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LAVANYA LIPIKA
MMS Section A
MARTIN SHKRELI
THE MOST HATED MILLLENIAL IN AMERICA

1. What business strategies did Martin Shkreli pursue at the hedge companies he ran? Who benefited
from his business strategies? Who was hurt by them?

He was born on April Fools’ Day 1983, to Albanian immigrants. He says his parents—his father worked as
a doorman and both parents did janitorial jobs—still live in the same Brooklyn apartment in which he
grew up. It has been reported that he graduated two years ahead of schedule from New York’s Hunter
College High School, a public school for intellectually gifted kids. But according to a spokesperson for the
school, he attended but did not graduate. He went on to get his bachelor’s in business administration
from Baruch College in 2005.

At the age of 16, he did an internship at Cramer Berkowitz, the hedge fund then run by CNBC financial
pundit Jim Cramer. He started as the office photocopier refiller but displayed the talent of the stock
researcher. Shkreli got to know the small group of investors who focus on short selling—betting that
they’ll go down when they prove ineffective or don’t get F.D.A. approval. He told Cramer’s traders to go
short. Hedge funds took his advice, and this was successful which proved that Shkreli was a genius.

After four years, Shkreli left and bounced around a few other firms before starting his own, Elea Capital
Management. The fund tanked when Shkreli made a $2.3 million bet, through Lehman Brothers, that the
market would decline. When he was wrong, he refused to pay Lehman. But it was Lehman, one of the
World’s safest investment bank got hurt by it and although the court found in its favor, Shkreli got a
reprieve.

Shkreli started a second hedge fund, MSMB, a name made from his initials and those of his business
partner and childhood friend, Marek Biestek. He began to use unconventional investment tactics. They
developed a reputation for shorting biotech companies and then using stock chat rooms and other
aggressive tactics to savage them, to cause the stock to go down. A lot of investors were affected by this
strategy as their emotions were deeply affected.

He quietly set another hedge fund, MSMB healthcare. Shkreli claimed that he wanted to save children’s
lives. He was moved by the plight of a young boy who had succumbed to a rare type of muscular
dystrophy. Shkreli said he then decided to devote himself to developing treatments for this and other rare
diseases.

2. What business strategies did Martin Shkreli pursue at the healthcare companies he ran? Who
benefited from his business strategies? Who was hurt by them?

MSMB invested in a biotechnology firm Retrophin and its mission would be to find treatments for rare
catastrophic illnesses which had no cure.
Money doesn’t seem to be his only motive. He helped in developing a potential treatment for another
rare, life-threatening disease, called PKAN, which was awarded a patent and is now in clinical trials. He
cold-called a medical geneticist Susan Hayflick to test his research.

Many patients benefitted from the PKAN treatment (RE-024). One of them was an 11-month-old boy from
Venezuela who needed a liver transplant.

To fund expensive research at Retrophin, he acquired the rights to Thiola (used to treat a rare disorder
that causes painful cystine stones in kidneys, ureter, and bladder) and increased the price of the pills
twentyfold from $1.50 to $3 per pills. He did this because he was clever enough to notice a loophole in
US regulations.

This drastic price increase had a direct impact on a patient’s ability to purchase their needed medications.
Only saving grace for the patients was that it’s usually insurance companies that pay the bill. Some of the
pharmacists and benefits managers also got hurt by this strategy.

Retrophin board was unhappy with Martin and asked him to leave because of his provocative behavior.
He sold 292,400 of his shares, harassed former employer and his family.

Later in 2015, He formed a new company Turing Pharmaceuticals. He bought the rights to use Daraprim
for $55m. Daraprim was used to treat malaria and parasitic infections in patients such as pregnant women
and aids sufferers with weak immunity.

Martin imposed severe restrictions on distribution, and thus a potential competitor would have to go
through the arduous process of getting approval and making it hard to get the samples to do the testing.
Thus, because of this he finally had a legal monopoly. Thus, raised the price of the pill by 5500 percent
from $13.50 to $750. Many hospitals got hurt by this move as they couldn’t afford the pill to cure their
patients.

3. What alleged crimes led the FBI to pursue Shkreli’s arrest and prosecution?

Shkreli is unquestionably brilliant, and he has an almost cult-like group of true believers, both online and
in the real world, where he has engendered tremendous loyalty among some investors and employees.
But in his wake, he has left a tangled trail of blowups, lawsuits, disillusionment, and outright hatred. He’s
facing criminal prosecution over his actions at one of his previous companies, Retrophin.

The lawsuit alleges that he set up Retrophin to create an asset that he might be able to use to placate his
MSMB Capital investors. He was alleged to run a Ponzi scheme and looted $11m from Retrophin to fund
his former hedge funds backers. He was alleged to exploit the sick and vulnerable with outrageous drug
prices.

Shkreli noticed a loophole in US regulations which helped him to raise Thiola's price from $1.50 to $30
and Daraprim’s price from $13.50 to $750. His move was immoral but was not illegal as well. Unlike other
firms, he didn’t even make any effort to justify the increase in price.

According to the indictment, instead of telling investors that he had lost their money, he sent an e-mail
claiming he had “just about doubled their money net of fees. He offered the investors a choice of cash or
shares in Retrophin. He had lost more than $7 million on a disastrous trade, but he then lied to Merrill
Lynch about being able to settle that position, which led to Merrill’s closing out the position at a huge loss.

Also, Shkreli took Retrophin public through a reverse merger in which you merge a new business into an
existing publicly traded shell, thereby getting stock that you can sell to investors. Such deals are so
notoriously sleazy that the S.E.C. has issued a bulletin warning investors to stay away from them. But at
the time speculative biotech stocks were so hot, and Shkreli was so convincing, and his ideas seemed so
brilliant, that, in early 2013, he was able to raise $9 million.

And with that, Retrophin was off and running. Over the next two years, the company raised huge money
from investors. At least some of the investors wanted in based on the promise that Retrophin was going
to develop new drugs for rare diseases, but the company started to buy existing drugs—including Thiola,
which helps prevent a rare form of kidney stone—and hike the prices.

Later, he sold almost $4.5 million worth of his stock in the company. This infuriated investors who believed
he was cashing out.

Thus, relations between Shkreli and his former company were friendly at first. But the peace didn’t last
long. Retrophin asked Martin to leave alleging that he was overly focused on irrelevant innuendo. The
allegations are that he stole both cash and shares worth millions of dollars from Retrophin, disguising
them in some cases as consulting arrangements, to give shares to a small group of insiders, pay off
creditors and his former MSMB investors.

4. Do you believe that Martin Shkreli behaved unethically at any of his companies? Why or why not?

In Elea Capital Management, Lehman sued Martin, and he owed them $2.3m, but he got a reprieve.

In MSMB Capital Management, he followed unconventional investment tactics which led him to plant
seeds of doubts in investors’ minds which led to cause deep unease in the biotech sector. Also, his FDA
petitions, online rants, and moves were considered asymmetrical financial warfare.

He also raised funds for MSMB healthcare and brought it to the public stock market by least respectable
and sleazy method, reverse merger.

Also, Martin Shkreli acquired the U.S. rights to a lifesaving drug and promptly boosted its price over 5,000
percent, from $13.50 a tablet to $750.

This was not moral but was legal. He identified a loophole in US regulations and exploited it. According to
Shkreli, Daraprim’s new price $750 was still below its market value as determined by foolish US regulations
that allowed him monopoly status.

In Retrophin, the board was furious by his provocative behavior. He sold his shares receiving a $4.5m
profit. He was involved in harassing a former employer and his family on the social network.

Thus, his unethical moves forced the nonprofit citizens for responsibility and ethics in Washington, to ask
SEC to investigate him.
But it’s hard to know which manifestation of Martin is ethical and unethical. What muddles the picture,
even more, is the arena in which he operates: small biotech companies, some of which thrive thanks to
loopholes, legal frauds, pipe dreams, and stock promoters—and a smattering of real science, just enough
to ignite fantasies of fame and fortune. Those who know how to game the system can make huge profits
without creating anything of value.

5. Do you believe that the FBI behaved unethically in its prosecution of Martin Shkreli? Why or why
not?

I believe FBI behaved partly unethical in its prosecution of Martin Shkreli who was charged with securities
fraud. Shkreli deeds were legal even though immoral. He was clever enough to identify and exploit the
loopholes in US government which made him Price the drugs outrageously high.

Thus, charges against him stemmed from a now-defunct hedge fund, MSMB Capital Funds. He allegedly
owed huge amounts to MSMB investors, one of them was Merril Lynch. He lied to lynch that he owed
$1.35m instead of $7m. He promised other investors to double their money by the end of the year, but
he was unable to fulfill his promise.

Even with so many allegations, Martin made all of his victims better off. Investors in Retrophin got rich.
Its shares price hit an all-time high of $36, which was not a bad outcome for any investor.

Also, some people felt differently about him. There was one family whose hope rested with a new drug
RE-024, made by Retrophin to cure a boy named Lane. This drug has saved lot many lives, and such stories
went unreported by US media that took so much delight in Martin’s downfall.

Moreover, there was no clear evidence that Martin looted $11m from Retrophin to pay huge debts that
he owed to investors from his hedge funds. He kept justifying himself that he raised the price of the drugs
only because to fund expensive research on drugs so that several lives could be saved. Also, treatment
with RE-024 was associated with clinically meaningful improvements including the regained ability to walk
which could imply that profit generated from selling the pills were used in research.

Thus, upon closer examination of his life, Martin Shkreli is as much of a hero as he is a villain.