Shkreli Decries ‘Witch Hunt’ After Being Convicted of Securities FraudBy , , and
Prosecutors said Shkreli cheated investors in funds, Retrophin
To some, he’s ‘Pharma Bro’; to others, ‘the most hated man’
Martin Shkreli, once dubbed "the most hated man in America," is now a convicted felon.
Shkreli, notorious for raising the price of the potentially life-saving drug Daraprim by 5,000 percent, was found guilty Friday of defrauding investors in two hedge funds.
He is now almost certain to go to prison. Shkreli faces as long as 20 years behind bars, although he’s likely to serve much less. U.S. District Judge Kiyo Matsumoto allowed him to return home and wished Shkreli well after the verdict was read. She said she would see him soon, though she hasn’t set a date for sentencing.
“This was a witch hunt of epic proportions,” a smiling Shkreli, flanked by his lawyers and his father, told reporters outside the Brooklyn, New York, courthouse following the verdict. “Maybe they found one or two broomsticks, but at the end of the day we’ve been acquitted of the most important charges in this case.”
Shkreli was convicted of three of eight charges, including securities fraud. He was acquitted of fraud charges related to allegations that he looted Retrophin to pay off his hedge-fund investors. Sentencing guidelines take into consideration the size of losses, so the Retrophin allegations carried the potential for the most severe penalty.
In the end, it was Shkreli’s lies to his investors that cost him his freedom, not his 2015 decision to jack up the price of the anti-parasitic drug. Prosecutors said Shkreli, 34, misled clients about the performance of his failing hedge funds, secretly used their money to start Retrophin, and then took $11 million from the drug-development company to repay them. The jury didn’t buy the government’s claims about Retrophin.
"The law is very clear that ‘intent to harm’ is not a required element to prove ‘intent to defraud,”’ said Kevin Sadler, a lawyer involved in the case of convicted Ponzi schemer R. Allen Stanford. “How much in investor losses Shkreli actually caused will be relevant in the sentencing phase of his case. But there is no such thing as a ‘no harm, no foul’ defense to securities fraud."
Shkreli said he was "delighted in many ways" with the verdict, especially with the fact that he was acquitted of the charge that he looted Retrophin, which he called the "government’s attempt to theorize that I robbed Peter to pay Paul."
"My investors made three to five times their money without any aid of any settlement agreements," he said. "Some made 10 times more than that on their original investment after they did receive settlements. I’m delighted the jury did their job and saw the facts as they were."
The verdict came on the fifth day of deliberations after a trial that lasted more than a month and sometimes resembled a circus. Shkreli’s notoriety for boosting the price of Daraprim made jury selection a time-consuming process as dozens of prospective jurors expressed contempt for him. One called him a “snake” and another said he was “the face of corporate greed.” Neither was selected for the panel.
Hailed as “Pharma Bro” by his online supporters, Shkreli has won a following for sharing much of his life on the Internet, broadcasting live from his Manhattan apartment. In the evenings after a long day in court, he could be seen chatting with his followers, petting his cat, combing his hair and playing chess. While he was kicked off Twitter for harassing a female journalist, he’s been on Facebook during the trial to rail against prosecutors. And immediately after the verdict he took to YouTube to discuss the result with his followers.
A courthouse tirade got Shkreli reprimanded by the judge. After telling reporters during a lunch break that the prosecutors in Brooklyn were the “junior varsity," Matsumoto ordered him to stop talking about the case in and around the building.
Shkreli’s attorney, Benjamin Brafman, said he would attempt to convince the judge not to impose prison time in the case. Brafman said his client "has some work to do" to undo the damage from the criticism of his decision to raise the price of Daraprim.
"Nobody who ever needed Daraprim has ever been deprived of Daraprim because they could not pay for it," Brafman said. "There is an image issue that Martin and I are going to be discussing in the next several days. Martin is a brilliant young man but sometimes people skills don’t translate well.”
Prosecutors presented more than a dozen witnesses, including investors who said they had trouble recovering their money from Shkreli and former employees who recounted questionable transactions. A former compliance officer said he got so tired of his boss’s antics that he quit and complained to the U.S. Securities and Exchange Commission.
The government painted Shkreli as a conman and habitual liar. They said his deceit involved not only the performance of his funds and how he used investor money, but his educational background and prior investing experience. Jurors were shown what prosecutors said were sham consulting agreements that Shkreli drafted as part of one of his many schemes to pay back some investors.
Prosecutors said Shkreli boasted to potential hedge fund clients that he was managing as much as $100 million when the net value of one of his funds fell to minus 33 cents, and never held more than $3 million.
"The work of our office and the FBI on this and other cases demonstrates our resolve to protect the investing public and our markets from fraud and abuse," Bridget M. Rohde, the acting U.S. attorney for Brooklyn. "Rest assured we will continue to investigate and prosecute those who engage in schemes to defraud such as this one."
Shkreli chose not to testify and his lawyers called no witnesses. His attorneys sought to prove their case through cross-examination of government witnesses, claiming that Shkreli was an eccentric genius whose investors ultimately made millions of dollars -- even if it took them years to recover their money.
Robert C. Hockett, a professor at Cornell Law School, said the verdict isn’t very surprising given the way Shkreli has acted since the spotlight first shone on him.
"Ever since he first came to public attention he has exhibited such contempt for all norms of behavior, and has done this so unrelentingly, that it would almost have been surprising had he proved law-abiding," Hockett said.
As a teenager living in Brooklyn, Shkreli was an intern at a hedge fund operated by Jim Cramer before working as an analyst at several funds and then starting his own, Elea Capital Management, in 2005 at the age of 23. After Elea collapsed due to bad trades, Shkreli began two other funds, MSMB Capital Management and MSMB Healthcare, and then co-founded Retrophin in 2011.
Shkreli was ousted by Retrophin in 2014 and arrested in December 2015. At another company he founded, Turing Pharmaceuticals LLC, Shkreli raised the price of Daraprim. Criticized harshly, he defended his decision and said he’d do it again.
The case is U.S. v. Shkreli, 15-cr-00637, U.S. District Court, Eastern District of New York (Brooklyn).