In­vestors tes­tify in Shkreli trial

They de­scribe tac­tics that first wor­ried, then en­riched them

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - TOM HAYS THE AS­SO­CI­ATED PRESS

NEW YORK — The jury at the se­cu­ri­ties fraud trial of Martin Shkreli has heard in­vestors ac­cuse the former biotech chief ex­ec­u­tive of re­peat­edly giv­ing them the runaround when they tried to pull their money out of his fail­ing health care hedge fund.

But the gov­ern­ment wit­nesses have made a con­ces­sion that the de­fense hopes plays in its fa­vor: In the end, they made a killing.

Whether ju­rors at the trial that be­gan June 26 in fed­eral court in Brook­lyn will see Shkreli’s clients as vic­tims of a crime is cen­tral to a case that’s fea­tured odd sub­plots, in­clud­ing a de­fen­sive rant by the de­fen­dant to re­porters and email ev­i­dence by a men­tor about want­ing to touch his “soft skin.”

Tes­ti­mony re­sumed Thurs­day with the gov­ern­ment still in the mid­dle of its case.

The lack of clear-cut fi­nan­cial harm sep­a­rates the al­leged fraud from oth­ers like Bernard Mad­off’s no­to­ri­ous Ponzi scheme, which wiped out the nest eggs of or­di­nary in­vestors. Pros­e­cu­tors have ar­gued that it doesn’t mat­ter be­cause Shkreli still broke the law by blow­ing in­vestors’ funds with bad stock picks and then ly­ing to them for months — or even years — while he cooked up a way to get out of it.

“I don’t think it mat­tered to him — it was just what he thought he could get away with,” said Richard Kocher, a New Jersey con­struc­tion com­pany owner who in­vested $200,000 with Shkreli in 2012. “It was in­sult­ing.”

Dar­ren Blan­ton, a Dal­las-based in­vest­ment firm founder, tes­ti­fied that Shkreli stalled for three years when he tried to re­deem his $1.3 mil­lion in­vest­ment.

Over time, “I was wor­ried Martin might be ly­ing to me and not cred­i­ble,” Blan­ton, who no­ti­fied the Se­cu­ri­ties and Ex­change Com­mis­sion.

Shkreli, 34, was ar­rested in 2015 after he al­ready had gained na­tional at­ten­tion by us­ing his drug com­pany to raise the price of a life-sav­ing med­i­ca­tion by 5,000 per­cent and for his non­stop pos­tur­ing and trolling on so­cial me­dia, a com­pul­sion that spawned the “Pharma Bro” nick­name.

Fed­eral au­thor­i­ties fo­cused in­stead on his MSMB Cap­i­tal hedge fund, ac­cus­ing him of ly­ing to in­vestors by boast­ing about too-goodto-be-true re­turns at a time when he had lost more than $7 mil­lion on a 2011 trade and let the fund dwin­dle to about $2 mil­lion in as­sets. He’s also ac­cused of start­ing a new drug com­pany, Retrophin, and loot­ing it for $11 mil­lion

to pay his in­vestors back.

An un­re­pen­tant Shkreli has de­nied wrong­do­ing, com­plain­ing to re­porters last month that pros­e­cu­tors “blame me for ev­ery­thing. They blame me for cap­i­tal­ism.” The com­ments prompted the judge to or­der him to stop talk­ing about the case in and around the court­house.

On cross-ex­am­i­na­tion, the in­vestor wit­nesses have ad­mit­ted that Shkreli made set­tle­ment deals that ul­ti­mately proved prof­itable. Blan­ton got $2.6 mil­lion — $200,000 in cash and the bal­ance from shares of Retrophin he sold, and in ad­di­tion still holds shares worth $3 mil­lion; Kocher made an es­ti­mated $350,000 the same way; a third wit­ness, Schuyler Mar­shall, dou­bled his ini­tial $200,000 in­vest­ment.

Mar­shall, an­other Dal­las­based

fi­nancier, tes­ti­fied that Shkreli re­minded him of “Rain Man,” but that didn’t mean he was mak­ing fun of him, as the de­fense has sug­gested.

Mar­shall saw Shkreli as more of a po­ten­tial rain­maker “who was in­tensely fo­cused on one small seg­ment of the stock mar­ket, and just lived it day and night, and that was his in­vest­ing ad­van­tage,” he said.

The trial got per­sonal this week when an­other in­vestor, former Amer­i­can Ex­press ex­ec­u­tive Steven Richard­son, tes­ti­fied about grow­ing close to Shkreli after meet­ing him at a cock­tail party, help­ing him launch Retrophin and be­com­ing the com­pany’s chair­man be­fore Shkreli was fired in 2014.

The 63-year-old wit­ness, who is gay, tes­ti­fied that Shkreli made him un­com­fort­able with com­ments about gay sex and

sought as­sur­ances that their re­la­tion­ship was pla­tonic, even as he told him that he loved him as a friend and bought him clothes to clean up his “di­sheveled” ap­pear­ance.

Richard­son strug­gled on cross-ex­am­i­na­tion to ex­plain emails he wrote say­ing he’d meet with Shkreli “only if I can touch your soft skin” and an­other ask­ing, “I’m drunk, where are you?” He in­sisted that he was re­fer­ring to how a rash on Shkreli’s neck had cleared up and that he couldn’t re­mem­ber writ­ing the “drunk” email.

He also tes­ti­fied that his $400,000 stake in Retrophin is now worth $1.9 mil­lion.

“That’s a good in­vest­ment, fair to say?” Shkreli’s lawyer asked.

He could only an­swer “Yes.”

Bloomberg News/PETER FO­LEY

Former biotech chief ex­ec­u­tive Martin Shkreli (cen­ter left) fol­lows his at­tor­ney Ben­jamin Braf­man as they leave fed­eral court Mon­day in Brook­lyn, N.Y.

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