Shkreli Convicted Of Securities Fraud, Blasts "Witch Hunt"

Aug 4 2017 | 11:44pm ET

Infamous former hedge fund manager and one-time pharmaceuticals company CEO Martin Shkreli was found guilty of three securities fraud-related charges on Friday, capping a month long trial and five days of jury deliberations. 

Shkreli was found guilty on two counts of securities fraud and one count of conspiracy, although the jury found him not guilty on five other conspiracy related charges. He faces up to 20 years in prison for the convictions, although legal experts were quick to point out he is unlikely to serve that much time.

As securities fraud trials go, Shkreli’s case was comparatively unique. None of his fund investors lost money, and in many cases eventually netted handsome profits. At the core of the case was the concept, enshrined in U.S. securities regulations, that it is illegal to make material misstatements of fact to investors, generally considered to be any statement that would be viewed as important to the decision-making process of a reasonable investor. Whether the investor in question loses or makes money in the process is fairly irrelevant.

"This was a witch hunt of epic proportions, and maybe they found one or two broomsticks, but at the end of the day, we've been acquitted of the most important charges," Shkreli said following the verdicts. 

Shkreli, who notoriety stems mainly from hiking the price of anti-infection drug Daraprim by 5,000% as CEO of Turing Pharmaceuticals, was accused to using some $11 million cash and shares in a prior firm he controlled, Retrophin, to repay investors in his MSMB Capital and MSMB Healthcare hedge funds after they lost money. He was removed as CEO of Retrophin by the company’s board in 2014. 

Some of the five counts on which Shkreli was acquitted related to his unauthorized use of Retrophin shares to reimburse the hedge fund investors. 

During the trial, prosecutors said Shkreli lied about the existence of outside auditors, tens of millions of dollars in AUM, fabricated account statements and even claimed to have graduated from Columbia. Indeed, despite claiming to potential clients that he was managing $100 million, the net value of one of his funds fell to -$0.33 at one point and never held more than $3 million, according to Bloomberg.

Sentencing is likely to take place in the next several weeks. The case is U.S. v. Shkreli, 15-cr-00637, U.S. District Court, Eastern District of New York (Brooklyn).

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