United States v. Greebel

UNITED STATES OF AMERICA v. EVAN GREEBEL, Defendant.

15-cr-637(KAM)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

August 14, 2018

MEMORANDUM AND ORDER

MATSUMOTO, United States District Judge:

Before the court is defendant Evan Greebel's motion for a judgment of acquittal or in the alternative for a new trial, pursuant to Federal Rules of Criminal Procedure 29 ("Rule 29") and 33 ("Rule 33"). (ECF No. 530 ("Mem."); ECF No. 563 ("Gov. Opp."); ECF No. 574 ("Def. Reply").) The court heard argument on defendant's motions and the government's motion for forfeiture on April 13, 2018, and ordered further briefing on forfeiture. (Government's Letter, ECF No. 585 (Gov. Letter); Defendant's Letter, ECF No. 587 (Def. Letter).)

For the reasons set forth below, the court denies Mr. Greebel's motions for judgment of acquittal or a new trial pursuant to Rule 29 and Rule 33.

Background

I. The Charges

Counts One through Six of the June 3, 2016 Superseding Indictment charged Mr. Greebel's co-defendant, Martin Shkreli, with six counts of securities fraud, conspiracy to commit securities fraud, and conspiracy to commit wire fraud in relation to two hedge funds, MSMB Capital and MSMB Healthcare. Counts Seven and Eight, respectively, charged Mr. Greebel and Mr. Shkreli of conspiring, along with others, to commit wire fraud and conspiring to commit securities fraud in relation to a pharmaceutical company known as Retrophin.¹ (Superseding Indictment, ECF No. 60.)

The Superseding Indictment described the charged conduct as follows:

A. Counts One through Six: the MSMB Capital and MSMB Healthcare Schemes

Counts One and Four charged Mr. Shkreli with Conspiracy to Commit Securities Fraud, in violation of Title 18, United States Code Section 371; Counts Two and Five charged Mr. Shkreli with Conspiracy to Commit Wire Fraud, in violation of Title 18, United States Code Section 1349; and Counts Three and Six charged Mr. Shkreli with Securities Fraud in violation of Title 15, United States Code Sections 78j(b) and 78ff.

These counts related to Mr. Shkreli's solicitation of, and communications with, investors in two hedge funds he founded, MSMB Capital and MSMB Healthcare. Counts One through Three charged Mr. Shkreli with offense conduct related to MSMB Capital and were referred to in the Superseding Indictment as the "MSMB Capital Scheme"; Counts Four through Six charged Conduct related to MSMB Healthcare and were referred to as the "MSMB Healthcare Scheme."

B. Count Seven: the Retrophin Misappropriation Scheme

Mr. Shkreli founded Retrophin, a biopharmaceutical company, in the Spring of 2011. Mr. Greebel, then a corporate lawyer at the firm Katten Muchin Rosenman, was Retrophin's outside counsel from approximately December 2012 to September 2014. In Count Seven, the Superseding Indictment charged Mr. Shkreli and Mr. Greebel with a conspiracy to commit wire fraud against Retrophin, based on three theories: (1) that they caused Retrophin to transfer Retrophin shares to MSMB Capital even though MSMB Capital had not invested in Retrophin; (2) that they caused Retrophin to enter into, and pay for, settlement agreements with disgruntled MSMB Capital and MSMB Healthcare investors; and (3) that they caused Retrophin to enter into "sham" consulting agreements with disgruntled investors in MSMB Capital, MSMB Healthcare, and Elea Capital (a prior hedge fund founded by Mr. Shkreli) as a mechanism to settle liabilities the investors claim were owed to them by Mr. Shkreli or his MSMB or Elea Capital hedge funds.

C. Count Eight: the Unrestricted Shares Scheme In Count Eight, the Superseding Indictment charged Mr. Shkreli and Mr. Greebel, along with others, with Conspiracy to Commit Securities Fraud. The Superseding Indictment charged that Mr. Shkreli, Mr. Greebel, and others conspired to control the price and trading of Retrophin stock.

II. Mr. Shkreli's Trial

The defendants jointly moved for severance, and the court granted their motion on April 19, 2017. (Order Granting Motions for Severance, ECF No. 198.) Mr. Shkreli proceeded to a jury trial on June 26, 2017. On August 4, 2017, the jury found Mr. Shkreli guilty 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. (Verdict, ECF No. 305, at 1-3.) On February 26, 2018, the court denied Mr. Shkreli's motion for a judgment of acquittal. The court concluded that based on the government's evidence, the jury reasonably found that Mr. Shkreli had made numerous, intentional and material false statements about, inter alia, the size, investment strategy, and performance of his MSMB Capital (Count Three) and MSMB Healthcare (Count Six) hedge funds, and also that there was sufficient evidence to support the jury's verdict that Mr. Shkreli and Mr. Greebel had conspired to commit securities fraud with regard to Retrophin (Count Eight). (ECF No. 535.) On March 9, 2018, the court sentenced Mr. Shkreli to eighty-four months in custody and three years of supervised release.

III. Mr. Greebel's Trial

Jury selection for the trial of Mr. Greebel commenced on October 16, 2017, and trial began on October 20, 2017. The government called as witnesses former MSMB Capital and MSMB Healthcare investors and employees, Retrophin employees and board members, accountants, and summary fact witnesses. The government rested on December 6, 2017. (Tr. 8064:3-6.) Mr. Greebel presented a defense case, calling, among others, Mr. Greebel's former colleagues from Katten and expert witnesses. The court instructed the jury on the morning of December 22, 2017, and the jury began deliberations later that day. On December 26, 2017, the court dismissed a juror on an unopposed defense application (Tr. 10968:6-9), and deliberations began again with an alternate juror.

The jury returned its verdict on December 27, 2017, on the second day of deliberations. The jury found Mr. Greebel guilty of both Count Seven, Conspiracy to Commit Wire Fraud in relation to Retrophin, and Count Eight, Conspiracy to Commit Securities Fraud in relation to Retrophin. (ECF No. 502.)

A. Evidence at Trial

The following summary is limited to the trial testimony and documentary evidence necessary to discuss issues raised in defendant's Rule 29 and Rule 33 motions. Defendant first made a Rule 29 motion after the government rested, and the court reserved decision. (Tr. 8150:11.) Pursuant to Rule 29(b), the court will "decide the motion on the basis of the evidence at the time the ruling was reserved." The government called multiple witnesses not specifically discussed below, including the case agent, who introduced a number of significant documents, including communications between Mr. Greebel and Mr. Shkreli and others.

In summarizing the evidence, the court is mindful that it "'must review the evidence in the light most favorable to the government, drawing all reasonable inferences in its favor.'" United States v. Cain, 671 F.3d 271, 302 (2d Cir. 2012) (quoting United States v. Gaskin, 364 F.3d 438, 459 (2d Cir. 2004)). In addition, except as necessary to give context to the counts for which Mr. Greebel was charged and convicted, the court does not discuss in detail evidence that showed that Mr. Shkreli defrauded investors in the MSMB hedge funds by falsely representing his educational background, the funds' assets under management ("AUM"), investment strategy, the relationship between the funds and Retrophin, the funds' liquidity, or the funds' investment performance, as the substance of the charges against Mr. Shkreli is not contested in defendant's motion.

1. MSMB Investor Witnesses

Sarah Hassan

In January 2011, Ms. Hassan invested $300,000 from her personal funds into MSMB Capital. (Tr. 14398:25-1439:7.) In April 2011, Ms. Hassan invested $150,000 from her family's investing fund, Dynagrow Capital, into Retrophin, which Ms. Hassan understood to be a "pharmaceutical bio-type company" Mr. Shkreli founded that "focused on orphan drugs," which are "drugs for a disease state[] that has a small number of patients." (Tr. 1444:10-1446:20.) She viewed Retrophin and MSMB Capital as "very much different" and did not understand that MSMB Capital had invested in Retrophin. (Tr. 1447:4-14.) Through 2011, Ms. Hassan received periodic performance reports regarding her investments in MSMB Capital, which indicated that her investment was "really outpacing the market. (Tr. 1447:15-1448:23; see, e.g. GX 80-13 (December 2011 performance update).) On March 16, 2012, Mr. Shkreli sent Ms. Hassan a capitalization table for Retrophin, which had been forwarded to Mr. Shkreli by Mr. Greebel, and which did not include any investment into Retrophin by MSMB Capital. (GX 101-9.)

On September 9, 2012, Ms. Hassan received two emails from Mr. Shkreli. The first was a performance update for the month of June 2012, indicating that Ms. Hassan had earned an approximately $135,000.00 return on her $300,000 investment in MSMB Capital, for a total investment value of $435,266.00 "net of fees." (Tr. 1459:3-13; GX 80-19.) Ms. Hassan was "very happy" with this update. (Tr. 1459:19.) In the second email, Mr. Shkreli stated that he was planning to "wind down" the "hedge fund partnership with the goal of completing the liquidation of the fund by November or December 1, 2012." (Tr. 1460:9-1461:20; GX 101-15 (the "wind-down" email).) The wind-down email stated that investors would have the choice of redeeming their investment in cash or in Retrophin shares. (Id.) Based on these emails, Ms. Hassan anticipated that her investment in MSMB Capital was worth approximately $435,000.00, and on September 28, 2012, she requested repayment in cash "with the possibility that [she might] reinvest some of it in Retrophin." (Tr. 1463:1-5; GX 101-16.)

On December 18, 2012, Mr. Shkreli sent Ms. Hassan a press release about Retrophin's anticipated "reverse merger" with a public shell...