FTC and seven states ask federal judge to hold Martin Shkreli in contempt for alleged violation of lifetime pharma ban

The Federal Trade Commission and seven states asked a federal judge today, Tuesday, Oct. 13, to hold Martin Shkreli in civil contempt. They allege he "flagrantly and repeatedly violated" a 2022 court order that banned him for life from the pharmaceutical industry.

These are allegations in a motion. The court has not ruled on them.

What the order says

The ban came out of the FTC's antitrust case over Daraprim, the only FDA-approved treatment for toxoplasmosis, a parasitic infection that can be life-threatening for people with weakened immune systems. In January 2022, the U.S. District Court for the Southern District of New York found that Shkreli organized an illegal scheme to protect a monopoly on the drug.

Under Shkreli as CEO, Vyera Pharmaceuticals bought Daraprim in August 2015 and raised the price from $17.50 per tablet to $750. The court found the company also blocked generic competition. Shkreli was ordered to pay more than $64 million and was barred "from directly or indirectly participating in any manner in the pharmaceutical industry," according to the FTC. That includes acquiring or holding an ownership interest in a pharmaceutical company, or acting to influence the management or business of one.

The civil case is separate from his criminal one. Shkreli was convicted of securities fraud in 2017, sentenced to seven years in 2018, and released in May 2022.

The alleged violations

The FTC and states say the violations began after his release from prison in May 2022. The motion alleges he traded stocks of at least 60 pharmaceutical companies and used livestreams on YouTube, X and Reddit to broadcast the trades.

The motion quotes Shkreli on one livestream: "I'm showing you how to trade and invest in biotech." It quotes him describing his approach as a "magic trick": "It doesn't matter what trades I make because I can always find a couple of biotech stocks to smoke."

The filing also alleges he used the streams to run public campaigns to short certain pharmaceutical stocks, based on his predictions about clinical trial outcomes.

New York Attorney General Letitia James said Shkreli "has been livestreaming his pharmaceutical company trades for the world to see." She added: "A court-ordered lifetime ban isn't a suggestion." Her office says the coalition of states is bipartisan.

What they want

The plaintiffs are asking the judge to order Shkreli to:

• Divest any pharmaceutical company stocks he currently owns.
• Pay a fine equal to his profits from pharmaceutical stock trading, plus prejudgment interest, without being able to offset his losses.
• Face "clear and escalating consequences for any future violations, including financial penalties and potential incarceration."

The no-offset demand matters. Shkreli would owe the gains from winning trades without netting out his losing ones. The filing as described does not put a dollar figure on his profits.

FTC Commissioner Mark Meador said in a statement: "A lifetime industry ban is only effective if breaches are met with consequences commensurate with the seriousness of the order."

Daniel Guarnera, director of the FTC's Bureau of Competition, said the court found after a full trial that Shkreli's conduct "drove up prescription drug costs for American patients and blocked the entry of lower-cost generics." He said the filing "should serve as notice that the FTC will not hesitate to enforce violations of court orders."

The commission vote to authorize the contempt action was 1-0. Chairman Andrew Ferguson is recused.

The open legal question

The case turns on how far "participating in any manner" reaches. The plaintiffs' reading is that holding pharmaceutical stock, trading it publicly and promoting those trades to a following falls inside the order. Their motion treats the commentary on company management as an attempt to influence the industry's business.

Shkreli's side has not been heard in court on this motion. Shkreli has not responded publicly to the filing, and his attorney was asked for comment. The order's language on ownership interests and influence over management is the text the plaintiffs are relying on. A judge will have to decide whether a stock position and an online opinion fit that wording.

The ruling will also show how much force a lifetime civil ban carries against someone who has served his criminal sentence. The motion explicitly asks for the possibility of incarceration for future violations. The contempt finding itself, and the size of any disgorgement, now sit with the Southern District of New York.