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$11M Fraud: More charges may be coming against Shkreli, Attorney

Martin Shkreli and attorney Evan Greebel are escorted by law enforcement agents in New York in December 2015.
Martin Shkreli and attorney Evan Greebel are escorted by law enforcement agents in New York in December 2015.

By Christine Simmons, From New York Law Journal
Martin Shkreli, the former pharmaceutical executive who was arrested alongside his company’s corporate attorney, Evan Greebel, may use a “reliance of counsel” defense and is exploring whether to sever his case from Greebel’s.
Meanwhile, federal prosecutors said Tuesday they may file additional charges in a superseding indictment against the pair within the next month.
In an indictment unsealed last December, the Eastern District U.S. Attorney’s Office alleged that Shkreli and Greebel used a series of settlement and sham consulting agreements that caused pharmaceutical company Retrophin and its investors to lose more than $11 million.
Shkreli was Retrophin’s CEO until 2014. Greebel was Retrophin’s outside counsel and a partner at Katten Muchin Rosenman at the time of the alleged fraud. He joined Kaye Scholer last July but resigned from that law firm this year, months after the indictment was unsealed.
Shkreli is charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy, while Greebel is charged with wire fraud conspiracy.
Both have pleaded not guilty.
At a status conference Tuesday, attorneys for Shkreli and Greebel told Eastern District Judge Kiyo Matsumoto that they are reviewing “millions of documents” handed over by prosecutors. They urged the judge to delay setting a trial date, especially since prosecutors have raised the potential for a superseding indictment.
Greebel’s attorney, Gibson Dunn & Crutcher partner Reed Brodsky, said the new allegations could be much more “expansive” than the December indictment.
But Assistant U.S. Attorney Winston Paes told the judge that if prosecutors did file a superseding indictment, it would be brought within a month and it would not add more discovery. He said any superseding indictment could include additional ways of defrauding Retrophin.
In particular, Paes referenced two allegations in a civil suit brought against Shkreli last year by Retrophin. The civil suit claims Shkreli used his control over the company to enrich himself.
Specifically, Retrophin, represented by Cooley, alleges Shkreli used the company’s opportunity to allocate 2.4 million unrestricted shares in a reverse merger entity to induce two employees to give him 90,000 shares.
Secondly, Retrophin alleges Shkreli was involved in using funds raised by the company in a 2013 transaction to make a personal investment and acquire 180,000 shares.
The judge set June 6 for the next court date, by which time any superseding indictment may be filed.
In early December, Eastern District Judge Jack Weinstein ruled that communications between Shkreli and Greebel were not privileged.
Shkreli’s attorney, Benjamin Brafman, of Brafman & Associates, told Matsumoto that he doesn’t intend to ask the court to reconsider Weinstein’s decision, but he did not accept Weinstein’s conclusion that the crime-fraud exception applies in this matter.
“Our position, however, will permit counsel to pursue a ‘reliance of counsel defense’ should we deem it appropriate at trial,” Brafman said in a letter.
He also raised the possibility of a severance motion. He told reporters after court, “We want to explore the possibility that this case may need two separate trials, depending on whether we intend to interpose a defense based on a reliance of counsel.”
He added he needed to review all discovery material before deciding.
Brafman said he still believes the charges “are very defensible” and was pleased Matsumoto was willing to work reasonably in scheduling. “We intend to proceed to trial,” he said.
Brodsky declined to comment after court.
IMAGE:. Martin Shkreli and attorney Evan Greebel are escorted by law enforcement agents in New York in December 2015. AP/Craig Ruttle, Landov/Louis Lanzano
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