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2017-07-19 08:55:03
Former Employee Testifies Shkreli Threatened Him and His Family

Tim Pierotti, who once ran a consumer hedge fund for Martin Shkreli, said he had already lost faith in his boss by the end of 2012.

Then a letter from Mr. Shkreli came to his home, addressed to his wife.

“Your husband has stolen $1.6 million from me,” it read.

“Your pathetic excuse of a husband,” the letter added, “needs to get a real job that does not depend on fraud to succeed.”

“I hope to see you and your four children homeless,” the letter said. “I will do whatever I can to assure this. Your husband’s arrogance is infuriating, and making an enemy out of me is a mistake.”

The letter was entered into evidence Tuesday as Mr. Pierotti testified in Mr. Shkreli’s trial in Federal District Court in Brooklyn.

Mr. Pierotti’s testimony is at the center of one of eight fraud charges against Mr. Shkreli: that he manipulated shares in Retrophin, a biopharmaceutical company he ran. Mr. Shkreli denies the charges.

Prosecutors contend that Mr. Shkreli funneled shares of Retrophin to Mr. Pierotti and others, keeping the allotments just under the threshold for reporting requirements, and controlled huge parts of Retrophin through the scheme without reporting that to financial regulators.

Mr. Pierotti joined Mr. Shkreli’s hedge fund, MSMB, in August 2011, to start a consumer fund. With Mr. Shkreli’s blessing, he testified, he put all of MSMB Consumer’s money into one stock, Rick’s Cabaret, a chain of strip clubs.

“One day, Martin came in and said, I want it all sold today; I need the money,” Mr. Pierotti testified. Mr. Pierotti liquidated the fund, he said.

Soon after, when Mr. Pierotti walked into the MSMB offices, he saw “guys were packing computers and the flat screens into, like, rolling suitcases,” he said. “The bills had not been paid.”

In December 2012, Mr. Shkreli arranged for Mr. Pierotti to be a part of a group buying stakes in Retrophin, which was about to go public through a reverse merger into a shell company. Mr. Pierotti agreed to pay $400 for 400,000 shares, he testified.

He said Mr. Shkreli encouraged the group to pump up the stock’s trading volume, telling them to “buy it, sell it, buy it, sell it.”

Then, Mr. Shkreli began pressuring Mr. Pierotti to sell the shares back to him, Mr. Pierotti testified. In an email in late December 2012, Mr. Shkreli wrote that working on Retrophin together was “a big mistake,” and “all you have to do is agree to this and the nightmare will end for everyone.”

Mr. Pierotti said he did not know what Mr. Shkreli had meant by the Retrophin reference. He never worked for Retrophin, he said.

Mr. Shkreli phoned Mr. Pierotti “screaming” to demand the shares, then emailed saying he was suing, according to Mr. Pierotti’s testimony and court records.

Then, Mr. Shkreli wrote the letter to Mr. Pierotti’s wife. The “$1.6 million” is roughly what 400,000 Retrophin shares would have sold for at that time. All told, Mr. Pierotti testified, he received only 350,000 of the Retrophin shares, and sold them for $1.5 million.

On cross-examination, Marc Agnifilo, a lawyer for Mr. Shkreli, suggested that Mr. Shkreli believed there was an agreement that Mr. Pierotti’s shares were to “incentivize” him to “work hard on behalf of Retrophin.” Mr. Pierotti said this was not the case.

Mr. Pierotti had previously worked at the hedge fund Galleon Group and had been involved in a trade that emerged in the insider trading investigation that ultimately destroyed the firm.

At Galleon, he testified, he had learned from the founder, Raj Rajaratnam, that Procter & Gamble was going to sell Folgers to Smuckers. Mr. Pierotti said he knew the information had come via a board member of Procter & Gamble; he identified the board member as Rajat Gupta. (Mr. Rajaratnam and Mr. Gupta were later separately convicted on insider trading charges, but none that involved trading in Procter & Gamble.)

Mr. Pierotti testified that he had made a trade based on the information he received.

Mr. Agnifilo pushed him on this.

“You’ve committed insider trading, no?” he asked.

“No,” Mr. Pierotti said, adding that he thought the information was not “material.”

Mr. Agnifilo pointed out that Mr. Pierotti traded a half a million dollars on that deal. He also pointed out that while Mr. Pierotti had gone to the Securities and Exchange Commission as a whistle-blower in the Galleon case, it was not until after Mr. Rajaratnam was arrested.

Mr. Pierotti concluded his testimony Tuesday afternoon. The government’s case will resume on Wednesday.