The Story of How Shkreli’s Hated Move Almost Saved Him

Nathan Anderson | December 28, 2015
due-diligence, hedge fund, ponzi, shkreli

Shkreli trying on his new matching Tiffany’s bracelets

If infamous ‘pharma bro’ Martin Shkreli’s public statements since his arrest are any indication, he is likely to wage a trial by public opinion over the next several months.

Shkreli has already called his indictment a witch-hunt based on his much-hated move of jacking up drug prices rather than based on any legal wrongdoing. There seems to be some sympathy for this angle, and I wouldn’t be surprised to see upcoming pieces profiling his ‘introverted and misunderstood’ personality over the coming weeks. The talking heads have already begun to debate whether his unethical behavior with regarding to drug pricing merits the “response” by authorities.

Unfortunately, the facts have no relation to the spin. The Feds have been investigating Shkreli since 2012, a full 3 years before he was widely panned by political candidates (and many humans in general) for his actions as CEO of Turing Pharmaceuticals, where he bought cancer/AIDS drug Darapram and raised the price 50x.

The indictment reads like a total slam dunk, and alleges multiple hard-to-refute crimes:

  1. He lost all the money in his earlier hedge fund, then lied about his performance numbers to his investors and pretended he was doing great.
  2. He used his fake performance to raise more assets from new investors.
  3. He created phony consulting agreements with a public company he controlled and used the proceeds to pay off angry investors and his broker.
  4. He paid himself vastly more fees than the stated 1% fees he purported to charge.
  5. He lied about having an independent auditor and independent hedge fund administrator (which both provide key oversight to help prevent fraud, among other things.)

Ironically, rather than leading to a politically-driven witch-hunt, Shkreli’s public antics (from the drug-price hullabaloo to the purchasing of a lone $2m Wu-Tang album, et al.) almost saved him. Turing Pharmaceuticals was making money off of the drug price increases, and Shkreli built up a fan-base who appreciated his direct & unapologetic approach to capitalism. When he made a $2.5m investment into a tiny pharma company named Kalobios late this year his stake ballooned to a $50m value after the announcement that he would be CEO. He was finally starting to make enough money to pay back all the people he defrauded earlier.

When looking at the real story, it seems that Shkreli’s antics were more likely the desperate result of the Feds closing in, rather than the other way around. We always hear about the frauds that lose all the investor’s money, but we tend to never hear about the frauds that were eventually successful and made it all back. In this case Shkreli seemed like he was on track to make it into the latter category, but his past has caught up before he could complete the feat.

Time will tell whether he’ll be able to wiggle out of it.

If interested, see the indictment here.

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Nathan Anderson

Nate co-founded ClaritySpring and oversees the company's strategy and operations.

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1 comment

  • sikis izle - May 3, 2016 reply

    Superb Blog, das pure Leidenschaft strahlt …

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