A Villain for Our Times

America loves a good villain, and over recent months, Martin Shkreli has supplied the need.

The son of Albanian and Croatian immigrants who worked as janitors, Mr. Shkreli became something of a Wall St. wunderkind before he become famous — or, better, infamous — as the founder of a pharmaceutical company called Retrophin, where his business model was buying the right to manufacture old life-saving drugs like Thiola, a kidney medication, whose patents had expired and which had no generic equivalents, and then hiking their prices, sometimes astronomically.

His notoriety, and the harsh criticism that followed in its wake, only grew when he carried over that commercial approach to found a second company, Turing Pharmaceuticals. That company acquired the rights to, among other drugs, an anti-malarial, anti-parasitic medicine called Daraprim.

In the U.S., the price of a single pill of the drug increased from $13.50 to $750. That move was criticized by, among others, the Infectious Diseases Society of America and the Pharmaceutical Research and Manufacturers of America — and, soon thereafter by several presidential candidates. Democratic candidate Bernie Sanders called him a “poster child of greed,” and refused to keep a $2,700 contribution Shkreli made to his campaign, giving it instead to a community health center.

And so, understandably, the 32-year-old Shkreli’s arrest last week on charges that could land him in jail for 20 years brought a sense of happy anticipation to many.

What the 32-year-old Shkreli is charged with, however, is unrelated to his price gouging. What he stands accused of instead, is securities fraud, for having engaged in, in the words of federal law-enforcement officials last Thursday, “a Ponzi scheme.” One official characterized the accused as having engaged in a “trifecta of lies, deceit and greed.” Mr. Shkreli is currently free on $5 million bail.

His story is a morality tale that begins when, as a mere teenager, having apprenticed with a large hedge fund, he founded one of his own. When, in 2009, his maiden fund failed and a court ordered him to pay $2.3 million to cover a failed bet on the stock market, Shkreli founded a second fund, allegedly lying to finance it. One investor was assured that the fund’s accounts held $35 million, when, in reality, its assets amounted to $700.

Over ensuing years, the fund, MSMB Capital, also failed miserably, but Mr. Shkreli allegedly sent out false “performance updates” nevertheless, assuring clients that they were making money.

It was then that the young businessman founded Retrophin, and instituted the business model that gained him notoriety. Eventually the company’s board, realizing that its CEO had been ensnaring investors in order to amass assets he used to pay off his hedge fund debts, dismissed him and filed a $65 million lawsuit against him.

There is an edifying morality tale here.

Despite what prosecutors claim, the crime that Shkreli allegedly committed was not a Ponzi scheme, at least not in the phrase’s classical sense. A Ponzi scheme is an intentional setup wherein the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, who are enticed by high returns, paid out until the entire house of cards inevitably collapses. What Martin Shkreli may well have intended, though, was to be successful enough in his later business ventures to pay back all that he owed those he misled.

Not that such an intention changes the fact that, if the allegations are proven, he lied to people, acted in a recklessly irresponsible manner and broke the law.

But the morality tale here lies in how Shkreli’s “bending the truth” in an effort to achieve financial success not only snowballed out of control but brought him to act in ways that he might never have been capable of at the start.

It’s certainly possible that Martin Shkreli would have had no problem, even from the start, with acting immorally by seeking to grossly profit from the suffering of people facing dreaded diseases. But it is certainly conceivable that he might never have considered so ugly a commercial model as a first venture, but, rather, that, once he made the choice to lie and manipulate investors, what once might have been unthinkable to him became, fueled by greed and desperation, entirely thinkable, even reasonable.

And so, a real-life lesson for every entrepreneur may lie in the fact that Mr. Shkreli is facing a possible long prison sentence not for the worst he is accused of doing, but for what may have merely started him down his personal slippery slope.