UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38210 / jANUARY 28, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9230 _______________________________ : In the Matter of : ORDER INSTITUTING : PROCEEDINGS PURSUANT : TO SECTION 21C OF THE HALSEY DRUG COMPANY, INC., : SECURITIES EXCHANGE ACT : OF 1934, MAKING FINDINGS, Respondent. : AND IMPOSING SANCTIONS ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be instituted against Halsey Drug Company, Inc. ("Halsey"), pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). II. In anticipation of the institution of these administrative proceedings, Halsey has submitted an Offer of Settlement of Halsey Drug Company, Inc. ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, Halsey, without admitting or denying the findings, except admitting the findings set forth in paragraph III.A. and admitting the jurisdiction of the Commission over it and over the subject matter of these proceedings, consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Sanctions ("Order"). Accordingly, IT IS HEREBY ORDERED that administrative proceedings be, and hereby are, instituted. III. On the basis of this Order and Halsey's Offer, the Commission finds that: ==========================================START OF PAGE 2====== A. Respondent Halsey manufactures and sells generic drugs. Its principal place of business is in Brooklyn, New York. Halsey's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is traded on the American Stock Exchange. B. Halsey's ability to develop and manufacture new generic drug products depended, in large part, on the company's ability to gain approval from the United States Food and Drug Administration ("FDA"). To obtain FDA approval, the ingredients and manufacturing processes that Halsey used were prescribed by formulas that were submitted to and approved by the FDA. To ensure that drugs were produced in accordance with the approved formulas, the Current Good Manufacturing Practices, 21 C.F.R.  210 et seq. ("CGMP"), required Halsey to contemporaneously write and maintain accurate records documenting the raw materials used and manufacturing processes followed for each batch of generic drug products produced. C. Halsey filed an annual report on Form 10-K with the Commission on April 1, 1991 for the year ended December 31, 1990 ("1990 10-K") and on April 14, 1992 for the year ended December 31, 1991 ("1991 10-K"). Halsey's 1990 10-K and 1991 10-K stated that Halsey had to follow CGMP at all times during which an FDA approved drug was manufactured by the company. The 1990 and 1991 10-Ks further stated that in order to comply with the CGMP, Halsey had to "expend time, money and effort in the areas of production and quality control to ensure full technical compliance." D. Halsey's 1990 and 1991 10-Ks failed to disclose that Halsey was not manufacturing generic drugs in accordance with CGMP because it was using unapproved formulas and procedures and that Halsey employees, at management's direction, were taking steps to conceal product adulteration from the FDA. These annual reports also failed to disclose that since Halsey was not manufacturing generic drugs in accordance with CGMP, FDA approval for any or all of Halsey's new products could be adversely affected. E. On June 21, 1993, Halsey pled guilty to a five count criminal information charging that in September 1992, Halsey shipped adulterated drugs in interstate commerce. Specifically, Halsey admitted that it failed to comply with CGMP by causing the preparation and maintenance of false production records and caused the manufacture of a certain drug using a non-FDA approved formula. United States v. Halsey Drug Co., Inc., Cr. No. HAR-93- 0285 (D. Md. June 21, 1993). F. Based on the foregoing, the Commission finds that Halsey committed violations of Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-1 thereunder, by ==========================================START OF PAGE 3====== filing with the Commission annual reports on Form 10-K for the years ended December 31, 1990 and 1991 that omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. IV. ORDER Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement of Halsey, and accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Halsey cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-1 thereunder. By the Commission. Jonathan G. Katz Secretary