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The Morning Brief: Reviled Pharma Exec Martin Shkreli Charged With Hedge Fund Fraud
Oh how the arrogant can fall so quickly. Martin Shkreli, who forever will be known as the 32 year-old former hedge fund manager and pharmaceutical executive who hiked the price of a single pill from $13.50 to $750, on Thursday was arrested and charged with six counts of securities fraud and wire fraud stemming from his days as a hedge fund manager. At a press conference, federal officials reportedly described his activities as “a securities fraud trifecta of lies, deceit and greed” stemming from his days as a managing member and portfolio manager at New York hedge funds MSMB Capital Management and MSMB Healthcare.
Separately, the Securities and Exchange Commission brought civil fraud charges against Shkreli. According to the government, Shkreli, the smug chief executive and founder of Turing Pharmaceuticals, provided investors and prospective investors of his hedge funds false information about prior fund performance and assets under management and misrepresented that he had retained an auditor and administrator. He is also accused of defrauding Retrophin, a New York biopharmaceutical company where he served as chief executive officer, “in an effort to satisfy Shkreli’s personal and unrelated professional debts and obligations,” according to the government — in other words, to pay disgruntled investors in his hedge funds.
According to the SEC, Shkreli told investors that one of his hedge funds returned 35.77 percent since inception when in fact it lost about 18 percent. He also allegedly told investors he was managing $35 million in assets when it was actually less than $1,000. Shkreli also is accused of failing to disclose he lost all of the money he managed in an earlier hedge fund he managed, Elea Capital, and that there was a $23 million default judgment against him from Lehman Brothers.
Private equity giant Cerberus Capital Management agreed to pay $605 million to Avon Products for roughly 80 percent of Avon North America and other considerations. Under the deal, Cerberus will also invest $435 million in Avon convertible perpetual preferred stock with a conversion price of $5 per share and a dividend that will yield 5 percent. The stock fell on Thursday about 1.5 percent, to close at $4.03. Barington Capital Group, the New York activist hedge fund firm founded by James Mitarotonda, said on December 3 that it teamed up with NuOrion Partners, a Zurich-based investment firm, and other investors to accumulate more than 3 percent of Avon’s stock, calling on the company to institute a restructuring and bring in new independent directors.
Dallas-based Carlson Capital boosted its stake in Austin, Texas-based Forestar Group to 7.99 percent of the real estate and natural resources company. In a regulatory filing, the hedge fund firm says it owns the shares “for investment purposes.” But it also uses typical boiler-plate language to suggest the hedge fund may take some sort of activist action in the future.
Earlier this week, Moody’s downgraded Forestar’s debt rating and changed the company’s outlook to negative from stable. “The downgrade reflects Forestar’s deteriorating credit metrics as the company grapples with its energy business and the weak performance of its core land development segment,” it states in a report. “With oil prices at multi-year lows, we expect the company’s metrics will remain under pressure in the next 12-18 months.” The stock was unchanged on Thursday on an otherwise down day for the overall stock market.
Morgan Stanley upgraded the shares of Micron Technology to overweight from equal-weight and raised its price target from $16 to $18, stressing that it thinks the embattled chip maker will hit bottom in the first half of 2016. It sees upside of 30 percent as “fundamentals stabilize” by the second half of 2016. “Industry structural improvement and high strategic value of memory assets should keep the stock from reaching historic lows,” the investment bank tells clients in a note. As a result, the stock jumped 1.8 percent on a down day for the market, to close at $14.32. However, this is just a little bone being thrown to its biggest shareholders. The stock is still down about 10 percent for the month and 60 percent from its high a little over a year ago. Micron was Greenlight Capital’s biggest winner in 2014. In a recent letter to investors, the New York hedge fund firm conceded it overstayed its welcome. Essentially, Greenlight admits it mistakenly thought the DRAM industry was less cyclical after it had consolidated. Greenlight earlier this year told clients it thinks sometime in the next few years, Micron will be worth more than Netflix. Today Micron is worth $14.82 billion, while Netflix is worth $52.36 billion.
Deutsche Bank raised its price target on Valeant Pharmaceuticals International from $136 to $140, even though it also notes it is “hard to take” the company’s recently communicated new guidance “to the bank.” It adds that questions remain about Valeant’s new drug distribution deal with Walgreens. Despite the hike in the price target, shares of the surging drug company’s stock closed Thursday down 6 percent, to $111.38, after surging nearly 70 percent since mid-November.