Former officer of Martin Shkreli hedge fund filed SEC complaint against Shkreli while working for fund

  • Jackson Su said "there was no transparency" about the assets held by Martin Shkreli's hedge fund.
  • "I got really tired of all the things I saw going on in the company," Su said.
  • Su said he was "taken aback" when he learned an equity stake by Shkreli's hedge fund in his drug company was reclassified as a loan.

The former chief operating officer of Martin Shkreli's hedge fund firm testified Friday that he filed a Securities and Exchange Commission complaint against Shkreli while still working for the "pharma bro" in May 2012.

The executive, Jackson Su, said he was spurred to make that complaint on the SEC's website because he believed "there was no transparency in the amount of assets" that Shkreli's MSMB hedge funds had, and in how those assets were being described to investors.

"There was variation in the assets under management that were verbally thrown around without any consistency, and that was a red flag for me," Su testified in Brooklyn, New York, federal court at Shkreli's securities fraud trial.

Su, 42, said he was interviewed by an SEC investigator about his complaint in June 2012.

But Su remained at the hedge fund firm until December 2012, he testified.

"The last day I was there, Martin took $10,000 from what was left in the bank account" for Retrophin, the drug company Shkreli was founding, Su testified.

At that time, before Shkreli took the money, Su said, Retrophin's account contained just $20,000.

"And that was the last straw for me," Su said.

Su said that as he packed his bag, MSMB President Tom Fernandez saw that he was distraught, and walked him out of the offices.

Su said he told Fernandez, "I'm not going back to work, all these things don't add up ... and I was done."

Su testified, "I got really tired of all the things I saw going on in the company."

Those things included one incident in the summer of 2012 that Su said left him "surprised and taken aback."

Su said that in August of that year, Shkreli dropped off to him a promissory note that indicated MSMB Healthcare, one of his hedge funds, had loaned $900,000 to Retrophin at 12 percent annual interest, to be repaid at the end of 2012.

Martin Shkreli, former chief executive officer of Turing Pharmaceuticals AG, arrives at federal court in Brooklyn, New York.
Jeenah Moon | Bloomberg | Getty Images
Martin Shkreli, former chief executive officer of Turing Pharmaceuticals AG, arrives at federal court in Brooklyn, New York.

But Su said he had seen documents indicating that the $900,000 from MSMB Healthcare to Retrophin had been in the form of an equity investment by the hedge fund in February 2012.

Asked if he knew why the money was reclassified as a loan, Su said he did not.

When a prosecutor asked why he was surprised, Su said, "Because it was reclassifying something that happened in February which is a big ... which I thought didn't seem right to me."

Su also testified that during his tenure at MSMB, the firm moved out of its offices in the middle of the night to new offices while still owing rent to the landlord for the old offices.

Su testified that he filed a later SEC complaint, in 2014, when he saw that Retrophin, which was in the process of trying to raise capital, did not disclose to the SEC in regulatory filings that Shkreli was the subject of an ongoing investigation by that agency.

Su's testimony came after other witnesses, who had invested in Shkreli's MSMB Capital fund, testified that it took many months of pestering Shkreli to redeem their investments.

Those investors said that Shkreli settled their claims by giving them shares of Retrophin, which he founded after MSMB Capital effectively went broke in 2011 after a massive trading loss.

Prosecutors claims that Shkreli defrauded multiple hedge fund investors by misleading them about the funds' performance, and then sought to make them whole on their investments by looting Retrophin that he gave them.

Shkreli, 34, denies the allegations.

— Additional reporting by CNBC's Andre Payne.

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