United States v. Shkreli

260 F. Supp. 3d 247
CourtDistrict Court, E.D. New York
DecidedApril 19, 2017
Docket15-CR-637 (KAM)
StatusPublished
Cited by3 cases

This text of 260 F. Supp. 3d 247 (United States v. Shkreli) is published on Counsel Stack Legal Research, covering District Court, E.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Shkreli, 260 F. Supp. 3d 247 (E.D.N.Y. 2017).

Opinion

MEMORANDUM AND ORDER

■ MATSUMOTO, United States District Judge:

■ Presently before the court are defendants Martin Shkreli’s (“Shkreli”) and Evan Greebel’s (“Greebel”) motions for severance of their trials (the “Motions”). (EOF Nos. 158, 161.) For the reasons stated herein, defendants’ motions to sever their trials are granted.

Discussion

I. Background

The parties’ submissions and the Superseding Indictment describe the following facts. Starting in' 2006, Shkreli was the managing member and portfolio manager of Elea Capital Management (“Elea”), a hedge fund located in New York, New York. Within approximately a year, Shkreli had lost all of the investors’ money in Elea and had to liquidate the fund. Beginning in approximately 2009 and continuing until approximately 2012, Shkreli founded, and served as the managing member and portfolio manager of, two separate hedge funds based in New York that focused their investments in the healthcare sector: MSMB Capital Management LP (“MSMB Capital”) and MSMB Healthcare LP (“MSMB Healthcare”) ' (collectively “MSMB”). In approximately 2011, Shkreli also founded a biopharmaceutical company called Retrophin LLC, which later became Retrophin, Inc. (“Retrophin”), a publicly-traded company. Shkreli served as the Chief Executive Officer (“CEO”) of Retro-phin from December 2012 to September 2014.

[250]*250Mr. Greebel was a partner in the New York office of the law firm Katten Muchin Rosenman LLP (“Katten Muchin”). From approximately February 2011 to September 2014, Greebel served as outside counsel to Retrophin. Greebel also served as counsel to the MSMB entities and was the principal attorney at Katten Muchin for all matters related to the MSMB entities and Retrophin.

Shkreli worked closely with Greebel from February 2011 to September 2014, when Greebel was engaged as Retrophin’s outside counsel. Shkreli met, spoke, and emailed with Greebel, and other attorneys working with Greebel, almost every day and often multiple times per day. Greebel provided legal advice to Shkreli on a multitude of issues regarding Shkreli’s businesses. Greebel was the acting secretary at Retrophin Board meetings, he directly communicated with many of the company’s investors on a regular basis, he met with potential investors in Shkreli’s absence, and he drafted a code of ethics and other important policy documents for Retrophin. Shkreli paid almost $10 million dollars to Greebel and his law firm for legal services rendered to Shkreli, the MSMB entities and Retrophin.

On June 3, 2016, the government charged Shkreli and Greebel in an eight count Superseding Indictment (the “Superseding Indictment”) containing detailed factual allegations. Shkreli is charged in all eight counts, and Greebel is charged in Counts Seven and Eight of the Superseding Indictment. (ECF No. 60.)

Counts One, Two, and Three charge Shkreli for the conspiracy described as the “MSMB Capital Hedge Fund Scheme.” The Superseding Indictment charges that Shkreli and Co-Conspirator 1, in a scheme to defraud investors and potential investors in MSMB, made a series of misrepresentations to potential investors to induce them to invest in MSMB Capital. Eight investors invested a total of $3 million dollars in MSMB Capital. In February 2011, Shkreli entered into a short sale position in Orexigen Therapeutics, Inc. (“OREX”), which led to MSMB Capital losing more than $7 million dollars (“OREX Trade”). MSMB Capital also suffered more than $1 million dollars in other trading losses during February 2011. By the end of February 2011, MSMB Capital had approximately $58,500 in its bank and brokerage accounts.

Shkreli concealed, for more than a year, that he lost all the investments in MSMB Capital and that he was no longer trading. Shkreli sent fabricated performance updates to the MSMB Capital investors. In September 2012, Shkreli informed the MSMB Capital investors that he had decided to wind down both MSMB Capital and MSMB Healthcare, that they had “just about doubled their money net of fees,” and that they could redeem their interests for cash, Retrophin shares, or a combination of both. (Superseding Indictment at ¶ 15.) A week before Shkreli informed the investors of his intention to wind down MSMB Capital and MSMB Healthcare, Shkreli and Co-Conspirator 1 entered into a settlement agreement with Merrill Lynch in connection with the OREX trading losses and agreed to pay Merrill Lynch a total of $1,350,000 on or before December 15, 2012. Shkreli and Co-Conspirator 1 stated in the settlement agreement that MSMB Capital had $0 in assets.

Counts Four, Five and Six charge Shkreli with the conspiracy described as the “MSMB Healthcare Hedge Fund Scheme.” After the failed OREX Trade, Shkreli founded MSMB Healthcare. From approximately February 2011 to November 2012, Shkreli and others solicited investments in MSMB Healthcare based on [251]*251“material misrepresentations and omissions.” (Id. at ¶ 16.) Once MSMB Healthcare was operational, Shkreli allegedly continued to make misrepresentations and omissions to the MSMB Healthcare investors to prevent the investors from redeeming the investments. The government charges that Shkreli misappropriated funds from MSMB Healthcare by withdrawing funds far greater than the fees permitted under the partnership agreement for the fund. The government further claims that without the knowledge or consent of the MSMB Healthcare investors, Shkreli used the assets of MSMB Healthcare to pay for obligations that were not the responsibility of MSMB Healthcare.

Count Seven charges Shkreli and Gree-bel with the conspiracy described as the “Retrophin Misappropriation Scheme.” The government contends that Greebel and Shkreli conspired to defraud Retro-phin by misappropriating' Retrophin’s assets to satisfy Shkreli’s personal and unrelated professional debts. Greebel and Shkreli allegedly caused Retrophin to transfer shares to MSMB Capital even though it had not invested in Retrophin and caused MSMB Healthcare to invest significant sums into Retrophin between 2011 and mid-2012, which investments were reflected in Retrophin’s capitalization table, allegedly maintained' by Greebel. As of September 2012, the Retrophin capitalization table showed that MSMB Healthcare had invested approximately $2.1 million into Retrophin, and indicated that MSMB Capital had not invested in Retro-phin.

In the fall of 2012, Shkreli, with Greebel acting as counsel, prepared to take Retro-phin public. Shkreli announced to the MSMB investors that he was winding down both MSMB Healthcare and MSMB Capital. Although Shkreli told the MSMB Healthcare investors that they were entitled to receive Retrophin stock or cash at the time when Retrophin became a public company, Shkreli did not have enough cash to provide redemptions to the MSMB Healthcare investors who opted to receive cash, as Shkreli. had overvalued MSMB Healthcare’s investment in ■ Retrophin. Both MSMB Healthcare and MSMB Capital investors expressed dissatisfaction with how Shkreli was liquidating the hedge funds and several threatened to sue Shkre-li.

The government alleges that Shkreli and Greebel engaged in a three-part scheme to misappropriate millions of dollars of Re-trophin’s assets through material misrepresentations and omissions in an effort to repay the MSMB investors. First, in the fall of 2012, Shkreli and Greebel engaged in a series of transactions designed to create the false appearance that MSMB Capital had invested in Retrophin and received Retrophin shares in return.

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Bluebook (online)
260 F. Supp. 3d 247, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-shkreli-nyed-2017.