Martin Shkreli, former CEO accused of hiking drug prices, found guilty of securities fraud

NEW YORK – Martin Shkreli was convicted of three of eight counts of securities fraud Friday.

He faces up to 20 years in prison, though legal experts say he is likely to get much less.

Shkreli was dressed in a short-sleeve polo shirt and shook his head in apparent disbelief when the first guilty verdict was read. His father in the front row put his head in his hands.

"We're delighted in many ways," Shkreli said later outside the courtroom, saying he was glad to be exonerated on many of the charges.

"This was a witch hunt of epic proportions," he said. "They may have found some broomsticks."

The conviction is an important victory for federal prosecutors, who have struggled to convict high-profile Wall Street figures.

"Rarely has a white-collar criminal defendant evoked hatred and scorn from public in the way Shkreli has. Shkreli's willingness to lie, step on people, flaunt his wealth and look down on others made him a villain that many wanted to see go down in flames," said James Goodnow, an attorney with Fennemore Craig, a corporate defense firm.

Prosecutors argued that Shkreli lied to investors in two hedge funds and the pharmaceutical company Retrophin, all of which he founded. Shkreli told investors he graduated from Columbia University, that his hedge fund was large and profitable, and that he had hired an auditor, they said. These were all lies, according to prosecutors.

Shkreli's defense attorney disputed all of these charges and attempted to sway the jury with a simple rebuttal: His investors were wealthy and sophisticated and he ultimately made them richer.

Shkreli – who has been nicknamed "Pharma Bro" on social media – burst onto the national scene last year after raising the price of a vital drug used by AIDS patients by 5,000 percent and then publicly lamenting that he didn't raise it more. He appeared to relish in the largely negative backlash, smirking his way through a congressional hearing on rising drug prices and battling reporters on Twitter.

That was not why he was on trial, but Shkreli's notoriety hung over the more than month-long case, beginning with jury selection when the judge struggled to find potential jurors who didn't already dislike him. During the second week of testimony, U.S. District Judge Kiyo Matsumoto chastised Shkreli for talking to reporters in the courthouse where jurors could potentially hear him. Shkreli had walked into a room full of media and derided the prosecutors in his case as "junior varsity."

A more nuanced image of Shkreli emerged throughout the trial. To the wealthy elite he courted, Shkreli was a savvy if eccentric Wall Street insider. Investors testified that they forked over money after hearing from others that Shkreli was a "rising star" in the hedge fund world, and were willing to dismiss his quirks, even when he greeted one investor in fluffy slippers and a stethoscope. What prosecutors characterized as the cunning of a chronic liar, the defense called the quirks of a genius.

Shkreli got his first taste of Wall Street as an intern for a hedge fund firm started by CNBC personality Jim Cramer – a fact that he often touted to investors, according to testimony. After striking out on his own, he developed a reputation for aggressive tactics, including betting a company's stock price would fall and then berating its executives on social media.

One of Shkreli's most aggressive moves came as chief executive of Turing Pharmaceuticals when he raised the price of Daraprim – a 62-year-old drug primarily used to treat newborns and HIV patients – from $13.50 to $750 a pill. When critics pounced, the live-out-loud Shkreli did not do his reputation any favors by calling a journalist a "moron," quoting defiant rap lyrics on Twitter and defending the price increase as a "great business decision."

Prosecutors focused on Shkreli's leadership of two hedge funds, MSMB Capital and MSMB Healthcare, and a pharmaceutical company, Retrophin. Shkreli raised millions for MSMB Capital, but not as much as he told investors. Then he made a bad bet that doomed the hedge fund. Rather than tell his investors he had lost their money, Shkreli raised more money to start MSMB Heathcare, which he largely used to fund the start up of Retrophin.

When disgruntled investors asked for their money, Shkreli used money from other investors and money and stock from Retrophin to pay them off, according to prosecutors.

"Just because the defendant got lucky and Retrophin became a success years later" that doesn't excuse fraud, Assistant U.S. Attorney Jacquelyn M. Kasulis told the jury. "Martin Shkreli doesn't think the rules doesn't apply to him, that the law doesn't apply to him; unfortunately for him, it does."

But Benjamin Brafman, Shkreli's high-powered attorney, said Shkreli did not intend to defraud anyone and that his investors were not real victims. He noted that even the investors who testified against Shkreli in court ultimately made millions on their investments. Darren Blanton, who is known as the "cowboy venture capitalist" and who served as an adviser to President Trump's transition team, entrusted Shkreli with $1.25 million and acknowledged under cross examination that after reaching a settlement with Shkreli he was $5 million ahead.

"This is rich people B.S., ladies and gentleman," Brafman said repeatedly throughout hours of closing arguments.

"That is a compelling argument, but not good enough," said Goodnow. "Shkreli's lack of contrition and the way he cut people to the bone with his words no doubt evinced anger in the jurors that Shkreli's defense team simply could not overcome," he said.

Jurors – five men and seven women – had to wade through more than four weeks of testimony that veered between technical explanations of how hedge funds work to riveting stories of Shkreli's interactions with investors and employees, including one he threatened to drive into homelessness. It took the judge more than two hours just to read the 90-pages of jury instructions and closing arguments took two days.

Shkreli faces up to 20 years in prison on the most serious charges against him, but legal experts say he is likely to be sentenced to much less. "He's likely going to second guess his decision to not plea and he'll have a long time to think about it," said David Chase, a former prosecutor for the Securities and Exchange Commission. "Some offers from the government are no brainers that make sense and others aren't. Some defendants feel they are better off rolling the dice."