Wall Street Crime and Punishment: Martin Shkreli, The Self-Destructive Pharma Bro

Wall Street Crime and Punishment: Martin Shkreli, The Self-Destructive Pharma Bro

Does crime pay?

Wall Street Crime and Punishment is a weekly series by Benzinga's Phil Hall chronicling the bankers, brokers and financial ne’er-do-wells whose ambition and greed take them in the wrong direction.

His former girlfriend acknowledged that he is “good at getting under people’s skin.” The judge who denied his most recent probation request accused him of displaying “delusional self-aggrandizing behavior.” His cellmates at the prison where he is currently incarcerated reportedly nicknamed him “a**h***.”

Tabloid journalists routinely labeled him “the most hated man in America” for his decision to jack up the price of a prescription drug used in treating a rare disease. He has also been derisively dubbed “Pharma Bro” by the same tabloid bunch for his cavalier behavior in defending his actions.

All of this seems to give Martin Shkreli more cred than he deserves. In reality, he was an incompetent businessman who stupidly put himself into a media spotlight that magnified his vices. In his mind, he was giving the public the ultimate example of What-You-See-Is-What-You-Get, but that proved to be his undoing because too many people didn’t like what they saw.

A Sketchy Background: Martin Shkreli was born March 17, 1983, at Coney Island Hospital in Brooklyn, New York. His parents were Albanian immigrants who worked as janitors — and they kept those jobs even after their son had the financial means to support them.

The earliest controversy surrounding Shkreli dates back to his high school years. He attended Hunter College High School in Manhattan but it is unclear whether he graduated on schedule, graduated two years ahead of schedule, dropped out, or was kicked out. Nonetheless, he had some fondness for his alma mater and in March 2015, he donated $1 million, the largest endowment in the school’s history.

Shkreli graduated from Manhattan’s Baruch College in 2005 with a business degree. He wasn’t a sterling student, but that’s not where his focus was aimed. Instead, he gained a college internship at Cramer Berkowitz, the hedge fund run by Jim Cramer.

Shkreli told a Vanity Fair interviewer that he “weaseled” his way into the firm and began in the mailroom before working his way up to an associate’s role. As with his high school experience, stories vary on how he fit into Cramer Berkowitz, with some people claiming he reported to Cramer while the CNBC pundit later insisting he didn’t remember Shkreli and that he “he was no protégé.”

Shkreli also had his first run-in with regulators during his Cramer Berkowitz tenure when he advocated short-selling Regeneron Pharmaceuticals Inc REGN. After the stock’s price dropped, the U.S. Securities and Exchange Commission conducted a probe of Shkreli but was unable to find any evidence of chicanery in his short-selling recommendation.

Related Link: The complete Wall Street Crime and Punishment series

Hits And Misses: Shkreli left Cramer Berkowitz after graduating from college and briefly worked at Intrepid Capital Management and UBS Wealth Management before starting his own hedge fund, Elea Capital Management, in 2006. That venture went awry when Lehman Brothers sued Shkreli and his hedge fund for failing to pay for a put option. Lehman Brothers won a $2.3 million default judgment against Shkreli and his fund, but the company collapsed in October 2008 before any restitution was made.

Undeterred, Shkreli teamed with childhood friend Marek Biestek to form MSMB Capital Management. The duo specialized in shorting biotech companies and trash-talking these firms in online chat rooms focused on stock trading.

But more bad luck seemed to plague Shkreli’s entrepreneurial pursuits: he made a disastrous short position in 2011 on the obesity drug company Orexigen Therapeutics OREX through an account he held with Merrill Lynch, which cost the company $7 million that he was unable to repay. His handling of the debacle was even worse, with repeated lies and phony documents to assure Merrill Lynch and his investors that all was well.

While trying to right his struggling business, Shkreli started to become an annoyance in the pharmaceutical world. In 2011, he attempted to persuade the U.S. Food and Drug Administration to reject products from Navidea Biopharmaceuticals Inc NAVB and MannKind Corporation MNKD while short-selling both of the companies' stocks. MSMB also made a hostile bid to acquire AMAG Pharmaceuticals for $378 million. Both endeavors failed and earned Shkreli an increased level of contempt from his rivals in the sector.

Shkreli used his understanding of hedge fund start-ups and bioscience to begin another fund and launch a new pharmaceutical company called Retrophin. And by this point in time, Shkreli’s already-tumultuous world went into haywire overdrive.

The Wrong Pills: Shkreli would later claim that he planned to use Retrophin for purchasing two drugs used for treating Wilson disease, a rare inherited disorder that creates liver and nerve damage, and would then jack up their prices. That scheme failed to ignite.

Undeterred, Shkreli took Retrophin public in 2012 through a reverse merger, and by 2013 he raised $9 million. More investments came via Steve Cohen’s SAC Capital and Brent Saunders, the CEO of Allergan, the producer of Botox. Shkreli’s pitch was Retrophin would be developing new drugs for rare diseases that lacked pharmaceutical treatments, but instead, he purchased existing drugs and substantially raised their prices.

By 2014, the Retrophin board grew tired of Shkreli’s erratic leadership skills, including his penchant for making stock bets with the company’s funds, and he was fired as chief executive. The company later sued him for $65 million.

Once again, Shkreli bounced back with a new company dubbed Turing Pharmaceuticals in honor of the British mathematician Alan Turing, who was hailed as a hero for cracking the Nazi Enigma codes during World War II but was persecuted in the postwar years for being gay.

Shkreli’s talent for raising money did not vanish. He snagged $55 million from investors and lenders who believed in his goal of providing drugs for rare diseases.

In August 2015, Turing acquired the U.S. marketing rights to Daraprim, which treated parasitic infections. Although the patent for Daraprim had expired, there was no generic equivalent. As a result, Shkreli could charge whatever he wanted, and almost immediately after acquiring the rights to Daraprim, he inflated the dosage price from $13.50 per pill to $750.

Criticism of Shkreli’s action came from within the health care profession and from several candidates in the 2016 presidential race. Media coverage of Shkreli was harsh, but he pushed back at the protests, claiming in a New York Times interview that the new pricing was needed to keep his young company in motion.

“This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business,” Shkreli said. “This is still one of the smallest pharmaceutical products in the world. It really doesn’t make sense to get any criticism for this.”

The U.S. House of Representatives Committee on Oversight and Government Reform subpoenaed him to answer questions regarding Daraprim’s pricing. After unsuccessfully attempting to evade the subpoena, he appeared before the committee on Feb. 4, 2016, but only confirmed his name and cited his Fifth Amendment rights in refusing to answer any questions.

What bothered many people watching his media interviews and his appearance before the House committee hearing was his attitude — he seemed to look out at the world with a contemptuous smirk. Many people perceived this as arrogance and self-entitlement, which Shkreli never attempted to erase.

The Would-Be Media Star: In November 2015, Shkreli began to livestream himself on YouTube, often for extended hours. Operating under the belief that all publicity is good publicity, he freely gave out his telephone number during the live streams and welcomed calls from viewers, happily trading insults with those who sought him out for name-calling and engaging in vaguely civil chitchat with those who did not come looking for a fight.

Most of the live streams, however, were dull and featured Shkreli working at his computer, playing video games or sleeping. He also hosted episodes on investing and the pharmaceutical industry that allowed him to ramble endlessly amid a flurry of PowerPoint charts. Occasionally he would display a facetious sense of humor, particularly when he mused about having his former high school renamed in his honor, but for the most part, Shkreli was not the master showman and too many of his YouTube videos were dreary.

The live streams gained a blip in new viewers in December 2015 when Shkreli was identified in media reports as the $2 million buyer of the sole copy of the Wu-Tang Clan album “Once Upon a Time in Shaolin.” Whether he was trying to impress the general public with his wealth or good taste in music is unclear, but Shkreli claimed he had yet to hear it but “could be convinced to listen to it if Taylor Swift wants to hear it or something like that. But for now, I think I’m going to kind of save it for a rainy day.”

RZA, leader of the Wu-Tang Clan, was upset to discover Shkreli purchased the album and released an apologetic statement that said, “The sale of ‘Once Upon a Time in Shaolin’ was agreed upon in May, well before Martin Shkreli’s business practices came to light. We decided to give a significant portion of the proceeds to charity.”

Shkreli also used social media extensively, often provoking his detractors with cringe-worthy self-promotion. A December 2015 Vanity Fair profile noted how he tweeted “obnoxious snapshots of labels of $1,000-plus bottles of wine like 1982 Lafite-Rothschild, along with selfies inside a helicopter buzzing over Manhattan or posed next to a life-size chess set by a pool in the Hamptons.”

End Of The Run: Shkreli’s talent for generating negative publicity clearly contributed to the excessive media coverage that followed his arrest by federal agents on Dec. 17, 2015, for securities fraud charges related to his period at the MSMB steering wheel. But nearly every news story on the arrest focused primarily on the Daraprim pricing controversy, with only cursory attention given to the reason he was being arrested.

After being released on $5 million bail, Shkreli returned to his live streaming with observations and comments that pinballed over the hours in an incoherent manner. At one point he fantasized about dating Lindsay Lohan, and later he badmouthed the prosecutors trying to send him to prison. He also showed up on several television news programs to discuss pharmaceutical pricing and also answered reporters’ questions outside of his trial courtroom — the latter provoked prosecutors to demand a gag order on Shkreli’s media outreach.

On Aug. 4, 2017, Shkreli was found guilty on three out of eight counts of securities fraud. He remained free on bond pending an appeal, but one month after his conviction his bail was revoked after he posted a Facebook challenge where he would give one of his social media followers $5,000 for a strand of Hillary Clinton’s hair. Shkreli claimed he was being satirical but the judge was not amused. He was sentenced to seven years in prison and ordered to forfeit more than $7.3 million in assets; a 2019 appeal was unsuccessful.

After The Epilogue: Shkreli is currently in a low-security federal penitentiary near Allenwood, Pennsylvania, and is scheduled for release in October 2022.

In concept, Shkreli should be out of sight, out of mind, but over the past two years, he continued to generate attention through media reports that he is still running Turing (now called Vyera) from prison. He also made the news with his May 2020 request for an early release from prison so he could work to find a cure for COVID-19 — that was denied — and again in July when he was sued by Blue Cross Blue Shield of Minnesota in a case related to the Daraprim pricing controversy.

Even the Wu-Tang Clan album was back in the news last summer when the Department of Justice plucked it from Shkreli’s seized assets and auctioned it for sale. An Off-Broadway musical called "Pharma Bro" and a documentary film with the same title opened this year, thus ensuring his name remained in the headlines.

So, what could Shkreli possibly do for an encore after he is released from prison? One can assume he will not disappear from sight and make up for his past errors. As he stated in a live stream that followed his 2017 conviction: “It doesn't seem like life will change very much for Martin Shkreli, basically ever.”

Photo: A scene from “Pharma Bro,” courtesy 1091 Pictures.

Posted In: hedge fundJim CramerMartin ShkreliPharma BropharmaceuticalsSecurities FraudWall Street Crime and PunishmentWu-Tang ClanYouTubeGovernmentNewsPenny StocksEducationHealth CareSmall CapTop StoriesGeneral