Martin Shkreli is an influential and successful American businessman who a number of titles in various pharmaceutical and financial institutions. Shkreli is the co-founder of the hedge funds Elea Capital, MSMB Capital Management, and MSMB Healthcare, as well as a founder and former Chief Executive Officer of Turing Pharmaceuticals. He also served as Chief Executive Officer of Retrophin, a Biotechnology company, which he helped found (Balakrishnan 2017). Finally, he also served as the Chief Executive Officer of Godel Systems, an emerging software company. . This diverse pharmaceutical and financial background created opportunity to defraud public investors.
Although Martin Shkreli was involved in numerous questionable business practices, one specific controversy involving his company, Retrophin, was was the price increase of Thiola, a drug used to treat a rare disease, Cystinuria. This disease essentially leads to the increased rate of cystine stones in the kidneys, ureter, and bladder (International Cystinuria Foundation 2017). Retrophin increased the price of the drug from $1.50 to $30 per pill, which was a considerable blow to consumers, as numerous pills are required to be taken per day (Sternberg 2016). As a result of this controversy, Retrophin fired Shkreli.
A second major controversy involving Shkreli and the works of his business practices was the 2015 price increase for the drug Daraprim. Turing Pharmaceuticals was held responsible for the increase while Shkreli served as CEO. This drug’s primary use was that of an anti-malarial and antiparasitic which is often used to treat patients with acquired immunodeficiency syndrome related toxoplasmosis (Benson, Brooks, Holmes, and Masur 2014). After increasing the price of the drug per pill by a factor of fifty-six (Kliff 2015), multiple medical specialty and patient focused organizations questioned Turing Pharmaceuticals and their methods. Shkreli used profits from the price increases of these drugs to pay off investors from other companies with which he was associated (Clifford and Moynihan 2017).
As a result of these two major controversies, along with other controversial business practices, the Federal Bureau of Investigation arrested Martin Shkreli in December of 2015. Shkreli was charged with conspiracy to commit securities fraud regarding MSMB Capital, MSMB Healthare, and their connected hedge funds. He was also charged with conspiracy to commit wire fraud regarding MSMB Capital and MSMB Healthcare. In addition, he was charged with conspiracy to commit wire fraud in relation to Retrophin. After investigation, it was discovered he had used funds to pay MSMB investors, and conspiracy to commit securities fraud related to the Retrophin stock scheme, following the filing of a federal indictment in the U.S. District Court for the Eastern District of New York (Geiger and Smythe 2015).
On August 4, 2017, Martin Shkreli was found guilty of securities fraud in connection with MSMB Healthcare and securities fraud due to his involvement with his MSMB Capital hedge fund. He was also found guilty of conspiracy to commit securities fraud related to Retrophin’s stock scheme. Shkreli was acquitted on all other charges. On top of these convictions, the United States Securities and Exchange Commission holds Martin Shkreli in question for attempting to short thirty-two million shares, when he could not legally do so (Girsky, Mangan, & Tinnell 2017). Numerous people across the nation felt the effects of these actions, some even benefited from it.
According to the Federal Bureau of Investigation, Securities Fraud is a blanket term referring to many illegal activities which all involve “the deception of investors or the manipulation of financial markets.” Some of the most common forms of Securities Fraud are high yield investment fraud, Ponzi schemes, pyramid schemes, advanced fee schemes, foreign currency fraud, broker embezzlement, hedge fund related fraud, and late day trading (“Securities Fraud Awareness”). In 2010, an FBI sponsored task force, FFETF-Securities Fraud Working Group announced at a press conference that three hundred forty three criminals defrauded over one hundred twenty thousand victims, with losses estimated at eight billion US dollars (“Financial Crimes Report”). This data shows the scope of the crimes Shkreli was convicted of.
Although the FBI crime reports review how many people are affected by these types of fraud, the do not speak specifically of who these victims are. In the case of Martin Shkreli, the impact was felt not only by the consumers of the medicines whose price he raised so drastically, but also the companies he invested in. Interestingly enough, Shkreli’s practices did not garner a negative impact in all cases. For example, Shkreli’s investors all made back more than their initial investments, such as in the case of KaloBios, whose stock value raised from two dollars per share upon Shkreli’s initial investment to forty dollars per share, finally closing at twenty three dollars and fifty-three cents per share (Pollack 2015).
A more specific example of investors receiving large returns is in the case of Sarah Hassan. Hassan, the daughter of a well-known pharmaceutical executive, invested three hundred thousand dollars in MSMB. Shkreli closed her account, and then paid her back with “four hundred thousand dollars in cash and fifty eight thousand shares of Retrophin stock,” which she later sold for nine hundred thousand dollars (Girsky, Mangan, & Tirrell 2017). This information was the capstone of Shkreli’s defense, and his lawyer stated he never intended to commit fraud, but was simply helping get Retrophin off the ground so he could pay back his other investors (Clifford & Moynihan 2017). On the contrary, the prosecutor, Jacquelyn Kasulis did not shed Shkreli in such positive light.
She brought forth evidence of threatening letters to employees, statements to investors showing profits when there was no money in the accounts, backdated agreements to look like MSMB invested in Retrophin, as well as asset claims disproportionate to fund sizes. In other words, even though Shkreli made money for his investors, the evidence against him points to shady deals, false statements, and to simply put it, fraud (Clifford & Moynihan 2017). Shkreli’s activity, when looking at the evidence, is very complex and blurs the line between acceptable financial practices and criminal activity.
Shkreli’s scheme is comparable to Bernie Madoff’s, even though it is not exactly a Ponzi scheme. According to a Columbia law professor, John Coffee, Shkreli used money from his pharmaceutical company to pay back hedge fund investors. A complaint filed by the Securities and Exchange Commission claimed his scheme was full of “widespread fraudulent conduct,” “misrepresentations and omissions to investors and prospective investors,” and he misappropriated “over $1 million in funds from MSMB, MSMB Healthcare, and Retrophin” (Girsky, Mangan, & Tirrell 2017).
As shown in the FBI Financial Crime Report, securities fraud affects thousands of people, costing them billions. The practices of Martin Shkreli specifically cost consumers of life saving medicines hundreds of dollars per dose when he raised their prices. He also raised the stock values of the companies he worked with, and in one case, made an individual just under one million dollars through his business practices. However, the way he made them money, filtering investments and selling stock between the companies to show a positive increase was illegal. The crimes martin Shkreli was convicted of is very interesting, as they an excellent example of how practices that directly affect consumers make executives and large investors millions.
...(download the rest of the essay above)