecting the public from the 

devastation wreaked by this drug. 

While combination ephedrine 

products have a legitimate medical use 

as a bronchodilator to treat asthma, DEA 

orders have established that 

convenience stores and gas-stations 

constitute the non-traditional retail 

market for legitimate consumers of 

products containing ephedrine. See, 

e.g., Tri-County Bait Distributors, 71 FR 


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9974 Federal Register / Vol. 72, No. 43 / Tuesday, March 6, 2007 / Notices 

5See OTC Distribution Co., 68 FR 70538, 70541 

(2003) (noting ‘‘over 20 different seizures of [gray 

market distributor’s] pseudoephedrine product at 

clandestine sites,’’ and that in eight-month period 

distributor’s product ‘‘was seized at clandestine 

laboratories in eight states, with over 2 million 

dosage units seized in Oklahoma alone.’’); MDI 

Pharmaceuticals, 68 FR 4233, 4236 (2003) (finding 

that ‘‘pseudoephedrine products distributed by 

[gray market distributor] have been uncovered at 

numerous clandestine methamphetamine settings 

throughout the United States and/or discovered in 

the possession of individuals apparently involved 

in the illicit manufacturer of methamphetamine’’). 

at 52161; D & S Sales, 71 FR at 37609; 

Branex, Inc., 69 FR at 8690–92. DEA has 

further found that there is a substantial 

risk of diversion of list I chemicals into 

the illicit manufacture of 

methamphetamine when these products 

are sold by non-traditional retailers. See, 

e.g., Joy’s Ideas, 70 FR at 33199 (finding 

that the risk of diversion was ‘‘real’’ and 

‘‘substantial’’); Jay Enterprises, Inc., 70 

FR 24620, 24621 (2005) (noting 

‘‘heightened risk of diversion’’ should 

application be granted). 

DEA orders thus recognize that the 

sale of combination ephedrine (and 

pseudoephedrine) products by nontraditional retailers is an area of 

particular concern in preventing 

diversion of these products into the 

illicit manufacture of 

methamphetamine. See, e.g., Joey 

Enterprises, Inc., 70 FR 76866, 76867 

(2005). As Joey Enterprises explains, 

‘‘[w]hile there are no specific 

prohibitions under the Controlled 

Substances Act regarding the sale of 

listed chemical products to [gas stations 

and convenience stores], DEA has 

nevertheless found that [these entities] 

constitute sources for the diversion of 

listed chemical products.’’ Id. See also 

TNT Distributors, 70 FR 12729, 12730 

(2005) (special agent testified that ‘‘80 to 

90 percent of ephedrine and 

pseudoephedrine being used [in 

Tennessee] to manufacture 

methamphetamine was being obtained 

from convenience stores’’).5 Here, nearly 

all of Respondent’s customers are 

convenience stores and gas stations, 

which are non-traditional retailers of list 

I chemical products; DEA has 

repeatedly found that these entities are 

conduits for the diversion of list I 

products into the illicit manufacture of 

methamphetamine. 

Relatedly, DEA has repeatedly 

revoked the registrations of list I 

chemical distributors who supplied the 

non-traditional market for selling 

quantities of products that clearly 

exceeded legitimate demand and were 

likely diverted into the illicit 

manufacture of methamphetamine. See 

T. Young Associates, Inc., 71 FR at 

60572–73; D & S Sales, 71 FR at 37611–

12; Joy’s sIdeas, 70 FR at 33198–99; 

Branex, Inc., 69 FR at 8693–96. Most 

significantly, the investigative file 

establishes that Respondent distributed 

combination ephedrine products in 

quantities that far exceeded legitimate 

consumer demand for these products as 

an asthma treatment. 

The representative sampling of 

Respondent’s customers showed that 

the lowest average estimated monthly 

retail sale per store was $ 1045; four of 

the stores had average monthly retail 

sales of more than $ 1500. Moreover, the 

average estimated monthly sale for all 

stores in the sample was $ 1414. These 

figures grossly exceed the monthly 

expected sales range of $ 0 to $ 25 (with 

an average of $ 12.58) by convenience 

stores to meet legitimate demand for 

these products. See T. Young, 71 FR at 

60568; D & S Sales, 71 FR at 37609. 

Indeed, as found above, a monthly 

retail sale of $ 60 of ephedrine products 

at a convenience store should ‘‘occur 

about once in a million times in random 

sampling.’’ T. Young, 71 FR at 60568. 

The $ 1414 average monthly retail sale 

for all nine stores is more than twentythree times this amount. Moreover, this 

figure is an average for these stores over 

a five-month period. It is thus 

considerably more improbable than a 

one in a million probability that 

Respondent’s products were being 

purchased to meet legitimate demand. 

I therefore conclude that the only 

plausible explanation for these 

extraordinary sales is that Respondent’s 

products were being diverted into the 

illicit manufacture of 

methamphetamine. See T. Young, 71 FR 

at 60572; D & S Sales, 71 FR at 37611 

(finding diversion occurred ‘‘[g]iven the 

near impossibility that * * * sales were 

the result of legitimate demand’’); Joy’s 

Ideas, 70 FR at 33198 (finding diversion 

occurred in the absence of ‘‘a plausible 

explanation in the record for this 

deviation from the expected norm’’). 

Moreover, because the purpose of the 

CSA’s registration provisions is to 

protect the public interest, it is 

irrelevant whether Respondent knew 

that its products were being diverted. T. 

Young, 71 FR at 60572. 

‘‘The diversion of list I chemicals into 

the illicit manufacture of 

methamphetamine poses the same 

threat to public health and safety 

whether a registrant sell the products 

knowing they will be diverted, sells 

them with a reckless disregard for the 

diversion, or sells them being totally 

unaware that the products were being 

diverted.’’ Id. (citing D & S Sales, 71 FR 

at 37610–12, & Joy’s Ideas, 70 FR at 

33198). As I have previously noted 

(albeit in a revocation proceeding), the 

public interest standard does not require 

that the Government prove that a 

registrant acted with any particular 

mens rea in order to support a finding 

that diversion has occurred. T. Young, 

71 FR at 60572. The same rule applies 

to an applicant who has previously 

engaged in the distribution of list I 

products. Accordingly, where, as here, 

substantial quantities of products have 

been diverted, adverse findings are 

warranted under factors four and five 

even if Respondent’s owner was 

unaware that its products were being 

diverted. I therefore hold that granting 

Respondent’s application would be 

inconsistent with the public interest. 

Order 

Accordingly, pursuant to the 

authority vested in me by 21 U.S.C. 

823(h), as well as 28 CFR 0.100(b) & 

0.104, I order that the application of MK 

Distributing, Inc., for a DEA Certificate 

of Registration as a distributor of list I 

chemicals, be, and it hereby is, denied. 

This order is effective April 5, 2007. 

Dated: February 23, 2007. 

Michele M. Leonhart, 

Deputy Administrator. 

[FR Doc. E7–3857 Filed 3–5–07; 8:45 am] 

BILLING CODE 4410–09–P 

DEPARTMENT OF LABOR 

Employment Standards Administration 

Proposed Collection; Comment 

Request 

ACTION: Notice. 

SUMMARY: The Department of Labor, as 

part of its continuing effort to reduce 

paperwork and respondent burden, 

conducts a preclearance consultation 

program to provide the general public 

and Federal agencies with an 

opportunity to comment on proposed 

and/or continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 

(PRA95) [44 U.S.C. 3506(c)(2)(A)]. This 

program helps to ensure that requested 

data can be provided in the desired 

format, reporting burden (time and 

financial resources) is minimized, 

collection instruments are clearly 

understood, and the impact of collection 

requirements on respondents can be 

properly assessed. Currently, the 

Employment Standards Administration 

is soliciting comments concerning the 

proposed collection: Notice of Law 

Enforcement Officer’s Injury or 

Occupational Disease (CA–721) and 

Notice of Law Enforcement Officer’s 

Death (CA–722). A copy of the proposed 


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