In addition to earning global notoriety over the past few months for price gouging on old drugs, Martin Shkreli also blazed an alleged 5-year trail of fraud that includes lying to his investors, looting hedge funds to cover personal expenses and routinely boasting about money he never had.
The SEC's allegations against Shkreli tell a tale of greed, grandiose boasting and theft. And they raise fresh questions why the little fish with an expensive taste for rap and hiphop music would make himself such a tempting big game target for federal prosecutors following his unrepentant decision to buy an old drug and hike the price by more than 5,000%.
According to a complaint filed by the SEC, Shkreli used MSMB Capital Management as a personal account, tapping it for cash to pay for "food, clothing, medical expenses, clothing, office rent, and cash withdrawals." He told investors and would-be investors that he had earned a 35.77% return, while in fact racking up losses of 18%.
Shkreli was also accused of claiming he had $35 million at a time he actually had $1,000. Back in 2011 he lied to an executing broker of the fund about being able to cover a short sale on a pharma, then looted MSMB Healthcare of $900,000 to settle the broker's claims. And then he and outside counsel Evan Greebel were accused of using Retrophin stock to pay off disgruntled investors.
"Over a five-year period, Shkreli is alleged to have perpetrated a series of frauds on investors in his hedge funds and Retrophin's shareholders in order to cover up his poor trading decisions," said Andrew Ceresney, director of the SEC's Division of Enforcement.
The U.S. Attorney's Office for the Eastern District of New York today announced criminal charges against Shkreli and Greebel, calling the manipulations a "trifecta of lies, deceit, and greed."
"As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit. His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity. When regulators and auditors questioned Shkreli's decisions, he joined forces with Evan Greebel, who used his law license and training to conceal and further the scheme," stated United States Attorney Robert Capers. "The charges and arrests announced today reflect our commitment to hold accountable corporate executives and licensed professionals who betray their positions of trust in order to fraudulently enrich themselves."
Federal officials say that Shkreli faces up to 20 years in prison.
Over the past few months Shkreli has been profiled by some of the best in the journalism business. Inevitably they would cite associates who would praise Shkreli's ability to learn almost anything, the amazing autodidact who could credibly claim an ambition in drug research. Writers now will get a turn explaining why someone who was supposedly so smart could leave an alleged trail of fraud so thick and so wide while taunting federal officials to do their worst.
- here's the release