Martin Shkreli was a brilliant young man. He secured an internship at Jim Cramer's hedge fund at just 17 years old. (Yes, the Jim Cramer who is now on CNBC everyday.)

Shkreli's finance career progressed rapidly after his internship and he gained attention for correctly predicting the stock drop of a prominent biotech company. His successful short-selling recommendation—unusual for such a young analyst—established his reputation for understanding biotech stocks. (You make money if the stock goes down after you sell it short, which is the opposite of buying it long.)

At age 23, Shkreli founded his first hedge fund, which was shut down as a result of investor lawsuits. The first signs of trouble were emerging at this point.

Undeterred, Shkreli founded his second hedge fund, MSMB Capital Management, which focused on shorting biotech stocks and publicly criticizing companies he believed were overvalued. Shkreli was in his sweet spot.

So, what did he do? He illegally used funds from MSMB to start a company that would acquire older generic drugs that were not generating much excitement. (A patent on a new drug gives the pharmaceutical company 20 years of exclusivity. After 20 years, others are free to copy the drug and produce and sell the generic versions of it, which are typically 80% to 90% cheaper than the original drug.)

His big acquisition was for a 60+ year-old drug called Daraprim, which was used to treat certain infections for HIV/AIDS patients, as well as pregnant women. With only 8,000 prescriptions per year (barely a rounding error for pharmaceutical companies), nobody was going to suddenly start manufacturing Daraprim, so Shkreli had himself a monopoly.

This price hike thrust Shkreli into the national spotlight. The move was widely condemned by medical professionals, patient advocacy groups, and politicians across the political spectrum. Democratic presidential candidate Hillary Clinton called it "price gouging," while Republican candidate Donald Trump labeled Shkreli a "spoiled brat."

On December 17, 2015, Shkreli was arrested by the FBI on securities fraud charges. Federal prosecutors alleged that he had operated a complex scheme shuffling money between his hedge fund and his pharmaceutical company.

During his trial, against his attorney’s advice and warnings from the judge, Shkreli blasted away on social media commenting on the case and drawing even more attention to himself.

When called in front a congressional committee, Shkreli refused to answer any questions and instead smirked and laughed while being pounded by the committee. He later tweeted, “Hard to accept that these imbeciles represent the people in our government.”

After his conviction and while awaiting sentencing, he turned it up a notch and offered his social-media followers $5,000 for a strand of Hilary Clinton’s hair. Prosecutors characterized this as an attempted assault while the defense said it was satire. The judge? He said, “no more bail, you can wait in a jail until you are sentenced.”

Shkreli served four years of a seven-year sentence and paid millions in fines. He ran several ventures from prison with an illegal cell phone. He was released in 2022.

The world awaits the next big idea from the now 42-year-old Pharma Bro.

The path from Greed-to-Grief

So young and so much promise. How did it all go wrong? Greed. In the case of Shkreli, it was greed for wealth, but it was also a thirst for sticking it to the man. His flagrant disregard for the law and his attitude when caught (several times) indicate truly unusual behavior, even among his peer group of mentally unstable criminals.

His first hedge fund gets sued into liquidation, so he starts another one. He made legal and binding promises to those investors about how he would invest their money.

He says, “so what” and takes the investors’ hedge fund money and buys down and out pharmaceutical companies, then jacks prices on the drugs through the roof.

It’s almost exhausting to keep track of this guy even though he helps us by virtually live-streaming his existence on social media.

Nothing is certain in life, but I am willing to bet we have not heard the last chapter from young Martin Shkreli.

Key Takeaways

• If you are lucky enough to have good mentors like Shkreli had with Jim Cramer, heed their advice and don’t be too quick to outgrow and disregard them.

• There is nothing wrong with being motivated by money, but study the consequences of your potential gain. If it’s a situation where you gain but the loser is some wealthy individual or institution, good for you. But if your gain endangers the lives of thousands of people, maybe think twice.

• Learn from your mistakes (a theme of this newsletter) and don’t  be like Shkreli and continue to antagonize everybody just because you think you’re smarter than everybody else.

Things I think about

The eye of a hurricane can be as large as 200 miles in diameter.

Recommended reading

The days when Elon Musk was cool
One of our most popular posts.

The Generative AI Con
My favorite tech contrarian, Ed Zitron, goes off, big time.

Fooled by Randomness
The first in Caleb’s series and the “Black Swan” book. All his books are excellent.

Thinking in Bets
Poker champ turned consultant teaches us how to evaluate risk.

Pharma
Greed, Lies, and the Poisoning of America

Full reading list is here.