eBay Will Pay $59M In Historic DEA Settlement For Pill Presses Sold On Site
eBay has agreed to pay $59 Million to settle DEA allegations regarding pill presses sold on the site, in historic fourth-largest controlled substances act settlement in history and first against an ecommerce company.
Fourth-Largest Controlled Substances Act Settlement in History; First Controlled Substances Act Settlement with an E-Commerce Company
eBay Inc., an e-commerce company headquartered in San Jose, California, has agreed to pay $59 million and to enhance its compliance program to resolve allegations that it violated the Controlled Substances Act (CSA) in connection with thousands of pill presses and encapsulating machines that were sold through its website.Pill presses and encapsulating machines can be used by criminals to manufacture illegal drugs. When used with a mold, stamp, or die mimicking commonly prescribed controlled substances, pill presses are capable of producing counterfeit pills that appear indistinguishable from legitimate pharmaceutical drugs, including pills that are sometimes laced with fentanyl.
The CSA regulates certain pharmaceutical manufacturing equipment, including pill presses and encapsulating machines, by requiring identity verification of purchasers, record-keeping, and reporting to the Drug Enforcement Administration (DEA). These requirements are designed to prevent individuals who intend to use these machines illegally from obtaining them and to ensure that the machines are traceable to the end user.
The United States alleged that eBay did not comply with these CSA requirements for thousands of pill presses and encapsulating machines that were sold through its website, including high-capacity pill presses capable of producing thousands of pills per hour. The United States’ investigation further found that hundreds of eBay’s pill press buyers also purchased counterfeit molds, stamps, or dies, allowing them to produce pills that mimicked the products of legitimate pharmaceutical companies, and that many of eBay’s pill press buyers have been successfully prosecuted in connection with trafficking illegal counterfeit pills.
“Counterfeit pills laced with fentanyl are a significant contributor to the deadly overdose epidemic,” said Associate Attorney General Vanita Gupta, Chair of the Justice Department's Opioid Epidemic Civil Litigation Task Force. “The Department is committed to using all available enforcement measures to ensure that companies involved in selling the equipment that makes it possible to create these dangerous pills comply with the Controlled Substances Act.”
“Americans deserve to be protected from the dangers of counterfeit prescription pills,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “The Civil Division will continue to work with our law enforcement partners to ensure that all those involved in the sale of counterfeit pills and the equipment used to manufacture counterfeit pills are held accountable.”
“Through its website, eBay made it easy for individuals across the country to obtain the type of dangerous machines that are often used to make counterfeit pills. Our investigation revealed that some of these machines were even sold to individuals who were later convicted of drug related crimes,” said U.S. Attorney Nikolas P. Kerest for the District of Vermont. “Our office is committed to holding accountable those who have contributed to the devastating fentanyl crisis we are facing in our communities. Today’s settlement is an important step to ensuring that e-commerce companies do their part by complying with regulations that are designed to protect the public.”
“eBay’s failure to comply with the Controlled Substances Act’s basic reporting and record keeping requirements for the sales of pill presses contributed to the proliferation of counterfeit pills in this country by allowing private citizens to set up pill factories in their homes and to do so without detection,” said U.S. Attorney Henry C. Leventis for the Middle District of Tennessee. “This settlement holds eBay accountable for its compliance lapses, serves as a reminder to other e-commerce companies that the Justice Department will enforce these requirements, and will help keep these items out of the hands of criminals moving forward.”
“Fentanyl — pressed into fake pills that look like real prescription medications — is killing Americans. Drug traffickers buy the tools to make fake pills, like pill presses, online,” said DEA Administrator Anne Milgram. “eBay and other e-commerce platforms must do their part to protect the public. And when they do not, DEA will hold them accountable.”
...In addition to the monetary settlement, eBay also has agreed to maintain and enhance its compliance program with respect to its prohibited and restricted items policy as it pertains to sales of pill presses, counterfeit molds, stamps, and dies, and encapsulating machines...
...The claims resolved by the settlement are allegations only, and there has been no determination of liability.
The settlement comes along with enhanced compliance provisions for eBay's restricted and prohibited items policies and reporting requirements to provide buyer, seller and listing information to the government on a quarterly basis.
Liz Morton
on top of the additional compliance monitoring and $3 Million fine eBay agreed to as part of a deferred prosecution deal reached earlier this month regarding the company's criminal liability for 2019 cyberstalking scandal at the hands of eBay security personnel.
Liz Morton
The civil case by Ina and David Steiner of EcommerceBytes against eBay, ex-CEO Devin Wenig, ex-Comms Chief Steve Wymer, ex-SVP Global Ops Wendy Jones and others regarding the scandal is still ongoing and set for a March 2025 trial date.
Liz Morton
Interestingly, the deferred criminal prosecution agreement included Mergers and Acquisitions under areas in which eBay will be subject to additional compliance requirements and monitoring - which seems like an odd addition to an agreement about crimes committed by eBay's internal security department.
Mergers and Acquisitions
The Company will develop and implement policies and procedures for mergers and acquisitions requiring that the Company conducts appropriate risk-based due diligence on potential new business entities, including appropriate due diligence by legal, accounting, and compliance personnel.
The Company will ensure that the Company's compliance codes, policies, and procedures apply as quickly as is practicable to newly acquired businesses or entities merged with the Company and will promptly:
train the directors, officers, employees, agents, and business partners consistent with Paragraphs 8 and 9 above on the criminal laws and the Company's compliance codes, policies, and procedures regarding criminal laws; andwhere warranted, conduct a review of all newly acquired or merged businesses as quickly as practicable.
That may be a nod to broader due diligence and disclosure concerns raised by eBay's acquisition of trading card marketplace TCGPlayer, which led to the formation of the very first US labor union in eBay's history and the very sudden departure of Chief Accounting Officer Brian Doerger last year.
Liz Morton
It's also noteworthy that eBay did not name a successor Chief Compliance Officer until the end of August 2023, presumably done as part of the ongoing negotiations with the US Attorney's Office to reach this agreement.
Liz Morton
New Chief Risk & Compliance Officer, Ryan Jones, worked closely with Rob Chesnut during his time at AirBnB, which makes his selection for this role at that time even more notable.
Chesnut was a former Federal Prosecutor before joining eBay as Senior Vice President Trust and Safety from 1999-2008, then moving on to become Chief Ethics Officer at AirBnB as well as a celebrated advisor and author on corporate ethics, including the bestseller "Intentional Integrity: How Smart Companies Can Lead An Ethical Revolution."
Ryan Jones and Chief Legal Officer Marie Oh Huber certainly have their work cut out for them as eBay is also still fighting a lawsuit brought by the EPA alleging they failed to stop sales of harmful chemicals, illegal pesticides, and emissions-control cheat devices on the platform.
Liz Morton
That ongoing litigation has also caught the eye of multiple shareholder rights law firms who are investigating if eBay officers and/or the Board of Directors has breached their fiduciary duties regarding these issues.
eBay had previously disclosed they were accruing for probable losses in the EPA and DEA investigations, as well as the cyberstalking case, in early 2023.
This latest blow comes on the heels of eBay announcing a mass layoff of ~1,000 employees last week, raising additional questions and concerns about M&A, due diligence, risk and compliance practices.
Liz Morton
And while there may not be anything illegal about eBay continuing to operate an on-campus pub serving alcohol to employees during work hours, perhaps now would be a good time to reconsider corporate culture and priorities in light of these ongoing and serious legal, compliance, risk and business performance issues.
Liz Morton
eBay released the following statement about today's settlement, denying allegations of wrongdoing:
SAN JOSE, CA – January 31, 2024 – eBay Inc. (Nasdaq: EBAY), a global commerce leader that connects millions of buyers and sellers around the world, today announced that it has reached an agreement with the U.S. Department of Justice (“DOJ”) to fully resolve the DOJ’s inquiry regarding products sold on the eBay marketplace alleged to violate certain laws administered by the Drug Enforcement Administration (“DEA”).
Under the terms of the agreement, eBay will pay $59 million and implement enhanced processes regarding its monitoring and reporting of listings that violate eBay’s terms of service. eBay expressly denies the DOJ’s allegations and the settlement does not include any admission of wrongdoing.
eBay issued the following statement:
“Maintaining a safe and trusted marketplace for our global community of sellers and buyers is a fundamental principle of our business. eBay is proud of its well-recognized, proactive and voluntary efforts to remove the products that were the subject of the government’s inquiry from our marketplace. While eBay acted lawfully and denies the DOJ’s allegations, we determined that this agreement is in the best interest of the company and its shareholders as it avoids the costs, uncertainty and distraction associated with protracted litigation.
“eBay’s actions to remove products that could be used for counterfeit pills – including dies, molds and pill presses – prior to any request from the DOJ or other authorities, and years before the government turned its attention to these products, prevented tens of thousands of potentially problematic listings from appearing on our marketplace. Government officials have repeatedly commended eBay for our partnership with law enforcement and efforts to support investigations into illegal pill press usage.”
As previously disclosed, eBay has accrued for probable losses in connection with this DOJ inquiry. eBay will fund the payment contemplated in the settlement through cash on hand.
Full statement of allegations and terms of settlement:
*Stay tuned for updates in this developing story.
