Martin Shkreli Gets 7 Years: My Unpopular Opinion

Martin Shkreli was sentenced to seven years in prison today after being found guilty by a jury of his peers of securities fraud last summer. To me, the sentence looks like overkill relative to the way that financial crimes are consistently perpetrated, settled and brushed off on Wall Street on a daily basis. I touched on this in a podcast I published on March 11, 2018. I want to supplement this with my continued thoughts. 

Securities fraud is obviously a very serious crime and should be treated as such at all times. There are no shortage of individuals and entities who also harbor a strong distaste for Martin Shkreli, not even because of the incident he was indicted for, but mostly because of his legacy as a pharmaceutical CEO who raised the price of an AIDS drug, daraprim. Stop me if you have heard this story already.

The system worked as it should. Shkreli was confident that he could take his case to trial and win - and he wound up losing. I don’t take any issue with the fact that the jury found him guilty for defrauding his investors, especially given that his conduct was also, in my opinion, 100% illegal. You absolutely cannot rob Peter to pay Paul in the securities business, even if you make both parties whole at the end of the game of "pass the hot potato". That is the definition of a ponzi scheme.

In addition to everybody disliking Martin due to his business tactics, people also took exception to his brash public persona. He was undoubtedly outspoken and often a jerk. Without making a statement about whether or not I agree with his conduct, I will state that we all know outspoken people who are jerks. They are among us 24 hours a day, 7 days a week. 

My unpopular opinion isn't that a seven year sentence isn’t warranted, but that it doesn’t make sense when held in comparison to how the legal system treats others in the financial world. If this sentence is actually just, it shines a light on how many financial crimes have been treated way too softly over the course of the recent past. 

For instance, here is a small chart of financial transgressions that I’ve made comparing settlements and other notable events in the history of the financial world.

Transgressor Event Fine Paid? Jail Time? Status
Jon Corzine MF Global, one of top 10 biggest bankruptcies in history, $1.2 billion in missing money $5 million CTFC fine No Partner at J.C. Flowers & Co., founded by former 10% investor in MF Global
Dick Fuld Presided over Lehman Brothers during its collapse, largest bankruptcy in U.S. history, named to Time's 25 People Who Contributed to the Financial Crisis No No Reportedly walked away from the crash worth $529 million dollars
Elizabeth Holmes Head of Theranos, who saw the validity of its technology exposed in a series of articles by the Wall Street Journal, causing the company's valuation to collapse from $9 billion to $800 million as of 2016 $4.65 million in Arizona No Still CEO of Theranos
Jimmy Cayne  Former CEO of Bear Sterns, which sold to JPM for pennies on the dollar after the financial crisis after its stock went from $159 to $2 in a year No No Cashed out $289 million in stock and received another $87.5 million in direct cash bonuses from 2000 to 2007, currently number 22 ranked bridge player in the world
Bank of America "packaging mortgage-backed securities that were not nearly as financially sound as investors were led to believe" $16.6 billion No Stock near all time highs
Martin Shkreli "misleading investors about key details and the dismal financial market performance of the MSMB Capital and MSMB Healthcare hedge funds" $7.5 million 7 years Jail



Some may say that Shkreli deserved more stringent treatment because of his brash attitude toward Congress, the prosecutors and the legal system. But at the end of the day, isn’t that what our First Amendment rights are afforded to us for? The eyes of justice are supposed to be blind because everybody is supposed to have their fair shake at the legal process. While I believe that Shkreli did get his fair shake and that it didn’t work out in his favor, when holding his result up against those of people like those above, for instance, it personally doesn't seem to line up to me. 

People are arguing that because he raised the price of Daraprim, he should be in jail for longer. Um, no. He wasn't on trial for Daraprim, nor was he on trial for "not being a nice person". He was on trial for securities fraud and for misleading his investors. Thus, that's what he should have been sentenced on - nothing else

And while we're at it, what about companies like Valeant (VRX) and Mallinckrodt (MNK) that have built billion dollar empires off of raising the price of pharmaceutical drugs? MNK, for example, has been a particularly odious and egregious offender of raising drug prices, basically making itself a multi-billion dollar company off of the back of a drug that once cost $200,000 to acquire.

In the last three years, since it has been discovered that raising drug prices isn't actually a business model, the stock of VRX and MNK respectively is down 92.2% and 86.3%. Both companies have ungodly amounts of debt and are teetering on the brink of bankruptcy, in my opinion. 

Chart
VRX data by YCharts

The previous company that MNK bought its main drug from did the exact same thing. And after what I still believe to be one of the most disgusting and clear acts of profiteering in the pharmaceutical industry, which I wrote about here, no one has been held accountable

Meanwhile, the stock of Retrophin (RTRX), the first company Shkreli founded, is up 379% over the last 5 years. 

Chart
RTRX data by YCharts


Again, unrelated to what he was charged for, but worth noting for context. 

I am not excusing Shkreli’s abuse of the system, but I am trying to put into context but this is part of a broader sweeping abuse of the system that has not been addressed in any meaningful way, but for being a non-sequitur talking point for Shkreli's trial.

Shkreli was a cocky guy who undoubtedly broke the law, but the aggressive way he was pursued and prosecuted leaves me to wonder where the same vigor and ambition are in going after people like Elizabeth Holmes, John Corzine, Dick Fuld, or the CEO's of countless companies that have been driven into the ground while the executives walk off scot-free, after cashing in their millions.

Seven years was likely the verdict because the prosecutors and the judge wanted to make a statement. But to me, instead of making a statement about Shkreli's actions, they made a different statement: all Wall Street offenders are not held to the same standards.

Comments

house biscuit philipat Mon, 03/12/2018 - 03:43 Permalink

     Ah, distinctly as one might parse it was upon the Ides of March;

And each separate killing arse waited patiently upon the Bore.

     Eagerly they saw Shkreli; -knew they’d pump him full of jelly

     Knew they'd make him smelly Nelly- smelly like a fucking whore-

Like a rare & radiant maiden, Martin squealed "I ain't yo’ whore-"

     Quoth the warden: "Don't be so sure"

In reply to by philipat

PT philipat Mon, 03/12/2018 - 08:37 Permalink

If I remember rightly, it all started when he jacked the price of some pills up from $15 to $750.  Yeah, that wasn't what got him into court but the attention is what put him on the wrong radar.

And he wasn't very smart about it...
But he was very smug about it...
At a politically sensitive time where it made sense to throw some token red meat to the baying crowds.
He was smug because he thought he had all bases covered but he had left himself wide open for attack.

This story is by no means complete without a little further investigation:
Just out of interest, what are those pills selling for now?
And who is now getting the loot?

 

In reply to by philipat

PT Mareka Mon, 03/12/2018 - 08:31 Permalink

Yes.

Shkreli thought he had all his bases covered.  Turned out he left a gaping big hole in his defence because he could not see it and had no idea it was there. 

Ten wrongs is no reason for an eleventh wrong.  This one right should be used to undo the ten previous wrongs and turn them into rights, or at least used as a precedent going forward.
 

In reply to by Mareka

PT 1.21 jigawatts Mon, 03/12/2018 - 08:49 Permalink

He should have been more discrete from the beginning and he should not have been such a smug asshole at a politically sensitive time where someone could gain cheap points by throwing him under a bus.

It was only a small gust of wind that made him lose his balance but he should never have been dancing so close to the edge of the cliff in the first place.

"He should have been more discrete ..." or he should not have been such a selfish cunt in the first place.  What a novel idea.  He knew the technicals of playing the game but he never realized the politics of the game he was playing and thank goodness for that.  Otherwise give him a few years and he would be another Corzine and still running free.

In reply to by 1.21 jigawatts

Sanity Bear Mon, 03/12/2018 - 01:44 Permalink

Guy should be confined in a sanitarium, not a prison. He's a loony driven mad by the cognitive dissonance of experiencing vast financial rewards as a direct result of moral atrocities.

To Hell In A H… Mon, 03/12/2018 - 03:10 Permalink

Lesson of the day? No, make this lesson forever. When you commit these types of crime, do it with politicians, Deep State actors, or within the Jewish banking mafia and you get what we Brits term as a "Slap on the wrist". Without protection from the aforementioned, you leave your faith in the lap of the gods.

So to all wannabe financial crooks. Always have political backing and thus incorporate politicians from both sides into your money making schemes. I will also go to my grave believing if his name was Shkreliman, Shkrelibaum, Shkreliberg, or Shkrelistein, he would not have been weighed off with such a sentence and we all know it's true.

Mementoil Mon, 03/12/2018 - 03:54 Permalink

I happen to agree.
No matter how obnoxious the person, he still deserves to be treated equally before the law, something which Shkerli obviously wasn't.

America is no longer a nation of law. It is ruled by the twitter mob. 

PT Mementoil Mon, 03/12/2018 - 08:57 Permalink

The only reason he got thrown under the bus was because he was an easy target at a politically sensitive time.  If he was your typical psychopath that knew how to handle the media then he could easily have gone on to be another future Corzine.  As it is, his public behaviour made it too hard to let him be and he didn't realize what a liability he had made himself.  If he had worked out how to talk typical CEO babblespeak then he would have been ignored and left to loot and pillage some more.

Going lenient on the professional thieves is no excuse for going lenient on the stupid ones.  Going hard on the stupid thieves is SUPPOSED TO BE a good reason to go even harder on the professional ones.

In reply to by Mementoil

Scrot Mon, 03/12/2018 - 07:44 Permalink

What about the thieves at Wells Fargo? They continue to commit crimes and what has happened? Absolutely nothing--minor fines that are not even disincentive enough to curb their enthusiasm for theft and fraud.

DisorderlyConduct Mon, 03/12/2018 - 07:46 Permalink

Freedom of speech does not insulate one from the repercussions of said speech. This guy had ample opportunity to make his best case to the authorities and took a huge shit on it. His choice.

True story. A buddy was arrested for a domestic deal with his wife. Doesn't show to court. His lawyer was advised by the DA that they were too overbooked to prosecute so just get my buddy to show up and they'll drop charges. He doesnt. They set a new date. Another no-show. And another no-show. Finally they get him in front of the bench. The judge is pissed. The DA is no longer overbooked. My buddy gets 3 years. Sucks to be an arrogant twit I suppose.

And unlike the author, I see that he brought it on himself.

InnVestuhrr Mon, 03/12/2018 - 10:33 Permalink

so ... hard ... to .... type ... my .... sympathy .... for .... this .... scumbag .... through .... my .... tears .... which .... are ..... from ..... laughing .... to .... exhaustion

Shkreli: stock up on cases of KY-Jelly, you will need it, and hope that some corporate parasite does not jack up the price 10,000%.