Despite Martin Shkreli’s explanations for the price gouging on daraprim, federal prosecutors decided to indict him on eight wire and securities fraud counts: two counts of securities fraud, three counts of conspiracy to commit securities fraud, and three counts of conspiracy to commit wire fraud. Basically, Shkreli was being accused of providing falsifying information through fraud schemes and the use of telecommunications or information technology in order to receive financial gains from investors.
Because they were criminal offenses, he could face years in prison if convicted. Thus, in December 2015, the Federal Bureau of Investigation (F.B.I.) arrested Shkreli on securities fraud charges. Subsequently, after his arrest, Shkreli resigned from Turing Pharmaceuticals and was replaced by Ron Tilles, chairman of the board. The trial lasted for about a month beginning on June 26, 2017. Finally, the Brooklyn jury deliberated for five days before Judge Kiyo A.
Matsumoto convicted Shkreli on two counts of securities fraud and one count of conspiracy to commit securities fraud on July 31, 2017. He could face up to 20 years in prison, but many legal analysts believed he would spend less than that. Shkreli and his attorney, Benjamin Brafman, were quite pleased with the verdict outcome because he was indicted on only three out of the eight counts. Surprisingly, it was Shkreli’s price gouging that made the headlines, yet he was not charged with price gouging on prescription drugs. Basically, price hike was not illegal; securities fraud was.
All the charges against Shkreli were based on previous transactions at former companies–not Turing Pharmaceuticals. He previously started two hedge funds, MSMB Healthcare and MSMB Capital Management. Then he co-founded and became the CEO of Retrophin Inc., a pharmaceuticals company with an emphasis on biotechnology. The prosecutor accused him of defrauding investors while managing those two hedge funds during 2009 and 2014. According to Ivanova (2017), “The government alleged that Shkreli defrauded investors and lied about the funds’ performance, and that he later stole more than $11 million from another company he founded, publicly traded Retrophin (RTRX), to pay back those investors.” In addition, according to Assistant U.S.
Attorney Alixandra Smith, Shkreli had defrauded investors by lying about the hedge funds’ financial statements. He claimed at one point that one of the funds had $40 million when in reality it was only $300. In general, the prosecutor portrayed Shkreli as a conman who defrauded and lied to the stakeholders. One would presume it was an easy open and shut case of fraud, but it was not.
For the defendant’s side, they had presented many wealthy investors from Texas as witnesses. As defense attorney Brafman proclaimed, not only did the investors did not any money, they felt partnering with Shkreli was the greatest investment. These investors conceded that Shkreli’s accounting scheme actually made them wealthier–doubling or even tripling their money, as stated by Ivanova (2017).