Former Hedge Fund Manager Convicted In Multi-Million Dollar Fraud Scheme
Martin Shkreli Convicted Of Defrauding Hedge Fund Investors and Engaging in Multi-Million Dollar Stock Fraud Scheme Involving Publicly Traded Retrophin Inc.
Martin Shkreli was convicted today by a federal jury in Brooklyn of three counts of a superseding indictment charging him with securities fraud and securities fraud conspiracy. The verdict followed a six-week trial before United States District Judge Kiyo A. Matsumoto. Shkreli was the founder and managing member of hedge funds MSMB Capital Management LP (MSMB Capital) and MSMB Healthcare Management LP (MSMB Healthcare), and the former Chief Executive Officer of Retrophin Inc. (Retrophin), a biopharmaceutical company that trades under the ticker symbol RTRX.
The guilty verdicts were announced by Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI).
“As the jury found today, Martin Shkreli violated the law by deceiving investors into entrusting their money with his hedge funds and lying to them about the funds’ performance, as well as by engaging in a multi-million dollar fraud scheme involving publicly traded Retrophin. Together with our partners at the FBI, we remain steadfast in our commitment to protecting the investing public and our markets from such fraud and abuse and will continue to hold accountable those who defraud the market.” Ms. Rohde thanked the Securities and Exchange Commission, New York Regional Office (SEC), and the Financial Industry Regulatory Authority, Inc., Criminal Prosecution Assistance Group (FINRA CPAG), for their significant cooperation and assistance in this case.
“Shkreli misled investors in his self-indulgent scheme. Today’s conviction shows that those who corrupt the market will ultimately be brought to justice,” stated FBI Assistant Director-in-Charge Sweeney. “I want to thank our FBI special agents and the prosecutors from the Eastern District of New York; our partners from the Securities and Exchange Commission (SEC), New York Regional Office; and the Financial Industry Regulatory Authority, Criminal Prosecution Assistance Group (FINRA CPAG) for their dedication and focus, which resulted in justice. The FBI considers securities fraud a priority, and we will continue to work with our partners to pursue these types of cases to ensure our financial markets are protected from fraud.”
The evidence at trial established that Shkreli, who was convicted on Counts Three, Six and Eight of the superseding indictment, alleging securities fraud (Counts Three and Six) and securities fraud conspiracy (Count Eight), executed three schemes to defraud investors:
As charged in Count Three of the superseding indictment, between 2009 and 2014, Shkreli used false representations and omissions to induce investors to invest more than $3 million in MSMB Capital. Subsequently, following trading losses, Shkreli sent fabricated performance updates to investors, boasting that the fund had made big profits when, in fact, it had sustained disastrous losses. In addition, Shkreli withdrew more than $200,000 from MSMB Capital, far more than the one percent management fee and the 20 percent net profit incentive allocation permitted by the partnership agreement.
As charged in Count Six, between 2011 and 2014, Shkreli used false representations and omissions to induce investors to make more than $5 million in investments in MSMB Healthcare. Additionally, Shkreli used MSMB Healthcare assets to pay obligations that were not MSMB Healthcare’s responsibility. As with the MSMB Capital Scheme, Shkreli withdrew more from MSMB Healthcare than the one percent management fee and the 20 percent net profit incentive allocation permitted by the partnership agreement.
As charged in Count Eight, between 2012 and 2014, Shkreli and others conspired to engage in a scheme whereby they recruited individuals, including Retrophin employees and contractors, to be nominee shareholders for the majority of Retrophin’s free trading shares. Shkreli and his co-conspirators did this to obtain beneficial ownership over these shares for Shkreli while avoiding requirements that would otherwise have required Shkreli to report his control over these shares, in an attempt to control the trading volume and share price of Retrophin. At times, Shkreli and others not only prevented nominee employees from selling these shares, but also directed that some of these shares be used to settle liabilities owed by the MSMB Funds and Shkreli.
When sentenced by Judge Matsumoto, Shkreli faces a maximum of 20 years in prison on each of the two counts of securities fraud and up to five years in prison on the securities fraud conspiracy count.
The government’s case is being handled by the Office’s Business and Securities Fraud Section. Assistant United States Attorneys Jacquelyn M. Kasulis, Alixandra E. Smith, and G. Karthik Srinivasan are in charge of the prosecution.
Residence: Manhattan, New York
E.D.N.Y. Docket No. 15-CR-637 (KAM)