By Jonathan Yackel

In the eyes of some members of the public, the world of Wall Street investment banking is evil. They produce no service or product for the public and only exist to make money. People believe they are the quintessential form of capitalism, lacking emotion and ethics, as it is common for them to cross legal and ethical boundaries for the pursuit of profit. As a trader on Wall Street, Martin Shkreli lived up to these stereotypes.

Hunter College High School in New York City. Photo credit: User Ajay Suresh via Wikimedia Commons.

Born on March 17, 1983, in Brooklyn, New York to Croatian and Albanian immigrant parents, Shkreli had a modest childhood. He grew up in a working-class neighborhood, with janitors as parents who emphasized Catholic values. He attended Hunter College High School, an incredibly high-ranked public school in New York City. It was around this time when Shkreli became interested in investing and pharmaceutical companies when a family member was diagnosed with depression. This elite school sparked his interest in Wall Street, where he eventually landed an internship at the hedge fund Cramer, Berkowitz and Company at the age of 17. Under the fund managed by CNN Mad Money’s Jim Cramer, Shkreli learned the basics of investing and was drawn to an investing tactic known as short-selling, or “shorting.”

Jim Cramer recording an episode of Mad Money at Tulane University in New Orleans. Photo credit: Tulane Public Relations via Wikimedia Commons.

According to Investopedia, “Hedge funds are actively managed investment pools whose managers use a wide range of strategies, often including buying with borrowed money and trading esoteric assets, in an effort to beat average investment returns for their clients. They are considered risky alternative investment choices.” If it sounds confusing, it’s because it is. Basically, they invest money using riskier alternatives to simply buying and holding stock in a company, with the end goal of making a greater return in the market. These companies differ from mutual funds, which simply buy and hold the stock. Hedge funds are not accessible to the general public. While anyone could invest in a pool of stocks that mirrors the S&P 500, hedge funds are generally under the management of large sums of private money, like endowments or large accounts. Due to their high exclusivity and lack of transparency, these money-making companies often draw criticism from the public.

So what is shorting? Basically, the person shorting a company is betting the stock price will fall. Upper School history and economics teacher Nate Jackson explains that “Financial institutions are willing to lend shares they own, charging some interest. The stocks they lend can then be sold by the borrower, and bought back at a later date, with the borrower hoping they can purchase the shares for a lower price. The person borrowing the stocks is betting that the stock price will go down.” At his internship, Shkreli used tactics similar to these in order to accrue large sums of money. Basically, he was betting that the companies he shorted would fail, and when they did, he made money. 

His first brush with the U.S. Securities and Exchange Commission (S.E.C.) happened at this internship. The S.E.C. was created to prevent large fraudulent financial crimes and market manipulation, often prosecuting large hedge funds and leading investigations on the crimes of Wall Street bankers. Shkreli recommended the shorting of Regeneron Pharmaceuticals, a company attempting to patent a weight-loss drug. Eventually, the patent fell through, and Cramer, Berkowitz and Company profited. This caused an investigation from the S.E.C., who were unable to prove any form of financial crime.

Shkreli testifying before Congress in 2016. Photo credit: House Committee on Oversight and Government Reform via Wikimedia Commons.

Although it is unclear if Shkreli graduated high school, he eventually began attending Baruch College, a highly-ranked public institution in New York with a strong business school. Shkreli received his Bachelor of Business Administration in 2005 and worked at various hedge funds on Wall Street until he eventually created his own company, Elea Capital Management. 

Shkreli specialized in analyzing pharmaceutical companies and betting they would fail. The market for drugs in the United States is heavily reliant on patents and FDA approval, and as the drugs are analyzed by the government, it opens up the door for a large amount of speculation from investors. Eventually, if a drug won a patent or FDA approval, the company’s stock price would skyrocket, meaning Shkreli would lose money. However, more often than not, the patent would be rejected, or the drug would not be approved, and the stock price would fall, which meant Shkreli profited. This shorting of companies means that investors make money when companies lose and is a moral gray area for many, as the profiting off of layoffs and loss of money is generally disapproved by the public. 

After creating Elea Capital Management in 2006, the hedge fund had a short, two-year lifespan. The downfall of the company began with the borrowing of money from Lehman Brothers, a bank on Wall Street. Eventually, one of Shkreli’s gambles failed, and the company was unable to cover its losses. Lehman Brothers eventually sued and won a 2.3 million dollar lawsuit against Elea Capital Management. However, with the 2008 housing market crash, Lehman Brothers defaulted before being able to collect their money. 

Quickly rebounding off his first hedge fund’s failure, Shkreli founded MSMB Capital Management with his childhood friend Marek Biestek in 2009. Together, they followed Shkreli’s tried-and-true tactic of shorting biotech companies. On top of this, however, his company then defaced the companies they were shorting on the internet, which some claimed was market manipulation, a federal crime. 

Shkreli’s second fund made a similar mistake as his first. In 2011, he shorted the company Orexigen Therapeutics on money borrowed from Merrill Lynch. When the company’s price increased, MSMB could not cover, or pay back, their loan. They told Merrill Lynch that they were able to, however, causing Merrill Lynch to lose around 7 million dollars on the trade. This loss crippled the capital of the company; however, they survived. It was at this moment that Shkreli’s image changed from managing a hedge fund to becoming the “Pharma Bro.”

Under MSMB, Shkreli founded Retrophin in 2011, a biomedical research and engineering wing of the company focused on treatments for rare diseases. As CEO, he acquired the rights to the drugs Thiola and Chenodal, which are used in treatment for a disease that continually produces kidney stones. He then increased the price for Thiola from $1.50 per pill to $30.00, while increasing the price of Chenodal by 500%. Eventually, Shkreli was removed by the company’s board in 2015, with the board claiming he, “incorrectly using company funds” and “committing stock trading irregularities and other violations of securities rules.” 

After his departure from MSMB and Retrophin, Shkreli founded Turing Pharmaceuticals, with three drugs that were under development bought from Retrophin. It was here he crafted his new business strategy: obtain licenses for out-of-patent drugs with no generic drug competition, change their pricing, and produce the medicines. The regulatory approval to create a generic drug is incredibly expensive and time-consuming, and Turing realized that they could set high prices on their drugs. This forces their consumers to pay them, as they had no other option for their medicine.

Jackson explains, “It is the classic example of a good that exhibits perfect demand inelasticity. It’s the only treatment available… someone is going to pay whatever they can … there [are] no competitors.” 

Shkreli testifying before Congress in 2016. Photo credit: House Committee on Oversight and Government Reform via Wikimedia Commons.

Using this method of profiteering, Shkreli’s company acquired the patent for Daraprim, which was used in the treatment of AIDS patients. Now the sole distributor of the drug, Turing raised the price from $13.50 to $750 per pill overnight in 2015, garnering Shkreli the nickname “Pharma Bro.”

This move was immediately criticized by both sides of the political spectrum, with 2016 presidential candidates Hillary Clinton, Bernie Sanders, and Donald Trump all weighing in with the same opinion: Shkreli was being greedy and unethical. Jackson mentions, “He didn’t really consider the moral or ethical side of this. You’re taking people who are already suffering … and jacking up the price of treatment unnecessarily … and taking advantage of them.” Eventually, Shkreli was subpoenaed to appear before Congress to answer questions about his price increase. At his well-publicized hearing, however, Shkreli evoked his Fifth Amendment right against self-incrimination and refused to answer questions.

Presidential candidates Trump and Clinton debating in 2016. Photo credit: Users Krassotkin and Gage Skidmore via Wikimedia Commons.

While donning the title of “The Most Hated Man in America,” Shkreli defended his actions by claiming that although the price of the drug increased, the average cost to the consumer would actually be lower, and many patients would receive the drug at no cost. He believed patients who were unable to afford the drugs would get a discount. Shkreli expanded the company’s free drug program, claiming he “sold half of its drugs for one dollar.” Shkreli said, “If there was a company that was selling an Aston Martin at the price of a bicycle, and we buy that company and we ask to charge Toyota prices, I don’t think that that should be a crime” and “my shareholders expect me to make the most profit.” After backlash, he then claimed he would lower prices. Yet ultimately the prices did not change, and he became even more hated. Shkreli believed the new income earned could fund additional research and development for new drugs, which would generally help the healthcare industry and patients. 

Not everyone hated “The Most Hated Man in America,” however, as some believed he was just highlighting the problems within our healthcare system. Jackson explains, “The whole pricing of drugs and healthcare has no transparency.” Shkreli’s online personality had garnered him a small cult following, as he began with educating anyone on live streams on pharmaceutical stock analysis, and explaining why he was betting against certain companies. He then expanded the topics of his streams, with viewers tuning in to watch Shkreli play video games or defend his price hikes. In 2015, Shkreli purchased the single copy of the 31-track Wu-Tang Clan album, Once Upon A Time In Shaolin, with promises to destroy the disk if Clinton won the 2016 presidential election, and to share the entire album if President Trump won. He also bought an unreleased version of Lil Wayne’s Tha Carter V and offered Kanye West 15 million dollars to purchase The Life of Pablo. Shkreli even created his own eSports team, Odyssey eSports, which saw little success. Reddit user u/Viraus2 explains, “He’s become more and more of an internet celebrity due to his public twitter/video feuds with members of the Wu Tang clan and Kanye. Some of the twitter and livestreaming material have been pretty funny … he’s getting appreciation as a funny troll.”

All of Shkreli’s controversy came crashing down in December 2015 when he was arrested by the FBI and charged with securities fraud, related to his position at MSMB Capital Management and Retrophin.  Shkreli claims he was arrested by law enforcement due to his price hikes and loud personality. 

During the trial, the court had a difficult time selecting an unbiased jury, with potential jurors quoted saying, “I’m aware of the defendant, and I hate him,” “that’s a snake,” and “you’d have to convince me he was innocent rather than guilty.” 

On August 4, 2017, Shkreli was found guilty. He was charged with two counts of securities fraud and one count of conspiring to commit securities fraud. In September, Shkreli made a Facebook post offering $5,000 for a strand of Hillary Clinton’s hair. His lawyer described it as, “tasteless but not a threat.” However, this action caused his bail to be revoked, and he faced seven years in prison and was forced to forfeit around $7.3 million in assets, including his Once Upon a Time in Shaolin, which was auctioned off by the U.S. government in July 2021.

The storage for the album Once Upon a Time In Shaolin, previously owned by Shkreli. Photo credit: Wutangcashew via Wikimedia Commons.

While loved by some and hated by most, Shkreli embodied the public’s view of Wall Street. Some believe he only cared about money, while others see that he was just taking advantage of a system that he was in, and doing what was best for his business. The “Pharma Bro” is an interesting character, will forever have his own place in the internet subculture. Will he be seen as a strong economist who exposed flaws in a system? Or will he be remembered, as Vice describes him, as the “poster child for capitalistic greed? 

So what is happening to Shkreli currently? Well, he still is in prison, but still has managed to make headlines. In 2017, he was invited to Harvard by the Harvard Financial Analysts Club to speak about investing and healthcare, which sparked protests on campus. More recently, however, he began and ended a relationship with Christie Smythe, a former reporter who covered white-collar crime for Bloomberg News and wrote the original story on Shkreli’s arrest. All while still in prison. Eventually, Shkreli will be eligible for release in September of 2023.