The Able AUSAs Explain — Once Again! — All The Shkreli Created Losses: Resulting In A Level 27… Bye, Marty.

Here is the full 21 pager, and it solidly nails Marty’s feet to the floor, with railroad spikes.

It is significant that the Probation Department has already concurred with the AUSAs — and agrees with these loss amounts and Guidelines-level enhancements. At a 27 now.

This below was the bit I most enjoyed reading:

“…With respect to MSMB Capital, Shkreli audaciously contends that while that MSMB Capital “did not invest any money in Retrophin, it is clear that the fund’s assets included Retrophin stock” and thus “any subsequent Retrophin payments to MSMB Capital investors were not pay back for a loss, but rather redemptions of the investors’ Retrophin shares.” (Def. Let. at 4). Construing this as an argument for a credit against loss for the distribution of Retrophin stock to MSMB Capital investors in January 2013, it fails both because it is factually inaccurate and because the distribution happened after both the offense was detected by a victim and by a government agency. Shkreli’s support for his argument is based on a single document — the so-called MSMB Capital “balance sheet” that Shkreli provided to attorneys for MSMB Capital investor Darren Blanton in the summer of 2012 which purports to show that MSMB Capital held $3,480,000 in “Level III Securities.” (GX 105-15). This so-called “balance sheet,” which was created by Shkreli in response to Blanton’s repeated requests for a redemption of his MSMB Capital investments (which started in November 2011 and persisted until March 2014, during which period Shkreli repeatedly lied to Blanton about his MSMB Capital investment), was dated April 1, 2012 by Shkreli. (Id.) There was testimony from Blanton at the trial of Shkreli’s co-defendant, Evan Greebel, that Shkreli told Blanton that the “Level III Securities” were shares of Retrophin. (Greebel Tr. 3630). Shkreli now argues that the so-called “balance sheet” and his own statement to Blanton, taken together, are definitive proof that “at least as of April 2012, MSMB Capital and its investors were all Retrophin shareholders” and that consequently prior to Blanton’s complaint to the SEC and “at the time of the wind down email [on September 9, 2012]” MSMB Capital had “approximately $6 million worth of Retrophin stock” which was more than the total amount invested in the fund by investors.” (Def. Let. at 4)….

This preposterous argument, which is premised entirely on the written and verbal lies made by Shkreli in an attempt to forestall Blanton’s attempts at redemption, is directly contradicted by the facts established at trial. First and foremost, the many capitalization tables generated for Retrophin in 2012 — which Shkreli received and revised at various points — make it clear that MSMB Capital did not hold any Retrophin stock either as of April 1, 2012 (the date of the fabricated “balance sheet”) or as of September 9, 2012 (the date of the wind-down email)….

Moreover, in connection with the settlement agreement that Shkreli, MSMB Capital and Merrill Lynch entered into on September 5, 2012 to repay the losses from the OREX trade—the very trade that wiped out all of the assets in MSMB Capital — Shkreli swore under penalty of perjury that MSMB Capital’s “Asset/Liabilities for MSMB Parties as of September 4, 2012” was “$0.” (GX 117-6). Instead, the evidence at trial clearly showed that MSMB Capital didn’t receive any shares of Retrophin until December 3, 2012, when Shkreli simultaneously transferred 75,000 shares of Retrophin to MSMB Capital via a backdated share transfer agreement and revised the capitalization table to show that transfer. (GXs 119-24, 119-25). As a result, Shkreli’s argument that the subsequent distribution of Retrophin shares to MSMB Capital investors in January 2013 should be considered a “redemption” of their investment in the hedge fund fails….

For the reasons set forth above, the government submits that the total loss amount that resulted from Shkreli’s criminal conduct in connection with the four fraud schemes — defrauding MSMB Capital and MSMB Healthcare investors, stealing money and shares from Retrophin and manipulating the price and volume of Retrophin stock—for Guidelines purposes is more than $20 million, and that, when completing the final offense level calculation for Guidelines purposes, the Court should increase Shkreli’s offense level by 20 levels. See U.S.S.G. § 2B1.1(b)(1)(k)….” 

Do enjoy the whole thing — well reasoned, and devastating to Marty’s chances.  Mr. Shkreli probably now regrets calling these able professionals the Junior Varsity. Actually, he probably doesn’t — he’s just that clue free and delusional.

But he won’t be — after March 2018 — when several long years stretch out before him.


My Early Ash Wednesday’s Pennance?: Clean-Up Of Another Old Judgment, Against A Shkreli-Controlled Company…

Before our regularly-scheduled Valentine’s festivities (tomorrow night), we will take the morning mass — to affix ashes — so as to offer some Ash Wednesday pennance: we wholly failed to report on this — in later September and early October of 2017.

But back when Vyera was called Turing, and in 2015, before Marty was arrested (for what have been held to be other felonies), he was running a Daraprim cash machine — and, as alleged by Impax, he was cheating Impax out of rebates the latter was owed.

In a well-reasoned and previously published 40 page opinion, the able US DC Judge Ramos (sitting in Manhattan) largely agreed with Impax, and held against the then-Shkreli controlled Turing.

Here’s the business end of that opinion — just to keep a complete record:

The Court also disagrees with Turing’s argument that Section 8.3 resolves any ambiguity
with respect to the terms “sold” and “sale” in Sections 2.4(a) and 9.2(d). Section 9.2(d), which
explicitly deals with Medicaid rebates, directs the parties to Exhibit E—and not Section 8.3—for
any necessary clarification. Indeed, Section 9.2(g) instructs that in the event of a conflict
between Section 9.2 and Exhibit E, “the provisions of Exhibit E shall govern.” Moreover,
Turing’s argument that Section 8.3 limits Turing’s responsibility to obligations arising from the
sale of Daraprim by Turing is unavailing. By its express terms, Section 8.3 provides that it is
effective only insofar as the APA does not set forth otherwise. It is evident that the parties
provided otherwise in Exhibit E. As Impax points out, “for the words [in Exhibit E] to have any
meaning, Turing must be held to its obligation to pay all Medicaid Rebate Liability triggered by
utilization after the Close….”

And my particular punch line here is that this too — whatever millions Impax was shorted, by way of rebate payments, on Daraprim, should be ADDED to the losses the able AUSAs set out, in making Marty eligible for a level 27 (or higher) sentence — not a level 7, under the federal sentencing guidelines.

Now, I will close by generally noting that while Marty is serving, and will serve, significant jail time — it strikes me as unduly facile to argue that this is in any way… unfair or unjust.

A USDC Judge — and a very good one, in Judge Matsumoto — specifically found he was dangerous.

That he presented an undue risk of harm to the community (or himself), as a “loose cannon” convicted but not yet sentenced felon. He is in the Brooklyn MDC because he chose to make repeated written threats to the safety of the former Secretary of State of this nation.

In my view, there is nothing unjust about his incarceration now — nor when Judge Matsumoto determines his actual final sentence on the three felonies in about a month, now.

Here endeth the penitent man’s Ash Wednesday… rant.

And On Fat Tuesday 2018 — Marty’s Sur-Reply Arrives, On Forfeiture…

Completely back in the saddle here, and overnight — fittingly, leading into “Fat Tuesday 2018” — Mr. Brafman has filed his five page PDF file of a sur-reply, on how much ought to be forfeited.

And to no one’s surprise, he argues zero dollars ought to be forfeited.

As I’ve said previously, the able AUSAs have the better of the argument here. More precisely, a rule requiring each defrauded investor to testify (as is Mr. Brafman’s proffered position), in a criminal felony securities fraud matter, in order to allow the government to forfeit the proceeds from the fraud… makes no sense at all.

In many criminal securities fraud cases (think Bernie Madoff, for example), there are hundreds — if not thousands — of defrauded investors. If the law is that each of these must testify, in order to prove up the loss, and allow forfeiture — the Brooklyn  and Manhattan federal district courts would hear perhaps five such cases a year. The trials would take the better part of a year. That is simply preposterous.

Once convicted of the crime of defrauding one investor by jurisdictional means, all investors in that class ought to count toward forfeiture calculations — that is simply common sense.

If Marty thought certain investors ought to be excluded from that class — perhaps he ought to have put on a defense case — to that effect.

So… he has effectively waived the entire argument made in this five pager, in my view.

Namaste, on a clear cold crunchy snow underfoot Fat Tuesday… party on tonight, for tomorrow — as ever, is Ash Wednesday — and “only the penitent shall pass” — even if it be Valentine’s, as well.


And Various Civil Securities Fraud Settlements Now Start To Roll In… By Marty’s Agreement.

Over the weekend, Marty apparently finally caved (likely because at his federal felonies criminal sentencing next month, he is going to need to show true remorse, and show that however belatedly, he is taking responsibility for the harms he caused — even on uncharged criminal conduct), and agreed to settle with the civil plaintiffs in the KaloBios federal securities fraud class action pending in San Jose, California. Here it is:

“…The hearing on Plaintiffs’ motion for preliminary approval of the proposed
settlement with Defendant Shkreli be held jointly with the hearing on Plaintiffs’
unopposed motion for distribution of the settlement fund created by their prior
settlement with Defendants KaloBios, Martell, and Cross, which hearing is
calendared for March 29, 2018….”

Now you know. But I’d expect a similar motion then, in Manhattan, as to Retrophin civil securities fraud matters. Fascinating, indeed. We were just talking about this — altd 440 and me, in comments.

The AUSAs Answer This Morning — On Forfeitures, of About $8 Million…

I’ll try to keep it brief, as I am away in the middle of the Sonoran desert, on my regular “get out of negative wind chills and ten inches of snow” vacation — but I think the government has the better of the arguments here.

One cannot litigate all over again, on the question of guilt/intent, in the forfeiture hearing — which is what Mr. Brafman, on behalf of Marty wishes to do (forfeiture is mandatory, as to the felonies he’s been convicted on).

Here’s a bit of the full 12 pager, but it is significant that in the Second Circuit at least, even acquitted conduct and non-convicted crimes may also inform the forfeiture (sorry, see page 4, et seq., R. West!):

“… Shkreli argues that he has a number of other creditors, that his interest in Vyera Pharmaceuticals (formerly known as Turing Pharmaceuticals) should not be liquidated, and that he intends to file an appeal of his conviction and seek a stay of the forfeiture pending appeal. As set forth below, because none of these arguments has any bearing on Shkreli’s mandatory forfeiture obligations and the government consents to a stay with respect to the seizure of substitute assets, a Preliminary Order of Forfeiture (“POF”) should be entered….

The government does not oppose a stay with respect to that portion of a POF authorizing the seizure of substitute assets, including Shkreli’s interest in Vyera, until the completion of the appeal that Shkreli intends to file. Accordingly, the concerns raised about Shkreli’s interest in Vyera being liquidated may be premature. However, to preserve the government’s right to satisfy any forfeiture judgment, Shkreli should not be permitted to dissipate his interest in Vyera or any of the other substitute assets named in a POF while his appeal remains pending. In the event he intends to liquidate his interest in Vyera or any of the other substitute assets, the government requests that a POF require Shkreli to consult with the government in advance of any proposed sale to advise of its terms and demonstrate that the proposed sale is an arms-length transaction, place any proceeds up to the amount of any forfeiture money judgment in an escrow account so that they be made available for forfeiture, and provide an accounting of any proceeds (in any form including but not limited to monies, stock shares, etc.) derived from the proposed sale….”

So it will be years — in all probability — before the Vyera shares end up in anyone else’s hands (but it definitively will not be the US government running Vyera), and Marty will not be able to sell these shares, or otherwise unduly injure their value, without a court order. Perfect.

Okay — it is a dry sun-drenched 85 degrees here — I’m out! [Confidential to Billy — my puts are still hanging tough (in Riot)! Smile.]


Solid Christie Smythe-Authored Bloomberg Article, On Shkreli Forfeiture Fights…

I’ll simply point the readership to her excellent and balanced reporting here.

She is right that while the process is complex, the US Government gets these sorts of orders all the time. [And of course, the government won’t likely “own” Vyera for any period of time — if it wins the order to seize the shares, it will hire a reputable investment banker, who will arrange a “two-step” sale (maybe even by Dutch auction) — to a private party at fair values, and that will occur only (and likely only) after a separate,  independent fairness opinion is rendered, from another independent banking firm, as to the price. And then the transfer from Shkreli to the US will happen at the same moment that the new third party buyer takes title to the shares — so it will be (in all probability) a pure pass-through sale.]

Interestingly, she makes no mention though, of the fact that Mr. Brafman needs some of the E*Trade account proceeds (precisely because selling the Vyera shares will be difficult and time-consuming) to be set aside for his legal fees — as do the lawyers at Fox Rothschild. If Brafman is the main source for her article, he likely doesn’t want to highlight to the world that he personally has a “dog in this hunt“.

It should make February 25 an entertaining day in court — no matter what.