A jury in a federal court convicted a former hedge fund manager of three out of eight counts related to securities fraud in early August 2017. The government had charged the defendant with multiple counts related to alleged defrauding of investors and misuse of corporate funds, as well as conspiracy to commit various fraudulent acts. United States v. Shkreli, No. 1:15-cr-00637, superseding indictment (E.D.N.Y., Jun. 3, 2016). The case is notable in part because of the high degree of infamy gained by the defendant for reasons unrelated to this case. The securities and wire fraud charges in this case added to the defendant’s unpopularity, presenting challenges for the defense team.
The Securities Exchange Act of 1934 regulates the trading of various securities, particularly corporate stocks. It prohibits “any manipulative or deceptive device or contrivance” connected to “the purchase or sale of any security.” 15 U.S.C. § 78j(b). This broad phrasing has been applied to a wide range of actions deemed fraudulent by securities regulators and prosecutors. The statute allows criminal prosecution for “willful” violations, allowing penalties for individuals of up to 20 years’ imprisonment and a fine of up to $5 million. Id. at § 78ff(a).
Proving the required elements of securities fraud in a federal or Texas criminal case can be very difficult, but federal law also allows the government to charge a person with conspiracy to commit an offense. 18 U.S.C. § 371. A conspiracy charge requires evidence that two or more persons, which could include individuals or certain organizations, conspired to commit an offense and that the defendant took an “overt act” in furtherance of the conspiracy. If the underlying offense is a felony, the conspiracy statute provides for imprisonment of up to five years.
The defendant received considerable media attention beginning in 2015, after a company that he ran acquired the patent for a drug used to treat a parasitic infection commonly associated with HIV and AIDS. The company raised the price for the drug from $13.50 per tablet to $750, drawing a considerable negative response from the general public and medical specialists. This incident has little or nothing to do with the criminal charges against the defendant, except in regard to public perception of him. This reportedly made matters like jury selection more difficult.
The criminal case involved two hedge funds managed by the defendant and a pharmaceutical company that he founded. The indictment described four distinct alleged schemes:
– Defrauding investors in one of the hedge funds, leading to one count of securities fraud and two counts of conspiracy to commit securities fraud;
– Defrauding investors in the other hedge fund, leading to one count of securities fraud and one count each of conspiracy to commit securities and wire fraud;
– Defrauding the pharmaceutical company by misappropriating assets for personal gain, leading to one count of conspiracy to commit securities fraud; and
– Defrauding investors in the pharmaceutical company, leading to one count of conspiracy to commit securities fraud.
After a lengthy trial and five days of deliberations, the jury acquitted the defendant on all but one of the conspiracy charges. It found him guilty on the two securities fraud charges and the conspiracy charge related to defrauding investors in the pharmaceutical company.
These blog posts are meant to be illustrative only. Unless expressly stated to the contrary herein, these matters are not the result of any legal work of Michael J. Brown, but are used to communicate a particular point of view. Michael J. Brown does not claim credit for any legal work done by any lawyer or law firm either generally or specifically, with respect to the matters contained in this blog.
Board-certified white collar crime attorney Michael J. Brown has fought for people’s rights against state and federal charges in West Texas courts for more than 20 years. Contact us online or at (432) 687-5157 today to schedule a confidential consultation with a knowledgeable and skilled advocate.
More Blog Posts:
Federal Government Brings Securities Fraud Charges Against Legal Marijuana Business, Texas Criminal Lawyer Blog, June 1, 2017
Securities Fraud Charges Against Texas Official Headed to Trial, Texas Criminal Lawyer Blog, March 1, 2017
SEC Files Securities Fraud Claims Against Bitcoin Mining Companies, Texas Criminal Lawyer Blog, April 22, 2016