On August 4, a jury convicted Martin Skhreli of three of the eight counts of securities fraud in connection with his management of a short-biased hedge fund.

The counts on which he now stands convicted don’t possess any very clear connection to the act of price gouging that first made Shkreli notorious.  He was the founder of a pharmaceutical company, Turing Pharmaceuticals, in February 2015.  He generated his worldwide notoriety in September 2015, when he suddenly and drastically raised the price of Daraprim, a drug valuable in the treatment of toxoplasmosis.

Toxoplasmosis is a disease caused by a parasite sometimes found in undercooked food. In healthy adults it is seldom a threat. But in infants and for those with compromised immune systems, inclusive of AIDS, this disease is a very serious matter and Daraprim is or was a critical part of the standard response.

Daraprim sold for $13.50 a tablet when Skhreli/Turing bought the rights to it that summer. In September, the company jacked the price up to $750 a tablet – a more than 5500% price hike.

In the words of a report by a committee of the House of Representatives, Shkreli bought a drug that was “affordable, readily available, and very effective” and turned it into something “prohibitively expensive,” an act devastating to patients and to the budgets of hospitals alike.

This price gouging became part of the 2016 presidential campaign. Shkreli tried to donate money to the campaign of Senator Sanders. Sanders refused the donation and called Shkreli a “poster boy for drug company greed.”

Securities Fraud

All of that only indirectly related to the criminal charges.  When Shkreli was arrested in December 2015 it was on an indictment that set out a Ponzi scheme that Shkreli had run using both an earlier drug company alter ego of his (Retrophin Pharmaceuticals) and a hedge fund, MSMB Capital Management.

Shkreli’s strategy as a hedge fund manager was to place short bets on pharmaceutical companies, then trash talk the companies, in the expectation he could drive their stock prices down and profit from his bet. In the case of one company, he went further than public criticism. He shorted Navidea Biopharmaceuticals, then submitted a citizen’s petition to the FDA trying to block the approval of a lymph node mapping agent on which Navidea’s bottom line depended.

That sort of thing is very risky and is this case didn’t work at all. The counts on which Shkreli was convicted Friday involve the lies he told to his hedge fund investors to hide how badly he was doing with their money. He then seems to have gone into the biopharm business himself with the idea of looting a company and paying off the promises he had made his investors in his capacity as hedge fund manager.

Unfortunately, the looting part of that plan required something to loot, and that required an IPO, taking his new pharm company (Retrophin) public, so that stockholders could pony up and he could make use of their gullibility. The IPO in turn led to a degree of transparency and the creation of a number of independent counter-parties who made the looting difficult. The board voted him out as Retrophin’s CEO in September 2014.

He then created Turing. The blatant price gouging at Turing might simply have been the next stage in the continued maneuverings of a single Ponzi scheme. Shkreli may have price gouged with Daraprim because he badly needed to get cash into Turing’s treasury so that he could loot it to pay off the debts he had incurred while trying to loot Retrophin to make good on the lies he had told running a hedge fund.

Left Wing View

The conviction of Martin Shkreli has created an opportunity for a good deal of humor online.

The obvious gag was immediately tweeted about: whatever sentence he gets, somebody should buy it and jack it up by more than 5000%.

A generally left wing writer and activist who calls himself “sick transit, Gloria” suggests (more-or-less in jest) that Shkreli’s sentence is sufficient justification for the existence of prisons.

Sophie Weiner, on the other hand, takes the more sobering view that Shkreli’s conviction proves that individual convictions don’t matter all that much. She tweeted this first:


and seconds later, making the same point more explicitly, this:

More generally, pharmaceutical prices serve the left as a paradigm of what they see as the evils of free market for-profit corporations. As said the “old lady on soap box”:

Right Wing View

Some of Shkreli’s behavior may sound a lot like a lefty’s stereotype of how a capitalist thinks and acts. But the right of center in U.S. politics has wanted as little to do with him as the left. Here’s a link to candidate Trump’s view.

In the midst of the hubbub over the price of Daraprim, Jon Hartley wrote a piece for the National Review in which he treated Shkreli as a creation of the regulatory state. Specifically, he argued that a “loosened approach to intellectual property protection” would allow competition, which makes such price gouging impossible (and that existing protections in U.S. law are far in excess of what is actually necessary to encourage innovations).

That thesis has certainly joined the fray at twitter since.

Likewise, an author in Red State, Moe Lane,  has explained that “the reason we’re seeing the general increase in drug prices that Shkreli attempted to take advantage of is because not as many new drugs are making it to market these days.” Shkreli is a “crony capitalist,” not the genuine sort, on this reasoning.

Shkreli has not been shy about putting his own views before the public. Sometimes during the criminal trial he did so using the handle “Sam,” or SamtheMan. Even as the jury deliberated on his fate, SamtheMan tweeted, “How to make people angry? Any fresh ideas?”  He’ll surely come up with some yet.

No date has yet been set for sentencing. Regardless of the sentence, the legal warfare over Shkreli will not end. He still faces a civil complaint from the Securities and Exchange Commission as well as a lawsuit filed by a creation of his, Retrophin.