CVS (NYSE: CVS), the largest operator of retail pharmacies in the United States, has been hit with $75 million in civil penalties and must forfeit an additional $2.6 million in profits for allowing inordinate amounts of pseudoephedrine to be sold to traffickers in methamphetamine, according to federal drug-enforcement authorities.

The $75 million portion of the settlement represents the largest civil penalty ever paid under the Controlled Substances Act, authorities said.

"This case shows what happens when companies fail to follow their ethical and legal responsibilities," said United States Attorney Andre Birotte Jr. "CVS knew it had a duty to prevent methamphetamine trafficking, but it failed to take steps to control the sale of a regulated drug used by methamphetamine cooks as an essential ingredient for their poisonous stew."

Between September 2007 and November 2008, CVS supplied large amounts of pseudoephedrine to methamphetamine traffickers in Southern California, and the company's illegal sales led directly to an increase in production in California, authorities said. CVS eventually changed its sales practices to prevent these illegal sales, but it did so only after it became aware of the government's investigation, authorities said.

Those connected with the methamphetamine trade obtain pseudoephedrine from drugstores in a process called smurfing. This happens when someone purchases an over-the-counter cold medicine containing pseudoephedrine, then returns again and again the same day, or in the next few days, and buys more and more of the same cold medicine or another that contains the desired drug.

Sarah Pullen, spokesperson for the DEA, said that smurfers buy "all types of cold medicine containing pseudoephedrine, though typically the smurfers preferred to use generic store brands."

According to the DEA, in mid-2007, after Mexico banned the sale of pseudoephedrine, Los Angeles County experienced an epidemic of smurfing.

Smurfers discovered that CVS, unlike other large chain retail pharmacies, allowed customers to make repeated purchases of pseudoephedrine that exceeded federal daily and monthly sales limits. Smurfers inundated CVS stores in Los Angeles and Orange Counties, and, later, stores in the Las Vegas area, to purchase cough and cold remedies, sometimes cleaning out store shelves. For more than a year, CVS failed to change its sales practices to prevent criminals from purchasing excessive amounts of pseudoephedrine at its stores, the government said.

The government investigation into CVS uncovered thousands of violations of the Combat Methamphetamine Epidemic Act of 2005, which, among other things, limits the amount of pseudoephedrine that a customer can purchase in one day, authorities said.

In 2007, CVS implemented an automated electronic logbook system to record individual pseudoephedrine sales, but, as the DEA's Pullen said, the "system that was being used was flawed in that it did not detect multiple buys."

The government learned that violations occurred not only in California and Nevada, but likely also in 23 other states where CVS failed to implement appropriate safeguards. The settlement therefore addresses CVS's liability in a total of 25 states, the federal government said.

As part of the agreement, the government has agreed not to pursue criminal charges against CVS, which has accepted responsibility for the illegal conduct and has agreed to implement a compliance and ethics program over the next three years. In addition, CVS has entered into a separate compliance agreement with the DEA that has a five-year term.

According to Pullen, a gram of pesudoephedrine will typically make between 0.5 and 0.75 grams of methamphetamine.

"Meth production continues to be a significant problem in the United States," Pullen said. "Meth is the most widely abused domestically produced synthetic drug in the United States."

Clandestine methamphetamine laboratory seizures were at their lowest in 2007, at 6,233, and have increased to 7,485 in 2008 and 10,064 in 2009.

"The increase in domestic production is primarily in small-scale meth labs throughout the country," Pullen said. "In California we continue to see large-scale meth superlabs. It is believed that the increase in domestic meth production in 2008 and 2009 is directly fueled by individuals and criminal organizations that organized pseudoephedrine smurfing operations."

According to government figures, there were 731,000 users of methamphetamine (0.3% of the population aged 12 or older) in 2006, 529,000 (0.2%) in 2007, 314,000 (0.1%) in 2008, and 502,000 (0.2%) in 2009.

Meth is used across all sexes, ages, and socioeconomic levels throughout the country. It has a very high rate of addiction and a low rate of recovery. Chronic abuse produces a psychosis that resembles schizophrenia and is characterized by paranoia, picking at the skin, preoccupation with one's own thoughts, and auditory and visual hallucinations, the DEA said.

International Business Times, The Global Business News Leader

Got a favorite stock you'd like to follow? Add it to My Watchlist, which will find all of our Foolish analysis on it.

Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. This article has been lightly edited. The Motley Fool has a disclosure policy.