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Martin Shkreli Facing Prison Over Securities Fraud

Martin Shkreli seemingly reveled in being one of the most hated men in the United States. But the personality that made him the target of so much anger was nowhere to be found on March 9th. After months of waiting for sentencing, Judge Kiyo Matsumoto brought the disgraced former CEO to tears with her decision: Including time already served in a Brooklyn federal jail, Shkreli is facing seven years in prison with no possibility of parole.

In addition to his prison sentence, Martin Shkreli’s wealth and assets have been subjected to penalties.  A $5 million stock account was used to secure parole from jail after his initial verdict in August 2017. In his sentencing, Shkreli was ordered to forfeit the stock. His personal stake in Vyera Pharmaceuticals, formerly called Turing, has also been ordered out of his hands. An exclusive album by the Wu-Tang Clan, valued at $2 million and a Picasso painting are also among his financial penalties.

It is a harsh conclusion to a trial where his own counsel argued extensively for leniency. However, it falls far short of the sentence requested by federal prosecutors.

The Man Who Brought Down Martin Shkreli

Carefully crafting a Twitter persona, streaming videogames while at work, and openly confronting his critics online, Martin Shkreli gained his own unique set of fans. Even after his trial’s verdict in 2017, and this month’s sentencing, he still represents a younger generation of aggressive and sometimes morally questionable executives.

The “Pharma Bro” gained his true notoriety in 2015 when his company, Turing Pharamceuticals, raised the price of Daraprim to $750 dollars per pill. The drug is common treatment for toxoplasmosis among AIDS patients.

His ardent defense of the increase turned him into the target of criticism overnight. He has been described as a prominent example of corporate excess, and a reminder of the critical flaws U.S. healthcare continues to endure.

His detractors ranged from the average American to powerful politicians. Former Secretary of State Hillary Clinton called out Shkreli and the pharmaceutical industry during her presidential campaign. The slights did not go unnoticed or unanswered. After being found guilty of securities fraud in August 2017, the freewheeling executive reached out to his Facebook followers. In an offer that angered his prosecutors, critics, and the Secret Service, he offered $5000 for each follicle of hair that could be taken from Mrs. Clinton’s head.

In his own words, he was only joking. To Martin Shkreli and his fans, this was one more media stunt, another prank by an Internet personality who just happened to be worth tens of millions

The judge did not see it that way. His bail would be revoked, and he would be jailed in September of 2017 while waiting for his official sentencing. Ultimately, despite his own online protests about government conspiracies, he would admit in court that he was the one responsible for taking him down.

A history of questionable business decision-making and conduct

The crime that brought down the Pharma Bro was not price gouging life-saving medicine. Rather, it was fraud. And it would not be the first time that shady practices attracted unwanted attention to the businessman.

At 17, Martin Shkreli picked up an internship at Wall Street hedge fund Cramer, Berkowitz and Company. At 19, he’d attracted the attention of the Securities and Exchange Commission after he recommended a short-sell of a biotech stock. He’d accurately guessed that in 2003 a pharmaceutical company testing a weight-loss drug would see a drop in the stock prices. The SEC failed to prove any wrong doing.

By 2006, Shkreli would establish his own hedge fund. A year later he would be sued by Lehman Brothers; Shkreli’s fund failed to cover a ‘put option transaction.’ Lehman Brothers was awarded $2.3 million in court, but would collapse in the following year before collecting the money. Shkreli himself rode out the 2008 financial crisis, still seeking new opportunities.

In September 2009, Shkreli started MSMB Capital Management with childhood friend Marek Biestek. Two years later, he started up Retrophin under MSMB, focused on new biotechnologies. But in 2011, disaster struck the capital management firm. A short sell of Orexigen Therapeutics stock did not pan out, and nearly wiped out MSMB.

Shkreli was eventually removed from Retrophin as CEO in 2014. The company would go on to file a $65 million-dollar lawsuit against their former boss in 2015. They claimed that he’d committed a variety of stock-trading irregularities, securities rules violations, and even accused him of harassing a former MSMB employee and their family.

Turing Pharmaceuticals, and the beginning of the end for Martin Shkreli

Undeterred by his removal from Retrophin, in February 2015 Shkreli founded Turing Pharmaceuticals. In contrast to his later claims that his actions funded research into new medicines, Turing had a very specific, profit-focused goal. Rather than researching new drugs, Turing was to acquire licenses on out-of-patent medicines and “reevaluate” their pricing.

In August, Turing acquired Daraprim, and a month later it raised the price by 5000% per pill. Shkreli’s combative defense of the price hike would win him instant fame and many detractors. But as 2015 came to a close, the FBI’s own investigations into his practices at MSMB led to his arrest.

The ensuing trial was another showcase of Shkreli’s flamboyant and sometimes offensive personality. He openly stated that he was being targeted for the Daraprim controversy. Twitter would ban him for harassing a journalist. His perceived threat to Hilary Clinton led to his lawyer publicly admonishing him, and it cost him his freedom even before his sentencing.

What his trial was about, ultimately, was that he lied to investors. He manipulated funds from the various companies he was a part of between 2009 and 2015. Had his risky bets not paid off, he likely would have seen a much harsher penalty.

Ironically, despite his actions, some of the investors who testified at his trial did not lose any money. The federal prosecutors sought to portray Martin Shkreli as a thief who stole from his clients, but some witnesses called working with the CEO as the best investment they ever made.

Of the eight charges brought against Martin Shkreli, he would be cleared of five. That likely spared him a much harsher sentence. But it will not spare him the reputation of the “Pharma Bro” who defended price gouging in an industry that regularly engages in the practice.

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