Pretty much everyone knows and loathes “pharma bro” Martin Shkreli, the former Turing Pharmaceuticals executive notorious for hiking an AIDS drug price so high it seemed like a crime. But that’s not why he was found guilty of fraud today (Aug. 4).
After a month-long trial that took a while to get started because finding jurors who didn’t already consider him a jerk was difficult, Shkreli was convicted of two counts of securities fraud and one count of conspiracy to commit securities fraud. His crime was lying to attract investment in his hedge fund MSMB Capital Management. Prosecutors described it as an $11-million Ponzi scheme. It was much, much smaller in scale but eerily familiar in technique to anyone familiar with the business playbook of Bernie Madoff (now in prison for fraud after getting a 150-year sentence).
It took nearly five days of deliberation for a jury of seven women and five men in New York federal court to convict Shkreli of three of the eight counts he faced, acquitting him all charges related to wire fraud. He faces up to 45 years in prison—20 years each for the securities-fraud charges and up to five years on the conspiracy count.
He was accused of attracting financiers to his hedge fund by claiming MSMB Capital had a lot more money than it did and then paying off investors with money from his biopharmaceutical company Retrophin, when they got suspicious. It worked for a while. Shkreli got investors to put money into MSMB Capital by claiming it was worth $100 million when in fact it had $330 in the bank, prosecutors said.
How did it get that far? People believed in Shkreli’s business genius, and they had some reason to do so. As with Madoff, Shkreli’s reputation apparently inspired investors, who wanted to put money into the young wiz’s hedge fund. In 2012, Shkreli was named in Forbes’ 30 Under 30 in Finance, when he was 29, in an article titled “Hedge Fund Gadfly Turns Biotech Entrepreneur” for being among the top young dealmakers, traders, or bankers in business.
Five years later, Shkreli’s approach doesn’t seem so laudable after all. His trial revealed that he took money put into MSMB entities to execute trades and would then take that money and funnel it into Retrophin. When he made bad trades and lost money put into MSMB, he simply attracted more investors by claiming to be making money. When they demanded their money, Shkreli paid them off with siphoned Retrophin funds, arranging settlement and consulting agreements.
Shkreli’s conviction will no doubt be met with delight by many. Often called “the most hated man in America,” Shkreli and his infamous smirk have already been the subject of a wry musical, which mocks his public antics, called PharmaBro: An American Douchical.