Last week, the U.S. Court of Appeals for the 2nd Circuit affirmed the conviction of Martin Shkreli – AKA “Pharma Bro”. In addition, the appellate court also affirmed that Shkreli must forfeit $7.3 million, pay restitution of $388,336, and pay a $75,000 fine.
Although their cases are not at all related, there are some interesting similarities – and the latest ruling in the Shkreli certainly has some very negative connotations for Keith Alan Raniere AKA The Vanguard.
To begin with, Shkreli was prosecuted and convicted in the Eastern District of New York (EDNY) – which just happens to be where Raniere met a similar fate.
In addition, Shkreli’s defense team was headed up by Benjamin Brafman and Marc Agnifilo. Agnifilo also served as Raniere’s lead attorney.
And Raniere will, of course, be submitting his inevitable appeal to the same Second Circuit Court of Appeals.
How Shkreli Became “Pharma Bro”
Shkreli rose to fame in 2015 when, as the CEO of Turing Pharmaceuticals, he raised the price of the drug Daraprim from $13.50 per pill to $750 per pill.
Daraprim has been used for more than six decades to treat malaria and a variety of parasitic infections. It was also used by some doctors whose patients had compromised immune systems because of AIDS or cancer.
In August 2015, Turing Pharmaceuticals – a start-up company that Shkreli formed after a career as a hedge fund manager – purchased the manufacturing rights for Daraprim from its original developer.
One month later, Turning announced the more than 5,000% price increase for the drug.
The media attention was swift and extremely negative.
Ironically enough, it was a New York Times article that broke the story about the huge price increase.
Federal Prosecution On Unrelated Charges
As despicable and inhumane as it was, Shkreli’s price gouging was not illegal.
But that didn’t deter the Federal prosecutors in Brooklyn.
On December 16, 2015, Shkreli was indicted on multiple charges for activities that were unrelated to the Daraprim controversy.
The seven-count indictment included charges of securities fraud, securities fraud conspiracy and wire fraud conspiracy – all of which were related to three alleged schemes (A superseding indictment included an eighth charge).
According to the indictment, the schemes started in 2009 when Shkreli served as the manager of MSMB Capital, a hedge fund that focused on investments in healthcare companies.
Shkreli was accused of lying to investors about the fees charged by the hedge fund, his own track record as a hedge fund manager, and the assets of the hedge fund.
At one point, he told the primary investor in the fund that it already had $35 million of assets when, in fact, it only had $700.
“Fake it until you make it” taken to the extreme.
Multiple Companies Allowed Shkreli To Hide Losses
While he was running MSMB Capital into the ground, Shkreli started managing another hedge fund named MSMB Healthcare.
Utilizing the same fraudulent schemes that he had employed at MSMB Capital, Shkreli was able to attract millions of dollars from new investors. The new funds were used to pay off his old debts and losses.
In order to keep money coming in, Shkreli started another new company named Retrophin – which specialized in buying, developing and marketing drugs for severe and life-threatening diseases.
In a conspiracy that he formed with Retrophin’s counsel, Shkreli was able to siphon off more than $11 million from the company.
Most of those funds were used to pay off Shkreli’s creditors – and to settle lawsuits that had been brought by disgruntled investors in his other companies (The settlements were structured to look like consulting agreements that made it appear the claimants had actually provided consulting services to Retrophin).
When the Board of Directors of Retrophin discovered what was going on, they fired Shkreli. They also sued him for $65 million for his alleged breach of fiduciary duty to the company.
Shkreli’s Trial & Conviction
After pleading not guilty to all of the charges against him, Shkreli went to trial in June 2017.
After a six-week trial – and after five days of deliberations – the jury found him guilty on two counts of securities fraud and one count of conspiracy.
Shkreli immediately proclaimed that he thought he would receive probation – or, at worse, have to spend a year or so at a “Club Fed”.
He was originally allowed to remain free on bail. But his bail was revoked on September 13, 2017 after he posted a message on Facebook indicating that he would pay $5,000 to anyone who would provide him with “a strand of Hillary Clinton’s hair”.
After his bail was revoked, he was imprisoned at the Metropolitan Detention Center until his sentencing.
In March 2018, Shkreli was sentenced to serve 7 years in federal prison. He is currently serving his sentence at FCI Fort Dix.
Swift & Brief Decision On Appeal
The appellate court’s ruling came less than three weeks after Shkreli’s attorneys had made their presentation to the court – which is much faster than the normal timeline for such decisions.
In addition, the ruling was only seven pages long – which is much shorter than most appellate decisions.
Neither of those facts bodes well for The Vanguard.
Raniere is expected to appeal his across-the-board conviction on the seven counts he was facing.
He is also expected to face more charges related to his illegal activities in the Northern District of New York (NDNY). Four of the original charges in the EDNY were dropped there because of jurisdictional issues – and referred to the NDNY.