The Food and Drug Administration has linked 58 deaths to Rezulin. Last week, the drug's manufacturer, Warner-Lambert, called for an "objective review" of the drug's safety.
Despite the concerns, the FDA has not asked for Rezulin to be removed from the market, although at least five of its own scientists now want it pulled.
Sources say that in 1997before the drug went to marketWarner-Lambert already had evidence of the damage its drug could do, but failed to properly report it.
In May 1997, the company told the FDA none of its patients had liver enzyme levels higher than "2 to 3 times...normal."
But when the FDA's Dr. Robert Misbin investigated that claim, he found a patient with liver enzymes six times normal. One patient's liver enzymes registered a startling 30 times normal.
Internal FDA documents show when Dr. Misbin raised the discrepencies, Warner-Lambert privately admitted its FDA report was "not correct."
Months later, Warner-Lambert agreed to issue a letter warning doctors of more serious liver risks.
But a draft obtained by CBS News shows the FDA allowed the company to cross out mention of the most severe cases.
What Warner-Lambert reports to doctors is crucial, because the FDA does no original research on Rezulin, or any other drug. It trusts pharmaceutical companies to accurately report data and red flag any dangers.
At least two doctors involved in testing Rezulin accuse the company of cutting corners during those vital trials.
Last week, CBS News reported the allegations of Dr. Janet McGill, a researcher on a 1994 clinical trial of the drug, who claims Warner Lambert officials asked her to downplay live problems some of her patients developed after using Rezulin.
Dr. Mohammed Saad, deputy chief of endocrinology and diabetes at the University of California at Los Angeles, worked on the study in which Audrey Jones, a woman who volunteered to try the drug, died of liver failure two months after beginning Rezulin use.
When Saad cautioned medical students about Rezulin's risks, Warner-Lambert complained.
"I have been teaching young doctors for 20 years now," said Saad. "That never happened before. I thought they were using pressure tactics and they were inappropriate."
"The pharmaceutical companies want to make money and the basic issue here was making money," Saad said. "I don't think that they had enough concern for the safety of the patient."
Warner-Lambert refused to talk about the latest allegations.
Rezulin is used with other drugs to treat Type 2 diabetes is a life-threatening disease that affects 18 million Americans and is a leading cause of coronary heart disease, blindness, kidney failure, and limb amputation.
For a chronology of the Rezulin controversy, click here.