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Shkreli's Hedge Fund Went From Success to Bust in 31 Minutes

Investor testifies against Shkreli at start of fraud trial.

Shkreli's Hedge Fund Went From Success to Bust in 31 Minutes
Martin Shkreli, former chief executive officer of Turing Pharmaceuticals AG, left, exits federal court with his attorney Benjamin Brafman in the Brooklyn borough of New York, U.S. (Photographer: Jeenah Moon/Bloomberg)

(Bloomberg) -- In 31 minutes a hedge fund managed by Martin Shkreli in 2012 went from a roaring success to an empty shell, one of his investors told a jury.

Sarah Hassan, 27, who gave Shkreli $300,000 to invest, said she got an email at 8:13 p.m. on Sept. 9, 2012, saying she was up $135,000, a return of 45 percent. At 8:44 p.m., Shkreli sent out a second email notifying Hassan and other investors he was shutting the fund down.

"We went through operational mishaps," Shkreli said in the email. "There is no longer any cash in the funds."

Shkreli, 34, is on trial in federal court accused of operating his hedge funds like a Ponzi scheme. He took his clients’ money without their permission and used it to start Retrophin Inc., according to the U.S. Shkreli’s also accused of fleecing $11 million of the drug company’s assets to pay off investors who’d lost money in the funds.

Hassan told jurors in Brooklyn, New York, that she invested with Shkreli and his MSMB Capital on the recommendation of her father’s friend, who described Shkreli as "a rising star in the hedge fund world." Her father is Fred Hassan, the former chief executive officer of pharmaceutical giant Schering-Plough, the managing director of Warburg Pincus LLC and the ex-chairman of Bausch & Lomb Inc.

Shkreli claimed MSMB Capital had about $40 million of assets under management in early 2011 when Hassan made her investment. In reality, the fund had about $700 in December 2010, according to prosecutors. For months, Shkreli claimed the fund’s returns were outperforming the S&P 500 Index, Hassan said.

Felt Betrayed

Hassan said she felt “betrayed” when she learned the fund was closing and the money was gone, even though she ultimately made a $2.7 million profit after selling all her Retrophin holdings. It took a year for her to get cash and a portion of the Retrophin shares from Shkreli, though.

Shkreli at one point apologized in an email to Hassan for the delay in returning her money, saying, "I understand this has not been the most transparent or straightforward process. I wish I had been more transparent."

Hassan insisted Shkreli “kind of forced upon me” more than 58,000 shares of Retrophin to settle.

"They were forced upon you?" Shkreli’s lawyer Benjamin Brafman asked her on cross-examination. "At the end of the day you made a hefty profit."

"Yes, even more than I asked for," Hassan said.

The case is U.S. v. Shkreli, 15-cr-0637, U.S. District Court, Eastern District of New York (Brooklyn).

To contact the reporters on this story: Patricia Hurtado in Federal Court in Manhattan at pathurtado@bloomberg.net, Misyrlena Egkolfopoulou in New York at megkolfopoul@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider