Prosecution in Martin Shkreli Case Makes Final Push

By Rebecca Davis O'Brien Features Dow Jones Newswires

During closing arguments for Martin Shkreli's securities-fraud trial Thursday, a federal prosecutor told jurors they could now see "the whole picture," that behind Mr. Shkreli's hedge funds' impressive performance reports, there was no cash, and behind his new pharmaceutical company, there were unauthorized stock transfers and improper payouts.

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Mr. Shkreli's lawyer, Ben Brafman, said the government hadn't told the full story, and didn't prove that Mr. Shkreli had actually committed fraud. "It is not a crime to aggravate somebody," Mr. Brafman said. "Stalling...is not evidence of a fraud."

Mr. Shkreli, 34 years old, is on trial facing securities and wire fraud charges stemming from his management of two now-defunct hedge funds, MSMB Capital and MSMB Healthcare, and a pharmaceutical company, Retrophin Inc. Prosecutors allege that he lied to the investors in the hedge fund, then used cash and stock from Retrophin to cover the losses.

Mr. Shkreli, who is also facing civil charges brought by the Securities and Exchange Commission and a $65 million lawsuit filed by Retrophin, has pleaded not guilty and denied wrongdoing. Mr. Brafman is expected to finish his summation Friday morning, and the government will deliver a rebuttal. The jury will then begin deliberating.

In a comment posted on his Facebook page shortly after court adjourned for the day, Mr. Shkreli said: "My case is a silly witch hunt perpetuated by self-serving prosecutors. Thankfully my amazing attorney sent them back to junior varsity where they belong. Drain the swamp. Drain the sewer that is the DOJ. MAGA."

In a roughly four-hour summation, Assistant U.S. Attorney Alixandra Smith detailed four overlapping schemes, piecing together two-dozen witnesses and dozens of exhibits, from the five-week trial.

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From 2009 to 2011, as Mr. Shkreli courted investors for MSMB Capital, Ms. Smith said, he told them he had at least $30 million under investment in the fund, and described a track record of success in hedge funds.

In fact, Ms. Smith said, the fund never had more than $3 million, and at times was just a couple hundred dollars. After a disastrous trade in February 2011 wiped out all his investors' money, MSMB Capital ceased trading activity altogether, and had no money in its account, said Ms. Smith.

But Mr. Shkreli didn't tell his investors about the loss, to whom he continued to send performance reports suggesting they were making impressive returns, Ms. Smith said. Instead, he started raising money for MSMB Healthcare, using some of the funds to pay an angry MSMB Capital investor and putting more than $2 million into his new company, Retrophin.

MSMB Healthcare, Ms. Smith said, "basically existed to funnel money to Retrophin."

In September 2012, Mr. Shkreli told investors he was shutting down both funds. Ms. Smith described the following months as frantic, as Mr. Shkreli -- working with a lawyer from Retrophin -- transferred shares of Retrophin among employees and MSMB investors to satisfy redemption demands.

"He didn't want to take responsibility for what he did," Ms. Smith said. "And he didn't want to pay them back himself." After taking Retrophin public through a reverse merger, Mr. Shkreli engineered settlements and consulting agreements between Retrophin and investors from the MSMB funds, Ms. Smith said, without Retrophin board's approval.

Mr. Shkreli's lawyers didn't call any witnesses in the trial. But during his summation, Mr. Brafman said the cross-examinations of government witnesses -- which Ms. Smith, he said, had "completely ignored" in her closing remarks -- were critical to "fill out the narrative."

Much of Mr. Brafman's summation focused on the investors in Mr. Shkreli's hedge funds and Retrophin board members who had testified for the government, on several occasions describing aspects of their testimony as "rich people b.s."

Mr. Shkreli had no obligation to repay his investors, Mr. Brafman said. "If you're committing a fraud, you don't care about making people whole, " Mr. Brafman said. "Everything he did is inconsistent with bad faith."

All of the investors eventually made their money back and in fact made a profit off the sale of Retrophin shares, Mr. Brafman pointed out. As an aside, Mr. Brafman observed, he puzzled that some investors seemed not to be able to recall how much money they had made, sometimes offering estimates that varied by several hundred thousand dollars.

"Rich people know exactly how much money they have, exactly how much money they make" Mr. Brafman said, to laughter in the packed courtroom. "That's how they became rich."

(END) Dow Jones Newswires

July 27, 2017 20:21 ET (00:21 GMT)