Securities And Exchange Commission v. Shkreli

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

MEMORANDUM & ORDER

- against -

15-CV-7175 (KAM) (JRC)

MARTIN SHKRELI;

EVAN GREEBEL;

MSMB CAPITAL MANAGEMENT LLC; and

MSMB HEALTHCARE MANAGEMENT LLC,

Defendants.

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MATSUMOTO, United States District Judge:

In this civil action, commenced on December 17, 2015,

the Securities and Exchange Commission (“SEC”) alleges that

defendants Martin Shkreli (“Mr. Shkreli”) and Evan Greebel (“Mr.

Greebel”) participated in multiple fraudulent schemes in violation

of this country’s securities laws. (ECF No. 1, Compl.) The

conduct at issue in the SEC’s complaint was also the basis for

criminal charges against Mr. Shkreli in the parallel proceeding

before this Court, United States v. Shkreli and Greebel, No. 15-

cr-637 (KAM) (E.D.N.Y.). Presently before the Court is the SEC’s

motion to permanently bar Mr. Shkreli from serving as an officer

or director of any public company, and for the imposition of civil

monetary penalties against him. For the reasons stated herein,

the SEC’s motion is GRANTED in its entirety.

BACKGROUND

I. Procedural Background

Following the Court’s granting of the Government’s

motion seeking intervention and stay (see ECF No. 33, Mar. 22,

2016 Mem. and Order), Mr. Shkreli consented to a bifurcated

resolution of the instant action. As part of that bifurcated

resolution, on December 28, 2020, the Court entered a consent

judgment (“Consent Judgment”) which ordered injunctive relief, and

provided that the SEC’s claims for monetary penalties and an

officer and director bar would be decided on motion of the SEC.

(See ECF Nos. 45, 45-1, Consent J. as to Martin Shkreli, Dec. 28,

2020.)

On April 2, 2021, the SEC filed a Motion for an Officer

and Director Bar and Civil Monetary Penalties as to Mr. Shkreli.

(ECF No. 48, Letter Enclosing Motion, ECF No. 48-1, Notice of

Motion.) The SEC moves the Court to (1) permanently bar Shkreli

from serving as an officer or director of any public company; and,

(2) impose civil monetary penalties in the amount of $1,392,000

against him. (Id.) In support of its Motion, the SEC filed a

memorandum of law, the declaration of Melissa Coppola, and a

proposed final judgment. (ECF No. 48-2, SEC Memorandum of Law in

Support (“SEC Mem.”); ECF No. 48-3, Declaration of Melissa A.

Coppola (“Coppola Decl.”); ECF No. 48-4, Proposed Final Judgment.)

Also on April 2, 2021, Mr. Shkreli filed a memorandum in opposition

to the SEC’s Motion (ECF No. 49, Def. Opp. Mem.), and the SEC filed

a reply in support of its Motion. (ECF No. 50, SEC Reply.) On

April 7, 2021, Mr. Shkreli filed a letter seeking leave to file a

sur-reply. (ECF No. 52, Def. Letter.) The Court granted Mr.

Shkreli leave to file a sur-reply on April 8, 2021. (Dkt. Order,

Apr. 8, 2021.) Mr. Shkreli filed a sur-reply in opposition on

April 9, 2021. (ECF No. 53, Def. Sur-Reply.)

Pursuant to the terms of the Consent Judgment, in

connection with the instant motion, Mr. Shkreli is precluded from

arguing he did not violate the securities laws, and the allegations

in the complaint are to be accepted by the Court as true. (ECF

No. 45-1, pp. 2-3.) Additionally, the Consent Judgment provided

that the Court may decide the issues raised in the SEC’s motion on

the basis of affidavits, declarations, excerpts of sworn

deposition or investigative testimony, and documentary evidence,

without regard to the standards for summary judgment contained in

Rule 56(c) of the Federal Rules of Civil Procedure. (Id.)

II. Factual Background

The Court assumes familiarity with the factual

background in this case, and incorporates by cross-reference in

its entirety the background as provided in the Court’s March 22,

2016, Memorandum and Order. (ECF No. 33, Mar. 22, 2016 Mem. and

Order.) As noted supra, pursuant to the terms of the Consent

Judgment, all allegations in the Complaint shall be deemed and

accepted as true by the Court for the purposes of this Memorandum

and Order.

By way of brief factual background, Mr. Shkreli was the

founder and portfolio manager of two hedge funds, MSMB Capital

Management LP (“MSMB”) and MSMB Healthcare LP (“MSMB Healthcare”).

(See Compl. at ¶¶ 2, 13, 17-18.) Mr. Shkreli was also the managing

member of the respective investment advisers to the two hedge

funds, defendants MSMB Capital Management LLC (“MSMB Adviser”) and

MSMB Healthcare Management LLC (“MSMB Healthcare Adviser”). (Id.

at ¶¶ 2, 13, 15-16.) In March 2011, Mr. Shkreli founded the

biopharmaceutical company Retrophin LLC, which became public in

December 2012 as Retrophin, Inc. (“Retrophin”). (Id. ¶¶ 2, 13,

22.)1 As will be discussed in greater detail infra, the Complaint

alleges that Mr. Shkreli: (1) made material misrepresentations and

omissions to investors and prospective investors in MSMB; (ii)

lied to an MSMB executing broker about MSMB’s ability to settle

short sales that Mr. Shkreli made in MSMB’s account; (iii)

misappropriated funds from MSMB and MSMB Healthcare; and (iv)

fraudulently induced Retrophin to enter into sham consulting

agreements with certain disgruntled investors in MSMB and MSMB

Healthcare to settle potential claims against himself. (Id. ¶¶ 2-

3, 24-55.)

1 After he left Retrophin, Mr. Shkreli became CEO of Turing Pharmaceuticals

(now known as Vyera Pharmaceuticals), a privately held company founded by Mr.

Shkreli. (Id. ¶ 13.)

LEGAL STANDARDS

I. Officer Director Bar

A. Securities Act, Exchange Act, and Sarbanes-Oxley Act

For violations of the Securities Act Section 20(e),

Title 15 U.S.C. Section 77t(e), and Exchange Act Section 21(d)(2),

Title 15 U.S.C. Section 78u(d)(2), courts may bar a person from

serving as an officer or director of “any issuer that has a class

of securities registered” under Exchange Act Section 12, Title 15

U.S.C. Section 78l, or “that is required to file reports” under

Exchange Act Section 15(d), Title 15 U.S.C. Section 78o(d). The

Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), Pub. L. 107-204,

116 Stat. 745 enacted July 30, 2002, permits courts to impose an

officer and director bar on an individual if a person’s conduct

demonstrated “unfitness” to serve in such a capacity.

B. Unfitness

Although Sarbanes-Oxley amended Exchange Act Section

21(d)(2), 15 U.S.C. Section 78u(d)(2), and Securities Act Section

20(e), Title 15 U.S.C. Section 77t(e) to reduce the Commission’s

burden of proof from “substantial unfitness” to “unfitness,” the

Court will consider the six non-exclusive factors previously

identified by the Second Circuit in SEC v. Patel, 61 F.3d 137 (2d

Cir. 1995), in evaluating Mr. Shkreli’s unfitness to serve as an

officer or director of a public company. In Patel, the Second

Circuit highlighted several non-exclusive and non-mandatory

factors that are relevant to determining whether a defendant was

“substantially unfit” to serve as an officer or director of a

public company:

(1) the “egregiousness” of the underlying securities law

violation; (2) the defendant’s “repeat offender” status;

(3) the defendant’s “role” or position when he engaged

in the fraud; (4) the defendant’s degree of scienter;

(5) the defendant’s economic stake in the violation; and

(6) the likelihood that misconduct will recur.

Patel, 61 F.3d at 141. The Second Circuit in Patel was confronted

with the earlier version of Section 21(d)(2) of the Exchange Act

(“Section 21(d)(2)”), which permitted a ban only “‘if the person’s

conduct demonstrates substantial unfitness to serve as an officer

or director.’” S.E.C. v. Bankosky, 716 F.3d 45, 48 (2d Cir. 2013).

In 2002, Congress replaced the phrase “substantial unfitness” in

Section 21(d)(2) with the term “unfitness.” See Sarbanes–Oxley

Act of 2002 § 305(a), Pub. L. No. 107–204, 116 Stat. 745, 778–79

(2002) (amending 15 U.S.C. § 78u(d)(2)) (emphasis added).

Congress’s intent in removing the term “substantial” from Section

21(d)(2) was to lower the threshold of misconduct to “unfitness”

for which courts may impose director and officer bans. Bankosky,

716 F.3d at 48 (citing S.Rep. No. 107–205, at 27 (2002), available

at 2002 WL 1443523 (explaining that standard was changed to

“unfitness” because “‘substantial unfitness’ standard ... [was]

inordinately high, causing courts to refrain from imposing bars

even in cases of egregious misconduct”)).

The Second Circuit in Bankosky clarified that though

Patel, decided in 1995, predated Congress’s amendment of Section

21(d)(2), the Patel factors are still just as relevant to

determining “unfitness” as they were to determining “substantial

unfitness.” Bankosky, 716 F.3d at 48–49 (citing SEC v.

iShopNoMarkup.com, Inc., No. 04–cv–4057 (DRH) (ARL), 2012 WL

716928, at *3 n. 2 (E.D.N.Y. Mar. 3, 2012); SEC v. Miller, 744

F.Supp.2d 1325, 1347 (N.D.Ga.2010); SEC v. DiBella, No. 3:04–cv–

1342, 2008 WL 6965807, at *9 n. 12 (D. Conn. Mar. 13, 2008)).

The Patel factors, though helpful guidance, are not

mandatory. Bankosky, 716 F.3d at 48. A court applying the Patel

factors may impose an officer or director bar even if not all six

factors are present. See Patel, 61 F.3d at 142 (“[I]t is not

essential for a lifetime ban that there be past violations”). A

district court may determine that some Patel factors are

inapplicable and apply other relevant factors. Bankosky, 716 F.3d

at 48. The Court enjoys “substantial discretion” in deciding

whether to impose a bar and the duration of any bar, “so long as

any bar imposed is accompanied with some indication of the factual

support for each factor that is relied upon.” Id. (citing Patel,

61 F.3d at 141).

II. Civil Monetary Penalties

Pursuant to Securities Act Section 20(d), Title 15

U.S.C. Section 77t(d), Exchange Act Section 21(d)(3), Title 15

U.S.C. Section 78u(d)(3), and Section 209(e) of the Investment

Advisers Act of 1940, Title 15 U.S.C. Section 80b-9(e), Court may

order a civil monetary penalty and, if so, determine the amount of

the civil penalty.

Securities Act Section 20(d), Exchange Act Section

21(d)(3), and Advisers Act Section 209(e) each provide three tiers

of monetary penalties for statutory violations. See 15 U.S.C. §

77t(d); 15 U.S.C. § 78u(d)(3); 15 U.S.C. § 80b-9(e). “The amount

of the penalty shall be determined by the court in light of the

facts and circumstances.” See, e.g., 15 U.S.C.A. § 77t(d). A

first tier penalty may be imposed for any violation; a second tier

penalty may be imposed if the violation involves “fraud, deceit,

manipulation, or deliberate or reckless disregard of a regulatory

requirement”; and a third tier penalty may be imposed if the

violation involves “fraud, deceit, manipulation, or deliberate or

reckless disregard of a regulatory requirement,” and the violation

also resulted in “substantial losses or created a significant risk

of substantial losses to other persons.” See 15 U.S.C. § 77t(d);

15 U.S.C. § 78u(d)(3); 15 U.S.C. § 80b-9(e). The statutes provide

that, for all three tiers, the amount of the penalty that the Court

can impose, per violation, “shall not exceed the greater of” the

current statutory amount in effect at the time of the violation,

or the “gross amount of pecuniary gain to such defendant.” Id.

(emphasis added.) Here, the third-tier statutory amount in effect

during the years of Mr. Shkreli’s violations involving

misappropriations from MSMB and misrepresentations to MSMB and

Executing Broker was $150,000.2 The third-tier statutory amount

in effect during the years of Mr. Shkreli’s violations involving

Retrophin was $160,000.3 The gross amount of pecuniary gain from

his misappropriations is $932,000. (ECF No. 48-2, SEC Mem., p.

14.)

DISCUSSION

I. Unfitness to Serve as an Officer or Director of a Public

Company Resulting in a Permanent Bar

The SEC argues that the imposition of a permanent bar

preventing Mr. Shkreli from ever again serving as an officer or

director of any public company is appropriate. Mr. Shkreli argues

in opposition that a permanent bar would be “excessive,” and

proposes a ten-year bar or, in the alternative, a ten-year bar

along with conditions on any future service as an officer or

director of a public company. (ECF No. 49, Def. Mem. in Opp., at

pp. 1-2.) For the reasons described infra, after reviewing the

record and considering all factors the Court considers applicable

2 See Adjustments to Civil Monetary Penalty Amounts, Release Nos. 33-9009, 34-

59449, IA-2845, dated Feb. 25, 2009 (effective Mar. 3, 2009), previously

found at 17 CFR 201.1004 and Table IV to Subpart E of Part 201 (available at:

https://www.sec.gov/rules/final/2009/33-9009.pdf) and Release Nos. 33-9387,

34-68994, IA-3557, dated Feb. 27, 2013 (effective Mar. 5, 2013), previously

found at 17 CFR 201.1005 and Table V to Subpart E of Part 201 (available at:

https://www.sec.gov/rules/final/2013/33-9387.pdf).

3 Id.

to Mr. Shkreli’s case, the Court finds that a permanent bar is

appropriate.

A. Egregiousness of Underlying Securities Law Violation

The Court considers Mr. Shkreli’s violations of

securities laws to be particularly egregious.4 Indeed, Mr. Shkreli

himself “appreciates this factor will not cut in his favor.” (ECF

No. 49, Def. Opp. Mem., p. 7.) Pursuant to the terms of the

Consent Judgment entered in this action, it is undisputed that

over several years, Mr. Shkreli engaged in multiple violations,

and aided and abetted violations, of multiple antifraud provisions

of the securities laws: Securities Act Section 17(a), Exchange Act

Section 10(b) and Rules 10b-5 and 10b-21, and Advisers Act Section

206 and Rule 206(4)-8. (Compl. ¶ 4; ECF No. 45-1, Consent J., p.

2.) Specifically, Mr. Shkreli (1) repeatedly made material

misrepresentations and omissions to multiple investors and

4 Though not part of the allegations in the Complaint in the instant action,

the Court takes judicial notice that in 2020, the FTC, the State of New York,

and other states, brought an action against Mr. Shkreli and others. The

complaint in that action alleged anticompetitive conduct and unfair methods

of competition regarding Mr. Shkreli and his co-defendants’ attempt to

monopolize the drug Daraprim, an essential drug in the treatment of deadly

parasitic infections, including in pregnant women, cancer patients and AIDS

patients. (See generally FTC v. Vyera Pharm., LLC, Dkt. No. 20-cv-706 (DLC)

(S.D.N.Y.), ECF No. 86, Apr. 14, 2020, Redacted Amended Complaint for

Injunctive and Other Equitable Relief.) Mr. Shkreli was the CEO of the

pharmaceutical company, now known as Vyera Pharmaceuticals, LCC, when the

company significantly increased the price of Daraprim, for which the company

had obtained exclusive rights, from $13.50 to $750 per pill. On January 14,

2022, U.S. District Judge Cote ordered Mr. Shkreli to return $64.6 million in

profits that he and his former company gained from raising the price of the

lifesaving drug, and barred Mr. Shkreli from participating in the

pharmaceutical industry for the rest of his life. (See Dkt. No. 20-cv-706

(DLC) (S.D.N.Y.), ECF No. 865, Opinion and Order, Jan. 14, 2022.)

prospective investors in MSMB; (2) lied to one of MSMB’s executing

brokers about MSMB’s ability to settle short sales Shkreli had

made in MSMB’s account; (3) misappropriated funds from MSMB and

MSMB Healthcare; and, (4) fraudulently induced Retrophin to enter

into multiple sham consulting agreements with, and to issue stock

and make cash payments to, certain disgruntled investors in MSMB

and MSMB Healthcare in order to avoid liability. (Compl. ¶¶ 2-3,

24-55.)

The violative conduct alleged in the Complaint

involved Mr. Shkreli taking a series of deliberate, calculated,

and affirmative steps. As alleged in the Complaint, Mr. Shkreli

knowingly or recklessly made repeated, blatant misrepresentations

to current and prospective investors. (Id. ¶¶ 29-36.) For

example, on July 26, 2010, Mr. Shkreli lied to a prospective

investor (“Investor A”) in MSMB by stating in an email that MSMB

had generated gains of “+35.77% since inception on 11/1/2009,”

when MSMB had actually generated losses of about 18% during that

time. (Id. ¶ 29.) Mr. Shkreli lied further to Investor A on

December 2, 2010, when Mr. Shkreli wrote in an email that MSMB had

assets in the amount of $35 million; in reality, at that time,

MSMB had less than $1,000 across its bank and brokerage accounts.

(Id. ¶¶ 30-31.) On December 2, 2010, Mr. Shkreli also falsely

stated in an email to Investor A that MSMB had an auditor and

administrator when, in reality, MSMB had not retained either an

auditor or administrator. (Id.)

Mr. Shkreli also made misrepresentations to an

executing broker (“Executing Broker”)5 regarding MSMB’s account.

(Id. ¶¶ 19, 32-36.) On February 1, 2011, Mr. Shkreli sold short

more than 32 million shares of “Company A” in MSMB’s account at

Executing Broker, and represented to Executing Broker that MSMB

had identified a source to borrow the Company A shares that MSMB

was selling short.6 (Id. at ¶¶ 32-33.) There was no such source,

as MSMB had not identified any source from which to borrow Company

A shares. (Id. ¶ 34.) Mr. Shkreli directly placed the orders for

the short sales, and each transaction included a misrepresentation

by Mr. Shkreli that MSMB was able to borrow sufficient Company A

shares from the prime broker to settle the short sales executed by

Executing Broker. (Id. ¶ 33.) Mr. Shkreli continued to mislead

Executing Broker regarding MSMB’s ability to settle the short sales

until February 2, 2011, and ultimately, MSMB failed to settle a

short position of over 11 million shares of Company A. (Id. ¶¶

35-36.) Executing Broker bought sufficient shares of Company A on

the market to settle MSMB’s short position, incurring a loss of

over $7 million. (Id. ¶ 36.)

5 “Executing Broker” is identified as the registered broker-dealer Merrill

Lynch in the SEC’s Memorandum of Law. (ECF No. 48-2, p. 3.)

6 “Company A” is identified as the issuer OREX in the SEC’s Memorandum of Law.

(ECF No. 48-2, p. 3.)

Mr. Shkreli’s repeated, deliberate falsehoods to

investors with regard to MSMB and MSMB Healthcare resulted in

significant losses to hedge fund investors. The impacted investors

in MSMB and MSMB Healthcare suffered these losses as Mr. Shkreli

falsified the value and returns and dissipated the entire amounts

invested in both funds through trading losses and

misappropriations. (Id. ¶¶ 25-28.) During the period from October

2009 to January 2011, nine investors invested approximately

$3,015,000 in MSMB. (Id. ¶ 24.) During that time period, Mr.

Shkreli misappropriated approximately $120,000 of investor funds

from MSMB for his personal benefit—including rent, food, medical

expenses, and clothing—that were not properly charged as expenses

of MSMB. (Id. ¶¶ 2-3, 28; Coppola Decl. ¶ 6.) By February 2011,

Mr. Shkreli had dissipated nearly the entirety of MSMB funds

through trading losses and misappropriations; the net asset value

of MSMB’s prime brokerage account and cash balance amounted to

approximately $58,500. (Compl. ¶¶ 25-28, 44.) In early February

2011, despite knowing that MSMB had already lost nearly all its

assets, Mr. Shkreli began emailing performance estimates to MSMB’s

investors, reporting profitable investments, reflecting outright

lies. (Id. ¶ 42.) Mr. Shkreli continued emailing MSMB investors

with deceptive performance estimates until September 2012. (Id.)

In one example, on February 8, 2011, when MSMB had only $1.126

million remaining of more than $3 million originally invested, Mr.

Shkreli emailed at least five MSMB investors stating that MSMB had

returned “+35.95 since inception on 11/1/2009.” (Id. ¶ 43.) In

another stark example, on March 2, 2011—again, by which point MSMB

had virtually no assets left—Mr. Shkreli emailed MSMB investors

falsely stating that MSMB had “returned +4.24% in February 2011”

and “returned +41.71% since inception on 11/1/2009.” (Id. ¶ 44.)

Mr. Shkreli continued sending performance estimates to MSMB

investors until September 2012, at which point he sent a final

performance estimate to the limited partners stating that through

June 2012 MSMB had returned “+79.49% net of fees since inception

on 11/1/2009.” (Id. at ¶ 45.) In contrast to Mr. Shkreli’s

fictional report to the investors, by the end of June 2012, MSMB

had no assets left in its prime brokerage account or bank account.

(Id.)

By September 2012, MSMB Healthcare’s assets had also

been dissipated, and consisted mainly of stock in the company

Retrophin. (Id. ¶¶ 46-47.) From January through March 2013, Mr.

Shkreli misappropriated approximately $900,000 of investor funds

from MSMB Healthcare to pay a settlement agreement resulting from

proceedings brought against Mr. Shkreli and MSMB by Executing

Broker. (Id. ¶¶ 2-3, 37-41.) As alleged in the Complaint, as a

result of Mr. Shkreli’s conduct, MSMB suffered approximately $3

million of lost assets, and MSMB Healthcare at least $900,000. As

alleged in the Complaint and as supported by the Coppola

Declaration, a total of $1,020,000 was misappropriated by Mr.

Shkreli from MSMB and MSMB Healthcare, of which Mr. Shkreli

directly misappropriated approximately $932,000 from December 18,

2010 to December 17, 2015.7 (Coppola Decl. ¶ 8.)

Mr. Shkreli then undertook further fraudulent conduct

in order to absolve himself of potential claims from the

disgruntled investors he left in his wake. In September 2012, Mr.

Shkreli notified investors in MSMB and MSMB Healthcare that he

would be liquidating the hedge funds, and that investors could

redeem their limited partnership for cash, Retrophin shares, or a

combination of those two options, with distributions of cash and

shares to be completed by October 31, 2012. (Compl. ¶ 46.) By

that point, MSMB and MSMB Healthcare had nominal amounts of cash,

and what few assets remained consisted primarily of Retrophin

shares. (Id. ¶ 47.) Many limited partners were dissatisfied with

the distribution they did receive, many others complained that

they received incomplete information regarding the funds’ asset

composition, and at least one investor threatened legal action.

(Id.) During this time, Mr. Shkreli also issued a $250,000, note

to a disgruntled investor in Elea Capital (“Elea”), a different

7 In sentencing Mr. Shkreli in the parallel criminal proceeding related to the

instant case, the Court determined that the two funds lost a combined total

of $6,400,450. (See Dkt. No. 15-cr-637, ECF No. 54, Memorandum and Order

dated Mar. 5, 2018.)

hedge fund Mr. Shkreli had unsuccessfully operated during 2006 and

2007. (Id. at ¶ 48.)

Faced with dissatisfied investors from all three

funds, Mr. Shkreli once again chose to commit another course of

fraudulent conduct. In Mr. Shkreli’s role as president and CEO of

the public company Retrophin, Mr. Shkreli, together with Mr.

Greebel, Retrophin’s outside counsel and acting corporate

secretary, induced Retrophin to enter into sham consulting

agreements with investors in the MSMB-related and Elea hedge funds.

(Id. ¶¶ 46-51.) These sham agreements provided for the use of

Retrophin funds and assets to resolve potential claims by MSMB and

Elea investors against Mr. Shkreli. (Id. ¶¶ 2-3, 23, 46-55.) Mr.

Shkreli did not disclose to Retrophin’s Board of Directors that

the purpose of the agreements was to settle potential claims

brought against him or that consulting services were not actually

provided. (Id.) Ultimately, Mr. Shkreli caused Retrophin to

transfer approximately $7.5 million in cash and Retrophin stock

through the sham consulting agreements. (Id. at ¶ 51.)

Accordingly, the Court finds that the violations by

Mr. Shkreli described in the Complaint rise to the level of

“egregious.” See S.E.C. v. iShopNoMarkup.com, Inc., 2012 WL

716928, at *4 (citing Save the World Air, Inc., 2005 WL 3077514 at

*16 (finding violations egregious when defendant engaged in a

scheme defrauding through material misstatements and omission of

material fact made to the investing public and related to the “very

core” of the business); see also SEC v. Robinson, 2002 WL 1552049

at *5 (S.D.N.Y. July 16, 2002) (finding defendant made “flagrant”

and “outrageous” misrepresentations to investors that his company

had a product to market, ties to certain large telecommunications

companies, and reasonable expectations of reaping billions of

dollars in sales revenue). Mr. Shkreli told a series of flagrant,

intentional falsehoods, including regarding the assets under

management (“AUM”), misrepresenting that his struggling hedge

funds were exceptionally successful, and hiding losses in order to

manipulate individual and public investors for his benefit. Cf.

SEC v. Stanard, 2009 WL 196023, at *33 (S.D.N.Y. Jan. 27, 2009)

(finding no egregious violation when defendant’s false accounting

gave a “misleading impression” of the company’s profits but did

not “have the effect of creating false profits, hiding losses, or

giving a misleading picture of [the company’s] overall financial

strength”)). The Court finds that Mr. Shkreli’s egregious

violations of the securities laws at issue in this case support

the imposition of an officer and director bar.

B. Defendant’s “Repeat Offender” Status

In the Second Circuit, the term “repeat offender” refers

to someone who has been found to have previously committed separate

violations of securities laws. See S.E.C. v. SeeThruEquity, LLC,

No. 18-cv-10374 (LLS), 2022 WL 171196, at *4 (S.D.N.Y. Jan. 19,

2022) (citing S.E.C. v. Bankosky, No. 12-cv-1012 (HB), 2012 WL

1849000, at *2 (S.D.N.Y. May 21, 2012), aff’d, 716 F.3d 45 (2d

Cir. 2013)) (“the term ‘repeat offender’ does not, in cases in

this Circuit, describe multiple violations as part of a unified

scheme, but the recidivist who repeats the violation after

prosecution for committing the earlier one.”); see also S.E.C. v.

Dibella, No. 04-cv-1342 (EBB), 2008 WL 6965807, at *11 (D. Conn.

Mar. 13, 2008), aff’d, 587 F.3d 553 (2d Cir. 2009) (finding

defendant was not a repeat offender because defendant was never

found to have committed securities violations in prior roles as a

director of two separate companies); SEC v. Shah, 1993 WL 288285,

at *7 (S.D.N.Y. July 28, 1993) (finding defendant could not be

considered a repeat securities law violator because he “was never

involved in any other violations of the securities laws”).

The SEC cites to authority from the Ninth and District

of Columbia Circuits in support of the proposition that defendants

are considered repeat offenders when they engage in “ongoing and

recurrent violations.” (ECF No. 48-2, SEC Mem. at p. 12 (citing

SEC v. First Pac. Bancorp, 142 F.3d 1186, 1193 (9th Cir. 1998);

SEC v. Falstaff Brewing Corp., 629 F.2d 62, 79 (D.C. Cir. 1980).)

Though the Court agrees with the SEC that Mr. Shkreli’s conduct

was not isolated and involved multiple courses of fraudulent

conduct over a period of more than four years, the Court cannot

find that Mr. Shkreli is a “repeat offender” as the term is applied

in the Second Circuit. It is undisputed that Mr. Shkreli, prior

to the events giving rise to the present litigation and related

criminal and civil actions,8 had not been previously found to have

violated any securities laws. See Bankosky, 2012 WL 1849000, at

*2 (quoting iShopNoMarkup.com, Inc., 2012 WL 716928, at *5 (citing

Second Circuit cases) (characterizing a repeat offender as

“someone who has committed separate violations of securities laws

in the past.”)). Accordingly, the Court does not consider Mr.

Shkreli a “repeat offender” under Second Circuit precedent, and

this factor weighs against the imposition of an officer director

bar.

C. Defendant’s Role or Position During Fraud

It is undisputed that, during the securities laws

violations alleged in the Complaint, Mr. Shkreli held high-level

roles as founder and manager of the hedge funds, and as founder

and CEO of Retrophin, the public company he defrauded or helped to

defraud. Mr. Shkreli concedes that this factor does not weigh in

his favor. (ECF No. 49, Def. Opp. Mem., pp. 7-8.) Mr. Shkreli

was the founder, managing partner, portfolio manager, and

investment adviser of both MSMB and MSMB Healthcare when he made

misrepresentations to investors, potential investors, and an

8 Mr. Shkreli was convicted after trial of criminal conduct relating to

certain matters alleged in the instant action. In United States v. Shkreli,

15-cr-637-KAM (E.D.N.Y.), Mr. Shkreli was convicted of violations of Title

15, U.S.C., Sections 78j(b); and Title 18, U.S.C., Section 371.

executing broker regarding the composition and performance of the

hedge funds. (Compl. ¶¶ 13, 17-18.) Mr. Shkreli’s hedge fund,

Elea, was also operated by Mr. Shkreli in 2006 and 2007. (Id. ¶

23.) Mr. Shkreli owed a fiduciary duty to his hedge fund

investors. (Id. ¶ 74 (noting that at all relevant times, Mr.

Shkreli was an investment adviser within the meaning of Section

202(a)(11) of the Advisers Act, 15 U.S.C. § 80b-2(a)(11))); see

also SEC v Capital Gains Research Bureau, Inc., 375 U.S. 180, 191-

94 (1963) (noting fiduciary nature of an investment advisory

relationship under Advisers Act). Mr. Shkreli was also president

and CEO of the public company, Retrophin, when he and Mr. Greebel

engaged in the scheme to defraud Retrophin through sham consulting

agreements. (Compl. ¶¶ 13, 46-51.) The Court finds that Mr.

Shkreli’s leadership positions and fiduciary roles during the

securities violations described in the complaint support the

imposition of an officer director bar.

D. Defendant’s Degree of Scienter

The Court is satisfied that Mr. Shkreli’s high degree of

scienter regarding the violations in the complaint has been

established by his underlying criminal conviction and sentencing.

See S.E.C. v. Gupta, No. 11-cv-7566 (JSR), 2013 WL 3784138, at *4

(S.D.N.Y. July 17, 2013), aff’d sub nom. U.S. S.E.C. v. Gupta, 569

F. App’x 45 (2d Cir. 2014) (imposing a permanent injunction

prohibiting the defendant from serving as an officer or director

of a public company, and noting as part of the court’s Patel

factors analysis that, in Mr. Gupta’s criminal proceedings, the

jury found that Mr. Gupta engaged in insider trading knowingly,

willfully, and with intent to defraud). Mr. Shkreli concedes that

his criminal conviction9 has already established that he acted with

a high degree of scienter as to certain allegations in the

Complaint. (ECF No. 49, Def. Opp. Mem., pp. 7-8.) Mr. Shkreli’s

criminal conviction establishes Mr. Shkreli acted with scienter

with respect to: (1) the material misrepresentations and/or

omissions he made to investors of MSMB and MSMB Healthcare; and,

(2) the misappropriation of funds from MSMB Healthcare to settle

an arbitration against MSMB and Mr. Shkreli. (Id. at n. 4 (citing

United States v. Shkreli, Dkt. No. 15-cr-637 (E.D.N.Y.).) Though

Mr. Shkreli was acquitted, in relevant part to the instant action,

of the conduct that he engaged in with Mr. Greebel to fraudulently

induce Retrophin to enter into sham consulting agreements to steal

money and shares from Retrophin to repay defrauded MSMB investors,

9 (See Dkt. No. 15-cr-637, United States v. Shkreli, ECF No. 305, Verdict, at

1-3 (the jury returned its verdict on August 4, 2017, and Mr. Shkreli was

convicted of Count Three, Securities Fraud in relation to MSMB Capital; Count

Six, Securities Fraud in relation to MSMB Healthcare; and Count Eight,

Conspiracy to Commit Securities Fraud in relation to Retrophin. Mr. Shkreli

was acquitted on Count One, Conspiracy to Commit Securities Fraud with regard

to the MSMB Scheme; Count Two, Conspiracy to Commit Wire Fraud with regard to

the MSMB Scheme; Count Four, Conspiracy to Commit Securities Fraud with

regard to the MSMB Healthcare Scheme; Count Five, Conspiracy to Commit Wire

Fraud with regard to the MSMB Healthcare Scheme; and, Count Seven, Conspiracy

to Commit Wire Fraud with regard to the Retrophin Misappropriation Scheme.)

the Court noted for the purposes of sentencing that the government

had proven this conduct by a preponderance of the evidence. (See

Dkt. No. 15-cr-637, United States v. Shkreli, ECF No. 89,

Memorandum and Order Denying Def. Motion for Judgment of Acquittal,

Feb. 26, 2018, at pp. 88-89.)

Even disregarding Mr. Shkreli’s criminal conviction, the

violations as described in the Complaint, which the Court accepts

as true, and as discussed in detail supra, demonstrate that Mr.

Shkreli was fully aware that he knowingly and intentionally was

engaging in fraudulent conduct. “Scienter, as used in connection

with the securities fraud statutes, means intent to deceive,

manipulate, or defraud, or at least knowing misconduct.” See

S.E.C. v. Bankosky, No. 12-cv-1012 (HB), 2012 WL 1849000, at *2

(S.D.N.Y. May 21, 2012), aff’d, 716 F.3d 45 (2d Cir. 2013) (quoting

S.E.C. v. Kelly, 765 F. Supp. 2d 301, 319 (S.D.N.Y.2011) (quoting

S.E.C. v. First Jersey Secs., Inc., 101 F.3d 1450, 1467 (2d

Cir.1996)). Employing the Second Circuit’s definition, the Court

considers Mr. Shkreli to have acted with a high degree of scienter

in the commission of the violations alleged in the Complaint.

Mr. Shkreli knowingly and intentionally made numerous

false statements to investors and brokers on numerous occasions

concerning the two MSMB-related hedge funds, misappropriated

investor funds which he obtained under false pretenses, and

defrauded a public company into entering into sham consulting

agreements to protect himself from claims of the defrauded

investors from his two hedge funds. Based on the record currently

before the Court, it is clear to the Court that it was Mr. Shkreli’s

intent to manipulate and deceive individual and public investors.

Though the Court considers that Mr. Shkreli acted with outright

intent in his violation of multiple securities laws, scienter can

also be “‘satisfied by a strong showing of reckless disregard for

the truth.’” iShopNoMarkup.com, Inc., 2012 WL 716928, at *5

(citing SEC v. Tecumseh Holdings Corp., 765 F. Supp. 2d 340, 349

(S.D.N.Y. 2011) (quoting S. Cherry St., LLC v. Hennessee Grp. LLC,

573 F.3d 98, 109 (2d Cir.2009)). “Conduct is reckless if it

represents an extreme departure from the standards of ordinary

care to the extent the danger was either known to the defendant or

so obvious that the defendant must have been aware of it.”

iShopNoMarkup.com, Inc., 2012 WL 716928, at *5 (citing SEC v.

Tecumseh Holdings Corp., 765 F. Supp. 2d at 349-50 (S.D.N.Y. 2011)

(internal quotation marks omitted). Even if Mr. Shkreli did not

act with knowledge and intent—which, based on the evidence, the

Court finds to be established—the record supports a finding that

at a minimum Mr. Shkreli acted with an “extreme departure from the

standards of ordinary care.” Id.

As described in the Complaint, Mr. Shkreli knowingly,

or at the very least recklessly, used one entity after another to

cover up the fraudulent conduct he committed at a different entity.

Mr. Shkreli’s high degree of scienter weighs in favor of the

imposition of an officer director bar.

E. Defendant’s Economic Stake in the Violations

Mr. Shkreli’s economic interest and the direct benefit

he derived from committing the securities violations alleged in

the Complaint weigh in favor of the imposition of an officer

director bar. As alleged in the Complaint and as supported by the

Coppola Declaration, Mr. Shkreli plainly profited from his

securities laws violations. From October 2009 through July 2011,

Mr. Shkreli misappropriated approximately $120,000 of investor

funds from MSMB for his personal benefit. (Compl. ¶¶ 3, 28.) From

January through March 2013, Mr. Shkreli misappropriated

approximately $900,000 of investor funds from MSMB Healthcare to

fund the settlement of an arbitration proceeding brought by

Executing Broker in connection with MSMB’s failure to settle its

short sales of Company A stock—a failure orchestrated by Mr.

Shkreli. (Compl. ¶¶ 3, 37-41; Coppola Decl. ¶¶ 5, 7.)

Mr. Shkreli does not dispute the SEC’s argument, which

is supported by the record, that Mr. Shkreli had an economic stake

in the violations he committed. Logically, Mr. Shkreli stood to

receive advisor fees from his hedge funds if he made it appear

that the funds were profitable, rather than conceding the truth:

that he had lost or spent all of the funds’ assets. (Compl. ¶ 24-

45.) Mr. Shkreli benefited from the misappropriations from MSMB

and MSMB Healthcare, which were used to fund the settlement with

Executing Broker and ultimately protect Mr. Shkreli from potential

claims arising from the $7 million loss Mr. Shkreli caused. (Id.

¶¶ 32-41.) Mr. Shkreli’s purpose in inducing Retrophin, of which

he was president and CEO, to enter into sham consulting agreements

was to evade liability from his fraudulent conduct involving his

hedge funds. (Id. ¶¶ 23, 46-55.)

F. Likelihood of Recurrence

Though, as noted previously, the Court does not consider

Mr. Shkreli to be a repeat offender, the Court finds that there is

a likelihood of recurrence in Mr. Shkreli’s case. Accordingly,

the Court must and will “articulate the factual basis for a finding

of the likelihood of recurrence[,]” in support of its conclusion.

S.E.C. v. Apuzzo, 184 F. Supp. 3d at 9 (D. Conn. 2016) (citing

Patel, 61 F.3d at 142).

In determining whether a “reasonable likelihood” of

future violations exists, courts may generally consider:

the egregiousness of the defendant’s actions; the

isolated, recurrent, or systematic nature of the

violations; the degree of scienter involved; the

[defendant’s] recognition of the wrongfulness of the

conduct; and the likelihood that the [defendant’s]

customary business activities will present opportunities

for future violations.

Commodity Futures Trading Comm’n v. McDonnell, 332 F. Supp. 3d

641, 725 (E.D.N.Y. 2018) (citing SEC v. Manor Nursing Ctrs., Inc.,

458 F.2d 1082, 1100-01 (2d Cir. 1972)). As noted supra, the Court

has already found Mr. Shkreli’s violative conduct at issue to be

egregious, and to have been committed with a high degree of

scienter.

As to the other factors, Mr. Shkreli’s violations were

certainly not isolated. Over a period of several years, from at

least October 2009 through March 2014, Mr. Shkreli repeatedly

committed violations of securities laws involving multiple

entities. (Compl. ¶ 1.) Mr. Shkreli’s actions, as the SEC aptly

frames them, involved “different layers of misconduct,” and

involved interconnected acts of wrongdoing against different

entities, “e.g., stealing from MSMB Healthcare to help pay his and

MSMB’s debts; stealing from Retrophin to help pay his hedge fund

debts[.]” (ECF No. 48-2, SEC Mem., at p. 13.)

Having reviewed the record, the Court also concludes

that Mr. Shkreli has demonstrated either an inability or an

unwillingness to truly recognize the “wrongfulness” of his

egregious violations of securities laws. McDonnell, 332 F. Supp.

3d at 725 (citing Manor Nursing, 458 F.2d at 1100-01). In the

instant case, Mr. Shkreli focuses almost exclusively on the

argument that he has already been sufficiently deterred and

punished, and only once across his opposition and sur-reply to the

SEC’s Motion does he express that he has accepted responsibility

for his actions. (ECF No. 49, Def. Opp. Mem., at p. 1.) Mr.

Shkreli’s opposition to the SEC’s Motion states that he has

“accepted responsibility for his conduct in this action,” by having

“consented to entry of Judgment permanently enjoining him from

future violations of the federal securities laws, waived his right

to appeal that judgment, and submitted himself to this Court’s

determination as to...additional remedies[.]” (Id.) Contrary to

Mr. Shkreli’s interpretation that the permanent injunction weighs

in his favor, the Court “has already determined in enjoining [Mr.

Shkreli] from future violations of the securities laws that there

is a likelihood that [Mr. Shkreli’s] misconduct would recur absent

appropriate constraints.” Gupta, 2013 WL 3784138, at *4.

Relatedly, as Mr. Shkreli notes, “following his conviction on

charges arising from much of the same conduct set forth in the

Complaint,” this Court sentenced Mr. Shkreli on March 9, 2018, in

his parallel criminal proceeding to eighty-four months in prison

and three years of supervised release, along with forfeiture and

restitution. (ECF No. 49, Def. Opp. Mem., p. 4.) During the

sentencing over which this Court presided, the Court noted that

Mr. Shkreli’s pre-sentencing letter reflected that he was

“generally remorseful for the betrayal of trust,” that his acts

demonstrated. (Dkt. No. 15-cr-637, ECF No. 621, Hr. Tr. 112:8-

13.) The Court also noted that it must view Mr. Shkreli’s

statements “in light of his other conduct and statements,”

including that Mr. Shkreli had “clearly and repeatedly minimized

his actions.” (Id. at 112:18-22.) In his same pre-sentencing

letter to the Court, Mr. Shkreli did not admit to “his multitude

of lies, but only that he dodged answering questions...exaggerated

if he felt he had any basis...and provided answers that were only

correct if put in a certain assumed context.” (Id. at 112:22-

113:1.) The Court also reflected on the bevy of other conduct

that “call[ed] into question the sincerity of his remorse in his

letter to the Court” (id. at 114:7-8.), including Mr. Shkreli

asserting that he would be sentenced to time served or serve only

a few months in prison, and writing “fuck the Feds,” in an email

where he claimed the Government would not be able to take all his

money. (Id. at 113:13-19.)

As to the likelihood that Mr. Shkreli’s “customary

business activities will present opportunities for future

violations[,]” McDonnell, 332 F. Supp. 3d at 725 (citing Manor

Nursing, 458 F.2d at 1100-01), the Court concludes that Mr.

Shkreli’s return to the world of investment and capital markets

would be highly likely to present opportunities for future

violations.10 A “district court may properly infer a likelihood

of future violations from the defendant’s past unlawful conduct.”

McDonnell, 332 F. Supp. 3d at 725 (citing CFTC v. Am. Bd. of Trade,

10 The Court takes judicial notice that as part of the aforementioned

proceedings in FTC v. Vyera Pharm., LLC, Dkt. No. 20-cv-706 (DLC) (S.D.N.Y.),

Mr. Shkreli has been found to have used a contraband phone (“Prison Phone”)

while incarcerated pursuant to this Court’s sentence in order to continue to

remain involved in Vyera’s business development from prison. FTC v. Vyera

Pharms., LLC, No. 20-cv-706 (DLC), 2021 WL 2201382, at *3 (S.D.N.Y. June 1,

2021). Incarceration has apparently not deterred Mr. Shkreli from continuing

to participate in his prior business ventures.

Inc., 803 F.2d 1242, 1251 (2d Cir. 1986). Mr. Shkreli’s past

unlawful conduct, which has shown a manifest disregard for the

investing public, regulatory mechanisms, and this country’s

securities laws, reasonably leads this Court to infer there is a

likelihood of future violations.

***

The Court concludes, based on a review of the record and

an analysis of the Patel factors, that Mr. Shkreli is unfit to

serve as an officer or director of any public company. The Court

next considers whether Mr. Shkreli should be permanently barred

from serving as an officer or director of any publicly traded

company, or whether a less onerous, alternative bar or conditions

will suffice.

II. Permanent Bar11

11 The Court notes that Mr. Shkreli argues, in opposition to the imposition of

a permanent bar, that other courts have imposed officer director bars limited

in duration against more culpable or comparable defendants. (See ECF No. 49,

Def. Opp. Mem., pp. 8-15 (citing to ECF No. 9, Final Judgment, SEC v. Holmes,

No. 18-cv-1602 (N.D. Cal. Mar. 27, 2018); ECF No. 87, Final Judgment, S.E.C.

v. DiMaria, 15-cv-7035 (S.D.N.Y. Aug. 16, 2017); ECF No. 43, Final Judgment,

S.E.C. v. Earls, No. 02-cv-02495 (D.D.C. Jun. 13, 2011); S.E.C. v. Chan, 465

F. Supp. 3d 18 (D. Mass. 2020)).) Though the SEC overstates the irrelevance

of these four cases, the Court notes the difference in procedural posture.

The courts in each of the first four cases entered final judgments at the

SEC’s request and with the consent of the defendants as part of settlements

between the parties. Therefore, the Court does not find persuasive Mr.

Shkreli’s reliance on these cases with regard to the Court’s determination of

the appropriateness of a permanent officer or director bar for Mr. Shkreli

using the Patel factors. As to Chan, 465 F. Supp. 3d 18, which also did not

apply the Patel factors and in which a five-year bar was imposed, the Court

notes that Mr. Chan was not an officer of the involved company—in sharp

contrast to Mr. Shkreli—and had only a modest economic stake in the fraud at

issue. Chan, 465 F. Supp. 3d at 38.

Prior to “imposing a permanent bar, the court should

consider whether a conditional bar (e.g., a bar limited to a

particular industry) and/or a bar limited in time (e.g., a bar of

five years) might be sufficient, especially where there is no prior

history of unfitness.” Patel, 61 F.3d at 142. Mr. Shkreli argues

that a permanent bar is excessive because it would be exceedingly

punitive, given his young age, the fact that he is a first-time

offender, and “all the other punitive and deterrent sanctions”

imposed against him. (ECF No. 49, Def. Opp. Mem., at p. 1.)

In determining whether a conditional bar or a bar of

limited duration is sufficient, the Second Circuit instructs that

it would not be “improper for the district court to take into

account any prior punishment that may have been imposed in a

criminal proceeding.” Patel, 61 F.3d at 142. The Court has,

therefore, taken into account Mr. Shkreli’s prior criminal

conviction in his parallel criminal proceedings—the only criminal

conviction Mr. Shkreli faced prior to the filing of the instant

action. Notably, however, the jury convicted Mr. Shkreli on three

counts of the eight-count indictment, and the Court found for

sentencing purposes that as to the other five counts, the

government had successfully proven Mr. Shkreli’s conduct by a

preponderance of the evidence. (See Dkt. No. 15-cr-637, United

States v. Shkreli, ECF No. 305, Verdict, at 1-3.)

Even given Mr. Shkreli’s status as a first-time

offender, the Court has found that every other Patel factor weighs

in favor of the imposition of a permanent officer director bar.

Based on a review of the record, Mr. Shkreli’s prior criminal

conviction, and the weight of the majority of the factors in the

Court’s Patel analysis, the Court concludes that Mr. Shkreli is

permanently unfit to serve as the officer or director of any public

company. As reflected in the Complaint, Mr. Shkreli consistently

and brazenly deceived his investors, acting as a chaotic,

dishonest, and untrustworthy corporate leader in his role as a

fiduciary and as the president and CEO of a public company. Mr.

Shkreli’s relatively young age is also concerning to the Court,

because a limited bar of five or ten years, for example, would not

sufficiently protect the public from Mr. Shkreli’s likelihood of

future violations. Mr. Shkreli’s conduct demonstrates a

persistent, prevailing inclination to place his own “self-interest

ahead of” the interests of his investors, hedge funds, and the

public companies under his control, “and further demonstrates

unfitness to serve as a corporate fiduciary.” Gupta, 2013 WL

3784138, at *4 (citing Bankosky, 2013 WL 1955809, at *4). The

imposition of a lifetime bar in Mr. Shkreli’s case is in the

interest of the investing public.

III. Civil Monetary Penalties12

The SEC argues that, in addition to the imposition of

a permanent bar from serving as an officer or director, the

imposition of monetary penalties in the amount of $1,392,000 is

appropriate. (ECF No. 48-2, SEC Mem., p. 14.) Mr. Shkreli

argues in opposition that a civil penalty in not appropriate

given the sanctions already imposed on Mr. Shkreli, and in the

event that one is imposed, only second tier penalties should

apply. (ECF No. 49, Def. Opp. Mem., p. 17.) The Court agrees

with the SEC that third tier penalties are appropriate.

A. Statutory Requirements

First, the SEC’s requested civil monetary penalties

comply with the relevant statutory requirements and relevant

statutory maximums. Pursuant to the relevant statutes, third

tier penalties may be imposed if the violation involves “fraud,

deceit, manipulation, or deliberate or reckless disregard of a

regulatory requirement,” and if the violation also resulted in

“substantial losses or created a significant risk of substantial

losses to other persons.” See 15 U.S.C. § 77t(d); 15 U.S.C. §

78u(d)(3); 15 U.S.C. § 80b-9(e). The Court, based on its

detailed consideration of the relevant facts supra, finds that

all of Mr. Shkreli’s violations included fraud, deceit,

12 The SEC has not moved for disgorgement.

manipulation, or a deliberate or reckless disregard of a

regulatory requirement, and also resulted in substantial losses

or created significant risks of substantial losses to other

persons. Id.; (see also generally Compl. ¶¶ 1-55.)

The statutes provide that, for all three tiers, the

amount of the penalty that the Court can impose, per violation,

“shall not exceed the greater of” the current statutory amount

in effect at the time of the violation, or the “gross amount of

pecuniary gain to such defendant.” Id. (emphasis added.) The

SEC’s request for an imposition of $1,392,000 in civil monetary

penalties is comprised of: (1) $932,000, the amount of Mr.

Shkreli’s gross pecuniary gain from his misappropriations from

MSMB and MSMB Healthcare; and, (2) $460,000, representing one-

time, third tier penalties for each of his three additional,

separate securities violations, i.e., misrepresentations to MSMB

investors ($150,000 penalty), misrepresentations to Executing

Broker ($150,000 penalty), and defrauding Retrophin ($160,000

penalty). (ECF No. 48-2, SEC Mem., p. 14.)13 All components of

13 These amounts accurately reflect the inflation-adjusted statutory maximum

penalty amounts for violations occurring from March 4, 2009 through March 5,

2013, adjusted again for violations occurring March 6, 2013 through November

2, 2015. See Adjustments to Civil Monetary Penalty Amounts, Release

Nos. 33-9009, 34-59449, IA-2845, dated Feb. 25, 2009 (effective Mar. 3,

2009), previously found at 17 CFR 201.1004 and Table IV to Subpart E of Part

201 (available at: https://www.sec.gov/rules/final/2009/33-9009.pdf) and

Release Nos. 33-9387, 34-68994, IA-3557, dated Feb. 27, 2013 (effective Mar.

5, 2013), previously found at 17 CFR 201.1005 and Table V to Subpart E of

Part 201 (available at: https://www.sec.gov/rules/final/2013/33-9387.pdf).

During the period (see Compl. ¶¶ 24-41, describing appropriate time period as

approximately from October 2009 to March 2013), Mr. Shkreli engaged in

the SEC’s requested total civil monetary penalties comply with

the statutory maximums.

Having determined that the requested third tier civil

monetary penalties comply with the relevant statutory

requirements and statutory maximums, the Court next turns to

determine whether these civil penalties should be imposed. See

S.E.C. v. Razmilovic, 738 F.3d 14, 38 (2d Cir. 2013), as amended

(Nov. 26, 2013) (“Beyond setting maximum penalties, the statutes

leave the actual amount of the penalty ... up to the discretion

of the district court.”) (quotation omitted); see also 15 U.S.C.

§§ 77t(d)(2)(A) (“The amount of the penalty shall be determined

by the court in light of the facts and circumstances.”);

78u(d)(3)(B)(i) (same); 80b–9(e)(2)(A) (same).

B. Imposition of Civil Monetary Penalties

In considering whether civil penalties should be

imposed and the amount of any such penalties, courts in the

Second Circuit look to a number of factors, including:

(1) the egregiousness of the defendant’s conduct; (2)

the degree of the defendant’s scienter; (3) whether

the defendant’s conduct created substantial losses or

the risk of substantial losses to other persons; (4)

whether the defendant’s conduct was isolated or

recurrent; and (5) whether the penalty should be

violations involving misappropriations from MSMB and misrepresentations to

MSMB and Executing Broker, the statutory amounts for penalties for natural

persons were $7,500 for first tier, $75,000 for second tier, and $150,000 for

third tier. See id. During the period Mr. Shkreli engaged in violations

involving Retrophin (see Compl. ¶ 3(e), describing appropriate time period as

approximately from September 2013 to March 2014), the statutory amounts for

penalties for natural persons were $7,500 for first tier, $80,000 for second

tier, and $160,000 for third tier. See id.

reduced due to the defendant’s demonstrated current

and future financial condition.

S.E.C. v. Fowler, 6 F.4th 255, 266 (2d Cir. 2021), cert. denied,

142 S. Ct. 590 (2021). SEC v. Rajaratnam, 918 F.3d 36, 44 (2d

Cir. 2019). The Court, in its detailed Patel factors analysis

supra, has already made findings as to relevant factors one

through four for determining an appropriate civil monetary

penalty. Specifically, the Court has determined that (1) Mr.

Shkreli’s conduct was egregious; (2) Mr. Shkreli acted with a

high degree of scienter in the commission of his violations; (3)

Mr. Shkreli’s conduct created substantial losses and the risk of

substantial losses to others; and, (4) Mr. Shkreli’s conduct was

recurrent. See Fowler, 6 F.4th at 266. The Court next considers

whether the third tier penalty should be reduced by one level

due to Mr. Shkreli’s demonstrated current and future financial

condition.

The record, however, does not reflect that Mr. Shkreli

faces present or future financial circumstances that would

warrant a reduction from third to second tier penalties. Mr.

Shkreli has not submitted any evidence demonstrating an

inability to pay a civil monetary penalty imposed by the Court.

Mr. Shkreli appears to argue in this regard that the economic

ramifications (the forfeiture, restitution, and fine) of his

criminal conviction and sentencing have sufficiently cost and

punished him, which should preclude the imposition of any

further civil penalties. (ECF No. 49, Def. Opp. Mem. pp. 19-20;

ECF No. 53, Def. Sur-Reply, pp. 1-2.) As part of his criminal

sentencing, Mr. Shkreli has been Ordered to forfeit $7,360,450

(reflecting the moneys invested by MSMB and MSMB Healthcare

investors), pay a fine of $75,000, and pay mandatory restitution

in the amount of $388,336.49 to one investor in MSMB Healthcare.

(Dkt. No. 15-cr-637, United States v. Shkreli, ECF No. 565,

Sentencing Order; Dkt. No. 15-cr-637, United States v. Shkreli,

Dkt. Order Apr. 9, 2018, Restitution Order.) The Court cannot

find, based on Mr. Shkreli’s unsubstantiated arguments, that his

financial circumstances, due to his criminal financial penalties

and his income lost while incarcerated, warrant a reduction of a

third tier civil monetary penalty. Cf. U.S. S.E.C. v.

Syndicated Food Serv. Int’l, Inc., No. 04-cv-1303 (NGG) (VMS),

2014 WL 2884578, at *20 (E.D.N.Y. Feb. 14, 2014), report and

recommendation adopted, No. 04-cv-1303 (NGG) (VLS), 2014 WL

1311442 (E.D.N.Y. Mar. 28, 2014) (bringing defendant down one

tier, taking into account defendant’s present and likely severe

health, family and financial circumstances.).

This Court has broad discretion to impose the civil

monetary penalties it deems appropriate in the instant case.

See S.E.C. v. de Maison, No. 18-2564, 2021 WL 5936385, at *1 (2d

Cir. Dec. 16, 2021) (quoting SEC v. Fowler, 6 F.4th 255, 265 (2d

Cir. 2021)) (quoting SEC v. Sourlis, 851 F.3d 139, 146 (2d Cir.

2016)) (“[O]nce the district court has found federal securities

law violations, it has broad equitable power to fashion

appropriate remedies.”). As Mr. Shkreli correctly points out,

“[c]ivil monetary penalties are authorized by the Securities Act

and the Exchange Act for both deterrent and punitive purposes.”

See S.E.C. v. Sourlis, 851 F.3d 139, 146 (2d Cir. 2016) (citing

Razmilovic, 738 F.3d 14, 38–39 (2d Cir. 2013)). Given (1) the

egregiousness of Mr. Shkreli’s conduct  in misappropriating

investors’ funds from MSMB and MSMB Healthcare, making flagrant

misrepresentations to MSMB investors and Executing Broker, and

defrauding Retrophin; (2) the high degree of scienter with which

Mr. Shkreli acted in committing those egregious violations; (3)

the substantial losses and risk of substantial losses to other

persons created by Mr. Shkreli’s misappropriations and

misrepresentations; (4) the recurrent nature of Mr. Shkreli’s

misconduct; and, (5) the lack of evidence demonstrating that the

monetary penalties should be reduced due to Mr. Shkreli’s

current and future financial condition, the Court concludes that

third tier penalties are appropriate in the instant case, both

as punishment for Mr. Shkreli and for their deterrent effect.

The Court will impose third tier civil monetary penalties as to

Mr. Shkreli, in the total amount of $1,392,000.00, for the

following: (1) $932,000, the amount of Mr. Shkreli’s gross

pecuniary gain from his misappropriations from MSMB and MSMB

Healthcare; and, (2) $460,000, representing one-time, third tier

penalties for each of his three additional, separate securities

violations, i.e., misrepresentations to MSMB investors ($150,000

penalty), misrepresentations to Executing Broker ($150,000

penalty), and defrauding Retrophin ($160,000 penalty). (ECF No.

48-2, SEC Mem., p. 14.)

CONCLUSION

Accordingly, and for all the foregoing reasons, the

Court GRANTS the SEC’s Motion for a permanent Officer and Director

Bar and Civil Monetary Penalties in its entirety. (ECF No. 48-

1.) As reflected in the accompanying Final Judgment (“Judgment”)

as to Defendant Martin Shkreli, the Court permanently bars Mr.

Shkreli from serving as an officer or director of any public

company, and further imposes civil monetary penalties of

$1,392,000.00, against him. As reflected in the Judgment, the SEC

has withdrawn its claims for disgorgement and prejudgment

interest. The Clerk of Court is respectfully ordered to enter the

Judgment pursuant to Rule 54(b) of the Federal Rules of Civil

Procedure. The Court shall retain jurisdiction of this matter

solely for the purposes of enforcing the terms of the Judgment.

SO ORDERED.

Dated: February 23, 2022

Brooklyn, New York

_____________/s/_____________

Kiyo A. Matsumoto

United States District Judge