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2017-07-27 10:42:02
The Strange Case of Martin Shkreli Is Wrapping Up

In February 2013, Martin Shkreli was contemplating a deal that involved acquiring shares of Retrophin, the pharmaceutical company he ran, at below the market price.

His lawyer advised him to be careful, writing: “Not the best course of action - you are the director and ceo of a public company, you now have duty of loyalty and related issues.”

Mr. Shkreli crudely dismissed the advice.

The email exchange was one of dozens of documents showed to jurors as the prosecution wound up its case against Mr. Shkreli, the pharmaceutical entrepreneur and former hedge fund manager.

The defense did not call any witnesses on Wednesday. The fate of Mr. Shkreli will soon be in the hands of the jury — five men and seven women — in a federal courtroom in Brooklyn.

Mr. Shkreli is charged with defrauding investors at two hedge funds that he ran, MSMB Capital and MSMB Healthcare. Another count says that he defrauded Retrophin to pay back MSMB investors via settlement agreements that were never approved by Retrophin’s board, and by sham consulting agreements. He is also charged with illegally controlling a huge number of Retrophin shares by handing them out to associates.

Mr. Shkreli, 34, is best known for steeply increasing the price of Daraprim, a lifesaving drug for a rare parasitic infection, and for his attention-grabbing behavior on social media, but the trial, now in its fifth week, does not concern those matters.

The prosecution has argued Mr. Shkreli lied about several aspects of his hedge funds and work at Retrophin.

In February 2011, when he was running MSMB Capital, he “blew up the fund,” in the words of one former employee, with a short sale on a pharmaceutical stock, losing almost everything. Mr. Shkreli, however, sent investors at MSMB Capital statements showing terrific returns, according to evidence introduced at the trial.

The statements looked amateurish — they were emailed from Mr. Shkreli’s address to investors, with fund results listed in the text of the emails. Even so, investors testified they believed the statements.

The statements, added together, suggested that MSMB Capital had about $3.3 million in holdings in February 2011, and about $3.1 million in November 2011.

The actual amounts in MSMB Capital’s combined bank and brokerage firm accounts in those months: $58,502 and zero.

The defense argued that Mr. Shkreli was factoring in the value of Retrophin when he sent these statements, and the statements specify he was giving investors “the value of this investment,” not the amount in the combined bank and brokerage accounts.

One difficulty with this argument: While one of Mr. Shkreli’s funds, MSMB Healthcare, invested in Retrophin, MSMB Capital never did.

Prosecutors also argued that Mr. Shkreli lied about how MSMB Capital was vetted. In one PowerPoint sent to investors, MSMB listed an accounting firm as his auditor, and a law firm as his legal counsel; both the defense and the prosecution have agreed that these firms never worked for Mr. Shkreli.

While defense lawyers typically try to display their clients’ positive attributes, Mr. Shkreli’s lawyers have painted him as an erratic misfit, to the point that the government has repeatedly objected to the defense team’s unflattering portrayals of its own client. The goal of such a portrayal is presumably to get jurors to question whether Mr. Shkreli knowingly committed fraud, a key part of the charge against him.

Prosecutors tried to make the point on Tuesday, though, that Mr. Shkreli knew what he was doing.

In March 2011, a month after he had lost almost all of the funds in MSMB Capital on the bad trade, which involved a stock with the ticker symbol OREX, he asked an investor to be a reference for him for another potential investor. “Please sing my praises,” Mr. Shkreli wrote. The investor asked “Does he know OREX drama?” “Not aware of any drama,” Mr. Shkreli wrote back.

One charge has to do with Mr. Shkreli having undisclosed control over a huge portion of Retrophin shares. Prosecutors say he handed these shares out to people, including employees, but told them what to do with the shares. He then made it look as though the employees did not work for Retrophin or MSMB anymore, so they could claim they were not affiliates of the company, even though some were actually still working for Retrophin or MSMB, prosecutors said.

Regarding another charge, the defense had argued that Mr. Shkreli did not know he needed board approval from Retrophin to send out settlement agreements, which had Retrophin compensate MSMB investors who had lost their money. But the emails show him fine-tuning the settlement agreements and telling his lawyer, in August 2013, that “there were serious faults with the agreements including lack of board approval.”

The defense has raised credibility issues with some of the witnesses, including showing that Retrophin board members never read one of the proposed consulting agreements in question, and that another man portrayed by the government as a fake consultant might have done real work for the company, at least in Mr. Shkreli’s view.

Mr. Shkreli’s aggressive personality had been largely kept out of the trial, but it came through in the final round of emails shown by prosecutors. “Why can’t you do your job? It is incredible…” Mr. Shkreli wrote to his lawyer, Evan Greebel, who is also charged in the case and will be tried separately in the fall. “You’re inept,” he continues. “Ure done.”

And in an August 2013 email to Retrophin’s chief financial officer, who wrote that Retrophin’s accounting firm had an issue with how the settlement agreements were handled, Mr. Shkreli responded: “FIX THE ISSUE,” adding an expletive before “issue.” “THERE IS NO ISSUE. HOW MANY TIMES DO WE HAVE TO TALK ABOUT THIS”

Until this week, the case had been, in some respects, a fun-house mirror version of a normal fraud trial.

The people presented by prosecutors as Mr. Shkreli’s victims actually made money, for one thing. The defense, usually eager to limit prosecution witnesses’ testimony, had pushed the prosecution to call more victims.

And the victims, usually the emotional heart of a fraud case, may be difficult for jurors to connect with. Every MSMB investor who testified at the trial made all of his or her money back with a handsome profit, as Mr. Shkreli eventually arranged for them to get some combination of cash and Retrophin shares.

The victims were mostly rich, and not very sympathetic characters.

One investor, Schuyler Marshall, admitted on cross-examination that he could not pinpoint how much he had made selling his Retrophin stock.

“You have no recollection of whether you made $40,000, $100,000 or $370,000?” Benjamin Brafman, Mr. Shkreli’s lawyer, asked.

Mr. Marshall said he was not certain.

His testimony was typical of the investors who testified. He said he was “extremely impressed” when he first met Mr. Shkreli, adding that Mr. Shkreli reminded him of Dustin Hoffman’s character in the movie “Rain Man.”

Mr. Marshall said he decided in January 2011 to invest $100,000 in MSMB Capital.

By September — when, in reality, the fund had no money left — Mr. Shkreli sent an email with what he said was Mr. Marshall’s June balance. The fund, Mr. Shkreli wrote, was up 79.49 percent since its inception, and Mr. Marshall’s investment was close to $300,000.

Thirty-seven minutes later, Mr. Shkreli sent an email to all of his investors, including Mr. Marshall, announcing that he was shutting down MSMB Capital and a sister fund, MSMB Healthcare, to focus on his new company, Retrophin. He offered investors cash or shares in Retrophin equal to their supposed holdings in MSMB.

Mr. Marshall acknowledged on cross-examination that Mr. Shkreli had “ultimately paid back my investment and then some.”

Usually, the government uses testimony from victims to “get into the consequences: Did you lose your house? Did you have to go into your retirement savings?” said Sarah Walters, a former federal prosecutor of economic crimes who is a partner at the law firm McDermott Will & Emery. “This is flipped, in that you have a defendant spending a lot of time on, ‘What’s the ultimate effect on you?’”

“Just from a jury-appeal perspective, the prosecutors have to try to get the jury to understand why they should care” about the investors’ stories, Ms. Walters said.