Pharma fraudster Martin Shkreli fights lifetime industry ban in Second Circuit

MANHATTAN (CN) — Attorneys for convicted fraudster Martin Shkreli argued Thursday that a pair of district court-ordered punishments for his infamous price-gouging scheme were improper.

Appealing to a panel of Second Circuit judges, Shkreli’s lawyer Kimo Peluso sought to reverse his client’s lifetime ban in the pharmaceutical industry, ordered last year by a district court judge in a civil antitrust case against Shkreli for his price-fixing of a popular HIV treatment. In his appellant brief, Peluso called the punishment overbroad and vague and in violation of Schkreli’s First Amendment rights. 

On Thursday, Peluso doubled down on that assertion, telling the panel that barring Shkreli from the entire industry “excludes him from entire sectors of the economy that have almost nothing to do with the narrow field in which the scheme was found to have operated in.”

“There were no findings… that the misdeeds and the wrongs here were transferable to the entire field in which he was being enjoined from participating in,” Peluso said.

Justice Barrington Parker Jr., a George W. Bush appointee, defended the district court’s remedy, saying that the judge was “tasked with trying to protect the public” from Shkreli.

“We all would agree that your client was a major threat to the public,” Parker said.

Peluso didn’t disagree. Shkreli’s guilt, after all, isn’t what was being appealed on Thursday.

The 40-year-old was deemed responsible for pumping up the price of HIV drug Daraprim from $17.50 to $750 per pill after his company Vyera Pharmaceuticals bought the drug’s rights in 2015. Two years later, he was convicted of securities fraud in a scheme unrelated to the Daraprim controversy.

FTC lawyer Brad Grossman reminded the court Thursday of Shkreli’s murky history.

“It’s undisputed that Martin Shkreli controlled an unlawful scheme to block competing generic drugs so that he could price-gouge immunocompromised patients fighting to survive, and that he only tightened his control when going to prison,” Grossman said. “It’s also undisputed that Mr. Shkreli has engaged in similar monopolistic schemes.” 

The panel reminded Grossman that this lawsuit was the first time that Shkreli was found to have violated an antitrust case, and that lifetime bans are usually upheld in cases of repeat offenders.

“It’s the first time he’s been adjudicated liable,” Grossman responded. “But the factor that really matters in this case is the fact that the violations were systematic, and that’s not disputed on appeal… He committed similar violations to deprive patients of generic drugs over and over again.”

In addition to his lifelong ban, Shkreli was also ordered to pay $64.6 million in disgorgement thanks to his involvement in the Daraprim price-fixing. That penalty is also being appealed, as Shkreli claims he never banked any ill-gotten gains from the antitrust scheme. 

“This amount was calculated entirely based on profits received by Vyera — Shkreli never received a distribution of profits, salary, or any form of compensation,” Shkreli’s brief said.

Because of this, Shkreli shouldn’t be on the hook for that cash, Peluso argued. 

“Disgorgement cannot be awarded against him without a finding of personally receiving ill-gotten gains,” Peluso said Thursday. “New York law has been clear on this literally for centuries, that the remedy of discouragement takes the defendant, looks at their ill-gotten gains from the unlawful conduct and then puts them in the position they would have been if no wrongful conduct had occurred.”

State attorney Philip Levitz — who argued Thursday in favor of upholding Shkreli’s $64.6 million disgorgement penalty — sees things differently.

“New York courts have expressly rejected Shkreli’s argument that the disgorgement remedy is personal and can be imposed only on the actual recipient of the full illicit benefit,” Levitz said. 

Levitz claimed that Shkreli was the “mastermind” of the antitrust scheme, who “drove it every step of the way” and “controlled the company completely,” even while in prison. As such, Vyera’s profits from Shkreli’s illicit activity should be fair game, Levitz claimed.

“He was running this whole scheme,” Levitz said. “He was running the company that engaged in the unlawful conduct.” 

The panel of judges included, alongside Parker, Joe Biden appointees Myrna Pérez and Sarah A. L. Merriam. The trio did not immediately issue a ruling after Thursday’s arguments.

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