SEC Charges Hedge Fund Manager Martin Shkreli With Fraud

Investing

Published: December 17, 2015 2:05 pm

Last Updated: January 13, 2020 3:58 pm

The U.S. Securities and Exchange Commission (SEC) has charged Martin Shkreli, former CEO of pharmaceutical company Retrophin, with committing fraud during a five-year period when he also was working as a hedge fund manager.

The agency alleges that Shkreli misappropriated money from two hedge funds he founded and made material misrepresentations to investors, among other widespread misconduct. The SEC also charged Retrophin’s former outside counsel and corporate secretary Evan Greebel with aiding and abetting certain aspects of Shkreli’s alleged fraud.

Shkreli was portfolio manager for the hedge fund MSMB Capital Management from October 2009 to March 2014, where he misappropriated about $120,000 from MSMB from October 2009 to July 2011 to unlawfully pay for food, clothing, medical expenses, clothing, office rent and cash withdrawals.

Apart from this, Shkreli misled investors and prospective investors in MSMB about the fund’s size and performance, claiming for example in July 2010 to have “returned +35.77% since inception on 11/1/2009.” In fact, the fund generated losses of about 18%.

From September 2013 to March 2014, Shkreli, with assistance from Greebel, fraudulently induced Retrophin to issue stock and make cash payments to certain disgruntled investors in Shkreli’s hedge funds who were threatening legal action.

Andrew J. Ceresney, director of the SEC’s Division of Enforcement, commented:

Over a five-year period, Shkreli is alleged to have perpetrated a series of frauds on investors in his hedge funds and Retrophin’s shareholders in order to cover up his poor trading decisions.

Andrew M. Calamari, director of the SEC’s New York Regional Office, added:

Greebel’s alleged role in facilitating Shkreli’s fraud on Retrophin’s shareholders not only crossed legal boundaries but also grossly violated both his professional and ethical obligations.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York Thursday announced criminal charges against Shkreli and Greebel.