From Penthouse to Big House: Pharma Bro, Fraud & Forfeiture

Martin “Pharma Bro” Shkreli earned national attention in September 2015 when a company he founded earlier the same year, Turing Pharmaceuticals, acquired the drug Daraprim and raised its price from $13.50 to $750 per tablet. That’s an astronomical increase of 5,000%.  However, a fraudulent scheme involving three other companies he founded is what landed him in criminal court.

In 2009 Shkreli founded hedge fund MSMB Capital, and in 2011 he founded hedge fund MSMB Healthcare and pharmaceutical company Retrophin. He exaggerated the quantity of funds raised for MSMB Capital and utilized funds raised for MSMB Healthcare to bankroll Retrophin. Shkreli lost money in both hedge funds but hid losses from investors. Disgruntled hedge fund investors who sought to claim profits were paid by Shkreli with Retrophin cash and stock as well as money from other investors. Shkreli’s misrepresentations and misappropriations saddled investors with millions of dollars in losses. Federal prosecutors accused Shkreli of misleading and defrauding investors, charging him with fraud and conspiracy. Further, pursuant to 18 U.S.C.A. § 981(a)(1)(c) and 28 U.S.C.A. § 2461(c), prosecutors submitted a preliminary order of forfeiture to the court.

On August 4, 2017, a jury convicted Shkreli of two counts of securities fraud and a single count of conspiracy to commit securities fraud. March 2018 Judge Kiyo A. Matsumoto sentenced him to eighty-four months of incarceration and a $75,000 fine. Matsumoto granted the forfeiture order, concluding the government established forfeiture of substitute property, up to $7,360,450, was warranted. In this case substitute property includes a multimillion-dollar E*TRADE brokerage account used to secure Shkreli’s bail, a stake in Vyera Pharmaceuticals, Wu Tang Clan double album “Once Upon a Time in Shaolin,” Lil Wayne album “Tha Carter V,” and a painting by Pablo Picasso. The “Once Upon a Time in Shaolin” double album—the only known copy—is rumored to be worth $2 million but conflicting reports suggest it may actually be worthless.

A few institutions have already begun to battle over who will gain initial access to Shkreli’s assets. He reportedly owes nearly $1.7 million to the Internal Revenue Service and $480,000 to the state of New York. Both institutions demand to be paid first, arguing that the bespoken tax debts precede sentencing and the forfeiture order.

As issues pertaining to Martin Shkreli’s criminal conviction and forfeiture evolve, Westlaw will continue to publish opinion and commentary.

For additional information on topics like the one in this article, the following search may be run on Thomson Reuters Westlaw:

adv: shkreli /p forfeit! seiz! /p property asset & fraud! (5)

Search Type: Boolean T&C

Content: Overview

Jurisdiction: All Federal


This post was written by Stanley Rule, senior attorney editor with Thomson Reuters.

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Alex Cook

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