By Rodney F. Tonkovic, J.D.
Former Retrophin, Inc. head Martin Shkreli has filed a petition for certiorari with the Supreme Court challenging the jury instructions in his securities fraud prosecution. Shkreli's petition challenges the Second Circuit's approval of a "no ultimate harm" instruction in the securities fraud context. He also takes issues with how his forfeitable profits were calculated. A response is due on November 15, 2019 (Shkreli v. U.S., October 10, 2019).
Shkreli was convicted of three counts (out of eight charged): two counts of securities fraud under Exchange Act Section 10(b) in connection with the hedge funds he managed and one count of conspiracy to commit securities fraud in connection with his pharmaceutical company, Retrophin. The Second Circuit ultimately affirmed the district court's judgment, amending it to impose a concurrent term of imprisonment of 84 months. He was also ordered to pay fines totaling $75,000, restitution in the amount of $388,336.49 and forfeiture of substitute assets in the amount of $7,360,450.
"No ultimate harm" instruction. Shkreli objects to the "no ultimate harm" instruction given to the jury. According to the petition, the court gave two different versions of the instruction for the securities fraud (for which Shkreli was convicted) and wire fraud counts (for which Shkreli was acquitted) and then incorporated both versions by reference when the court instructed the jury on the good faith defense. The instruction for the securities fraud charges told the jury that a defendant's belief that everything would work out so that no investors would lose any money does not require a finding that the defendant acted in good faith. On the other hand, the instructions for the wire fraud charges included language specifying that "an intent to defraud" means to intend to deceive for the purpose of causing loss to another.
Before the Second Circuit, Shkreli argued that his inconsistent acquittals and convictions were explained by the district court's disparate jury instructions regarding "no ultimate harm" between the securities fraud-related counts and the wire fraud conspiracies. If it was correct to give the instruction as to securities fraud in the first place, the additional language from the wire fraud instructions should have been included, Shkreli said. The Second Circuit saw no error in including a "no ultimate harm" instruction in securities fraud cases, noting that it has previously upheld such an instruction on multiple occasions. There was no error in the differing language between the two instructions because the crimes have different elements, and the instructions correctly stated the law.
The petition asks the Court to consider, as a matter of first impression, whether a "no ultimate harm" instruction is appropriate in the securities fraud context, since there is no element of loss or intended loss. The instruction effectively holds the accused to a higher standard of conduct than the statute requires. Shkreli notes that mail, wire and bank fraud are premised on a showing of intended harm. Securities fraud, on the other hand, requires an intent to defraud—intent to harm is not an element. Almost all of the circuit courts of appeals have approved the "no ultimate harm" instruction, the petition says, but almost uniformly with respect to mail or wire fraud; some have approved the instruction in the context of securities fraud under a different section than that involved in this case, such as mail, bank, or wire fraud. If the instruction is approved in a securities fraud case, the petition asks that the Court consider whether additional language should be required in order to avoid prejudice.
Forfeitable profits. Shkreli's second question concerns the calculation of forfeitable profits. Prior to sentencing, the government moved for forfeiture of Shkreli's profits, and Shkreli countered that the forfeitable proceeds should be reduced by money returned to investors. The district court ruled in favor of the government.
According to Shkreli, the forfeiture statute requires a precise determination of the proceeds illegally collected, minus certain offsets that the district court failed to consider, such as the returns received by the investors. The Second Circuit disagreed, stating that "forfeiture is gain based" and, at the very least, Shkreli's gains included the money he caused his investors to invest via his misrepresentations.
Shkreli asserts that the forfeiture provision is ambiguous enough to reasonably preclude consideration of a defendant’s "gains" until the investors' own gains are then subtracted. In this case, then, it can be argued that no forfeitable funds—or at least a much lower amount—remained after the robust profits paid to investors.
The petition is No. 19-459.