More than thirty years ago, a son of Albanian immigrants was growing up in a very tough part of Brooklyn’s Sheepshead Bay. Young and intelligent, Martin Shkreli idolized scientists, listened to rock music and was considered so bright he could skip grades in school.

But he wasn’t about to use his preternatural intelligence to become a scientist or a musician like one of his heroes. Instead he chose to start two hedge funds and short pharmaceutical stocks, making enough of money in the process to start his very own pharma company - Retrophin.

In fact, the young short seller was so good at what he did, Bloomberg Businessweek ran a story on him in early 2014, calling him a “boy genius.”

But no one outside the tightly-knit Wall Street and pharma circles had even heard his name until last year. And now, of course, he’s all over the paper and for all the wrong reasons.

How It All Started

Shkreli first attracted the hateful gaze of the media and internet when his company, Turing Pharmaceuticals, raised the price of the anti-parasitic drug Daraprim after they’d bought rights to it. In one fell swoop, Shkreli managed to alienate everyone from the Wu Tang Clan to Democratic Presidential candidate Hillary Clinton, when he raised the price of the drug from $13.50 per pill to a jaw-dropping $750 per pill. 

Why was this such a super villainous move? Well, Daraprim is a drug that is used to treat malaria, toxoplasmosis and HIV. Furthermore, it’s on the World Health Organization’s List of Essential Medicines and Shkreli’s price hike instantly put it out of reach for people who happen to be both sick and poor.

He was instantly recognized as one of the most hated men on American soil. Even Donald Trump called him a “spoiled brat.”

But Shkreli defended himself saying this was what he was hired to do. He raised drug prices because he said that it was impossible to turn a profit at the new company without doing so. Months later, however, the world had moved on and just when it seemed like the dust had settled, an old case pending against him came back with a bang.

Blast from The Past

Securities fraud cases on Wall Street are fairly common, and they almost always follow a similar script - young hotshot comes to Wall Street, awes everyone with his financial genius, gets people to invest in his venture, starts losing money and has to lie to keep it all under wraps.

That wasn’t the case with Martin Shkreli’ s arrest though. It turns out he was just as good at committing fraud as he was at short selling pharma stocks. here are all the details of the case…

• Martin starts a hedge fund called MSMB Capital in 2009.
• He tells one of the investors that the fund has over $35 million in assets and independent auditors to confirm this.
• He doesn’t actually have auditors and had just $700,000 in assets initially. Even worse he managed to lose 99.9% of it and, at the time, had only $700 in the company’s bank account.
• Instead of coming clean, he starts a new drug company called Retrophin. He sends out an email to his investors telling them he’s shutting down the fund to run the new company. Considering they’ve had phenomenal returns on their initial investment, they can now have their money back in cash, or Retrophin shares or a combination of the two.
• He goes on to start a new hedge fund called MSMB Healthcare and gets 13 investors to put up $5 million in the new fund.
• He takes money from MSMB Healthcare and invests in Retrophin. Retrophin is taken public and then looted to pay back investors in both MSMB Capital and MSMB Healthcare.
• All this led to Wall Street labeling him, “The Worst Biotech CEO of 2014,” after which the company fired him and sued him for fraud.

But if you consider the math behind it all, what he did was remarkably astonishing. He started two funds and raised $8 million from investors combined. He then managed to return $11 million to them after all the stunts he pulled at Retrophin. That’s a return of over 37%!

By itself, a return of 37% is not extraordinary, but it is when you consider the fact that he had only a measly $700 in the bank at one point throughout the whole fiasco. Not only that - even the stock price of Retrophin is up. Martin started the company from scratch (and later even stole money from it) and now it’s still worth three quarters of a billion dollars!

The company is an actual enterprise that is still making money and turning a profit. What’s more, investors don’t seem bothered by the company’s shady past at all. The stock has even climbed a fair bit since he was fired.

In a cynical way, he succeeded at what he was trying to do and he would have never been caught if he’d kept his head down and not been so abrasive. That is, perhaps, the most shocking thing about this whole arrest and what makes Martin Shkreli the unwelcome mirror to everything that’s wrong with Wall Street and the pharmaceutical industry.