Will Martin Shkreli’s conviction be overturned ?

July 3, 2019 | RP
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Acquiring the title of “Most Hated Man in America” is no easy task, but Martin Shkreli pulled it off.

Shkreli’s name is in the headlines again after his attorney argued last week that his 2017 fraud conviction should be overturned. Maybe Shkreli was getting irked that Elizabeth Holmes has been overshadowing him in the headlines lately. Either way, the appeal continues to be based largely off of the argument that “no one lost money” which I believe has already been aired in the past and without getting much traction. But these latest developments around Shkreli are once again instructive.

In March of 2018, Shkreli was sentenced to seven years in prison. But it was not as a result of his raising the price of an AIDS drug by 5,000%. And it was not because of the 10,000% infinity squeeze he ran on defunct biotech KaloBios (KBIO) during a Thanksgiving holiday.

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Instead, Shkreli was convicted of defrauding investors in his two hedge funds, MSMB Capital and MSMB Healthcare, in the lead-up to his founding of drug startup Retrophin (RTRX). Shkreli was convicted on three of the eight counts. Two of those counts were for misleading investors in those hedge funds. And the third count was for conspiracy to commit securities fraud for manipulating shares of Retrophin.

One year into that prison stint, Shkreli had to be transferred from minimum security into a more secure facility when it was found that he had been using a cell phone to run his pharma company, Phoenixus AG, while he was still behind bars. You see, the CEO of Phoenixus had been on safari in Africa and Shkreli called him from prison threatening to fire him, using his contraband cell phone to make that call. And so now the FBI is involved. Phoenixus is the company formerly known as Turing Pharma, which happens to be the company that raised the price of Daraprim by 5,000%. A recent report in the Wall Street Journal included a comment that perhaps Phoenixus could be worth more than $3 billion by the time Shkreli gets out, and Shkreli owns roughly 40% of it.

Last week Shkreli’s attorney Mark Baker urged the court to overturn that fraud conviction arguing that the judge gave the jury improper instructions. At issue is the notion that those hedge fund investors “did not lose money” and as a result, the fraud charges were improper. Below is a screenshot from Shkreli’s appeal which was first filed in August of 2018 and which raises its arguments around “no ultimate harm” and the “Distinct Immateriality Test”.

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A headline from Forbes.com stated simply that “Martin Shkreli’s Appeal Has Merit”. This article contained a link to Shkreli’s appeal filing and to the audio from the proceedings. But within the content of that article I did not see any strong arguments to support such an assertive headline.

In fact, it seems like this argument has been made and answered, from the exchange below between Judge Livingston and Shkreli’s attorney. And the same view has been echoed elsewhere over the past two years.

Circuit Judge Debra Ann Livingston pressed Baker on that point: “A belief that ultimately no one will be harmed is not a defense to a securities fraud case, correct?” Baker conceded that it was not.

In addition, the court did not seem overly receptive to this new tack. As described by Bloomberg:

The federal appeals court in Manhattan appeared so skeptical of Shkreli’s argument, they allowed the prosecutor to conclude her arguments with one minute left on the clock, didn’t ask any further questions and didn’t ask Shkreli’s team for a rebuttal.

The notion that maybe Shkreli’s conviction could get overturned has made for some great chatter and headlines. But the public satisfaction at throwing a single Pharma Bro under the bus is likely counterproductive. In an earlier article at Forbes.com, Matthew Herper said it best:

In the end, in spite of himself, Shkreli proved that as a culture we don’t care about the details, we’re transfixed by spectacle, and that we don’t want to fix our problems. You really hate Martin? How about actually trying to accomplish real change.