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Martin Shkreli Arrested for Alleged Securities Fraud Scheme

Martin Shkreli, the controversial CEO of Turning Pharmaceuticals, and his attorney were indicted in an alleged securities fraud scheme.

On December 14, 2015, a grand jury paneled in Brooklyn, New York, returned a seven-count indictment against Martin Shkreli. Mr. Shkreli is charged with seven counts of securities fraud and conspiracy. His attorney, Evan L. Greebel is charged with a single count of wire fraud conspiracy. Greebel and Shkreli also face a United States Securities and Exchange Commission (“SEC”) civil complaint. The SEC commenced an eight-count civil suit against Shkreli, and contains a single aiding and abetting count against Greebel.

Shkreli is accused of running a Ponzi scheme that allegedly funneled money from Retrophin, Inc. to deceived investors in a series of ailing hedge funds. Attorney Greebel is charged with aiding the alleged scam.

The indictment alleges that Shkreli defrauded investors in MSMB Healthcare LP and MSMB Capital Management LP by making known misrepresentations about the funds’ past performance along with the funds’ assets and liabilities.

The indictment references a number of email exchanges between Shkreli and his attorney, and the government contends to support its allegations. I believe one of the central issues in the case will be whether or not the emails between Shkreli and his attorney are protected by the attorney-client privilege.

Generally, the “privilege” applies only if:

  • “The asserted holder of the privilege is or sought to become a client;

  • The person to whom the communication was made (a) is a member of the bar of a court, or his subordinate, and (b) in connection with this communication is acting as a lawyer;

  • The communication relates to a fact of which the attorney was informed ( a) by [a] client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and,

  • The privilege has been (a) claimed and (b) not been waived by the client.” United States v. United She Machinery Corp., 89 F. Supp. 357, 358 (D. Mass. 1950).

Clearly, Attorney Greebel was serving as Mr. Shkreli’s counsel. Nevertheless, the government will assert that their communications are not privileged because said communications were in furtherance of a crime or tort. Although the United States has a high burden to overcome the privilege, if it can demonstrate that the attorney and client discussions were in furtherance of a crime, as alleged in the indictment, I suspect that communications between them will not be deemed to be privileged.

Mr. Shkreli sparked widespread outrage in September when he raised the price of a 62-year-old drug used for treating life-threatening parasitic infections, including but not limited to HIV, from $13.50 a tablet to $750, overnight. The indictment, which was filed in the United States District Court for the Eastern District of New York, does not directly address the overnight price increase of Daraprim. Apparently, New York Attorney General Eric T. Schneiderman has indicated that his office is investigating whether or not Turning Pharmaceuticals violated New York’s anti-trust laws by restricting access to the drug Daraprim in order to forestall generic competition.

Social media outlets such as Twitter, Facebook, and Instagram erupted with news of Mr. Shkreli’s arrest. If the case is eventually tried, I suspect the Court will spend a good deal of time vetting potential jurors to ensure that Mr. Shkreli receives a trial before a fair and impartial jury of his peers.

COPYRIGHT © 2022, STARK & STARKNational Law Review, Volume V, Number 352
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About this Author

Scott Unger, Litigation Attorney, Stark Law Firm
Shareholder

Scott I. Unger is a Shareholder and member of Stark & Stark’s Litigation Group where he concentrates his practice on litigation arising out of business and commercial disputes. Mr. Unger regularly counsels business owners on the prosecution and defense of minority oppression litigation (corporate divorces), breach of contract cases, uniform commercial code (U.C.C.) litigation, consumer fraud claims, appellate practice, and estate litigation. Mr. Unger has extensive experience litigating cases in a variety of jurisdictions, including, New Jersey, New York, Pennsylvania, Ohio,...

609-219-7417
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