Court Opinion

ID: 4417870
Source: CourtListenerOpinion
Date Created: 2019-07-18 15:00:16.93075+00
Date Added: 2024-06-11T12:52:29.239246
License: Public Domain

18-819-cr
United States v. Shkreli

                            UNITED STATES COURT OF APPEALS
                                FOR THE SECOND CIRCUIT

                                       SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

        At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
18th day of July, two thousand nineteen.

Present:
            DENNIS JACOBS,
            DEBRA ANN LIVINGSTON,
            JOSEPH F. BIANCO,
                   Circuit Judges,
_____________________________________

UNITED STATES OF AMERICA,

                           Appellee,

                  v.                                               18-819-cr

MARTIN SHKRELI,

                           Defendant-Appellant,

EVAN GREEBEL,

                  Defendant.
_____________________________________

For Appellee:                                JACQUELYN M. KASULIS (Alixandra E. Smith, on the
                                             brief), for Richard P. Donoghue, United States
                                             Attorney for the Eastern District of New York,
                                             Brooklyn, NY.

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For Defendant-Appellant:                  MARK M. BAKER (Benjamin Brafman, Marc Agnifilo,
                                          Andrea Zellan, Jacob Kaplan, Teny R. Geragos, on the
                                          brief), Brafman & Associates, P.C., New York, NY.

       Appeal from a judgment of the United States District Court for the Eastern District of

New York (Matsumoto, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

       Defendant-Appellant Martin Shkreli (“Shkreli”) appeals from an amended judgment of

the United States District Court for the Eastern District of New York, dated April 11, 2018,

sentencing him to 84 months’ imprisonment and ordering him to pay (1) a fine of $75,000; (2)

restitution of $388,336.49; and (3) forfeiture in the amount of $7,360,450.00, following a jury

verdict convicting him of two counts of securities fraud and one count of conspiracy to commit

securities fraud, in violation of 15 U.S.C. § 78j(b) and 18 U.S.C. § 371, respectively.       See

Amended Judgment, No. 15-cr-637 (KAM) (E.D.N.Y. Filed April 17, 2018), ECF No. 583.           We

assume the parties’ familiarity with the underlying facts, the procedural history of the case, and

the issues on appeal.

Jury Instruction

       Shkreli first argues that the district court incorrectly instructed the jury either (1) by

including a “no ultimate harm” (“NUH”) instruction as to securities fraud, or (2) even if a NUH

instruction could properly be included in some form as to securities fraud, by varying the

wording of that NUH instruction between the securities fraud and wire fraud counts. He points

to his convictions for securities fraud and acquittals for wire fraud as evidence that the

instructions were incorrect and confusing to the jury.   “We review a jury instruction challenge

de novo, but we will reverse only where the charge, viewed as a whole, demonstrates prejudicial

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error.”    United States v. Coppola, 671 F.3d 220, 247 (2d Cir. 2012). “Where . . . a defendant

requested a different jury instruction from the one actually given, the defendant bears the burden

of showing that the requested instruction accurately represented the law in every respect and that,

viewing as a whole the charge actually given, he was prejudiced.” United States v. Nektalov,

461 F.3d 309, 313-14 (2d Cir. 2006) (internal quotation marks omitted).

          At the outset, we see no error generally in the inclusion of a NUH instruction for a

securities fraud charge.    In fact, we have upheld such an instruction in securities fraud cases on

multiple occasions. See, e.g., United States v. Lange, 834 F.3d 58, 79 (2d Cir. 2016); United

States v. Leonard, 529 F.3d 83, 91-92 (2d Cir. 2008). We agree with the government that a

securities fraud charge without the NUH instruction would actually have constituted a windfall

for Shkreli, whose defense was “exactly the kind of improper argument that the NUH instruction

was designed to address: that despite his many misrepresentations and omissions to the MSMB

Capital and MSMB Healthcare investors, he did not have the requisite intent to defraud those

investors because he believed that the investors would ultimately make money from their

investments.”     Appellee’s Brief 40; see also United States v. Ferguson, 676 F.3d 260, 280 (2d

Cir. 2011) (upholding NUH instruction because it “ensured that jurors would not acquit if they

found that the defendants knew the [transaction] was a sham but thought it beneficial for the

stock price in the long run . . . [given that] the immediate harm in such a scenario is the denial of

an investor’s right to control her assets by depriving her of the information necessary to make

discretionary economic decisions” (internal quotation marks and brackets omitted)).

          We also disagree with Shkreli that it was error for the terms of the NUH instructions to

vary between the securities fraud and wire fraud counts.          The two crimes have different

elements—there is no basis for inclusion of language requiring the jury find that Shkreli acted

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“for the purpose of causing some loss to another” in order to convict him of securities fraud

simply because such a finding is required to convict him of wire fraud. And given these

differing elements, Shkreli’s repeated invocations of United States v. Rossomando, 144 F.3d 197

(2d Cir. 1998), and United States v. Berkovich, 168 F.3d 64 (2d Cir. 1999)—cases dealing

exclusively with wire fraud—are unavailing.       The instruction given here correctly stated the

law.   As such, we disagree with Shkreli that exclusion of additional language describing an

element not required for the charged crime constituted a prejudicial error.

Forfeiture

       Next, Shkreli argues that the district court erred when it ordered forfeiture in the amount

of $6,400,450, representing the total amount invested by investors in his hedge funds (Counts

Three and Six).1   He argues that the award of forfeiture was inappropriate for three reasons: (1)

not all investors in the hedge funds testified, and thus the government did not prove that the

funds associated with the non-testifying investors were acquired by fraud; (2) the amount should

be reduced to account for losses he incurred by making trades for the funds; and (3) the large

returns seen by investors in the funds should cause his forfeiture to be reduced to zero.

       “When a forfeiture award is challenged on appeal, this Court reviews the district court’s

legal conclusions de novo and its factual findings for clear error.” United States v. Treacy, 639
F.3d 32, 47 (2d Cir. 2011).   The government sought forfeiture under 18 U.S.C. § 981(a)(1)(C),

which renders subject to forfeiture “[a]ny property, real or personal, which constitutes or is

derived from proceeds traceable to” a number of offenses, including securities fraud.       “In cases

involving lawful goods or lawful services that are sold or provided in an illegal manner, the term

1
  Shkreli does not appeal the $960,000 in forfeiture ordered due to his conviction for conspiracy
to commit securities fraud (Count Eight). See Def.-App. Brief 48 at n.18.

                                                 4
‘proceeds’ means the amount of money acquired through the illegal transactions resulting in the

forfeiture, less the direct costs incurred in providing the goods or services.”   Id. § 981(a)(2)(B);

see also United States v. Contorinis, 692 F.3d 136, 145 n.3 (2d Cir. 2012) (observing that cases

involving the sale of securities falls under “lawful goods or lawful services that are sold or

provided in an illegal manner,” as the “[t]erm unlawful activities in section 981(a)(2)(A) was

meant to cover inherently unlawful activities such as robbery that are not captured by the words

illegal goods and illegal services” (internal quotation marks omitted)).      Defendants have the

burden of establishing “direct costs,” which “shall not include any part of the overhead expenses

of the entity providing the goods or services, or any part of the income taxes paid by the entity.”

18 U.S.C. § 981(a)(2)(B).    “Criminal forfeiture focuses on the disgorgement by a defendant of

his ill-gotten gains.” Contorinis, 692 F.3d at 146 (internal quotation marks omitted); United

States v. Torres, 703 F.3d 194, 203 (2d Cir. 2012) (“[F]orfeiture is gain based.” (internal

quotation marks omitted)).

       First, we disagree with Shkreli that the lack of testimony by every investor in his hedge

funds requires reduction of the forfeiture amount.      We rejected a similar argument in United

States v. Kalish, 626 F.3d 165, 168 (2d Cir. 2010), where we declined to decrease the amount of

forfeiture imposed based on the defendant’s argument that “only a few customers testified that

false promises had been made to them.”      As in Kalish, “false promises were routinely made” to

Shkreli’s investors. Id.; see also Appellee’s Brief 56 (describing “the sheer breadth and depth

of the material misrepresentations and omissions made by Shkreli to investors in the course of

the two frauds to induce investment, which touched on every aspect of the operation of the

MSMB Funds”).          Moreover, we agree with the government that the continuing

misrepresentations sent to all investors in the funds (in the form of false performance reports sent

                                                 5
out on a regular basis, for example) clearly link Shkreli’s ability to retain the invested money to

his fraud. As such, we discern no clear error in the district court’s factual finding that the

money associated with all the investors was traceable to Shkreli’s fraud irrespective whether or

not the investors testified.

        Next, we disagree with Shkreli that his forfeiture award should be decreased based on the

trading activities of his hedge funds, which he argues should be deemed “direct costs.”          As

noted above, it was Shkreli’s burden to prove his direct costs. See 18 U.S.C. § 981(a)(2)(B).

We, like the district court, conclude that Shkreli failed to meet such a burden. See Special

Appendix (“SPA”) 123 (noting that Shkreli “provides only bare citations to various government

exhibits, with minimal analysis”). For example, although Shkreli argues that for one hedge

fund “[his] net gain, after the investment of the received funds are factored, is a significantly

lesser amount” than the full amount originally invested in the fund, he does not explain what that

net gain might be or how we should calculate it.      Def.-App. Brief 66.   Similarly, while for the

other hedge fund Shkreli argues that the majority of the money originally invested was used to

buy an interest in his pharmaceutical start-up Retrophin, he does not grapple with the finding that

a large portion of that amount was actually diverted to pay his personal debts. A “cursory

argument” is not enough.       United States v. Mandell, 752 F.3d 544, 554 (2d Cir. 2014).    As in

Mandell, we conclude that Shkreli has failed to meet his burden as to trading losses.

        Lastly, Shkreli argues that we should adopt the reasoning of United States v. Hollnagel,

2013 WL 5348317 (N.D. Ill. Sept. 24, 2013)—a district court case from outside our circuit—in

which the court concluded that the robust returns received by investors should reduce the

forfeiture amount required of the defendant to zero. See id. at *4. However, as noted above,

we have held that “forfeiture is gain based,” not based on the losses (or gains) to victims.

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Torres, 703 F.3d at 203 (internal quotation marks omitted). And even if Shkreli argues that he,

like the defendants in Hollnagel, “incurred the cost of paying [his] investors,” 2013 WL
5348317, at *5, he makes no suggestion that he has not profited from the frauds.           To the

contrary, the district court found that he misappropriated large sums of the money invested in his

funds for his own use.   As such, we see no clear error in the district court’s conclusion that, at

the very least, the gains to Shkreli include the money he caused his investors to invest via fraud.

Cf. Appendix 376 (“[T]he proceeds [Shkreli] obtained as a result of his misrepresentations

enabled him to control millions of dollars that were used to fund and enable the success of

Retrophin, pay his personal debts and expenses, and perpetuate additional frauds.”)

       We have considered Shkreli’s remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgment of the district court.

                                                     FOR THE COURT:
                                                     Catherine O’Hagan Wolfe, Clerk

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