Keith Thomas writes for Financier Worldwide about the sentencing of Martin Shkreli and the options open to investors who have suffered loss due to similar management misconduct. Shkreli, the man behind the 5,000 percent price increase of Daraprim, was recently handed a seven year sentence after being found guilty of fraud and securities violations.
The accusations of misconduct against Mr Shkreli included that he:
- misappropriated money from his hedge funds to pay various unauthorised expenses;
- suffered significant losses on his hedge fund trading and created a Ponzi scheme using new investor money to cover those losses; and
- made material misrepresentations to investors regarding the sums managed by, the performance of and the independent regulation of the funds (he was alleged, for example, to have told prospective clients that he had US$35m of assets under management, when the actual figure was less than US$1000, and represented that the funds had returned profits of 35.77% when an 18% loss had actually been made).
When hedge fund investors started to question what was happening to their investments, it was alleged that Mr Shkreli appeased them using cash or shares, looted from another company he managed, Retrophin.
The article explains:
“An unusual element of Mr Shkreli’s trial was the positive financial consequences for his hedge fund investors. The vast majority of cases of this nature involve reams of individuals or businesses having lost substantial sums of money. We will obviously never know the full story of what went on in the jury deliberation room, but it seems that they accepted, in part, the ‘no harm has been done’ argument that the defence pushed so hard.”
The article goes on to explain how such cases would have been dealt with in the UK, and about the rise of securities litigation in the UK courts.
To read the full article, please visit the Financier Worldwide website.