The Story Of How Martin Shkreli's $80M Short Trade Blew Up His Life

Martin Shkreli, looking innocent. 

Surprise! Martin Shkreli is not a virgin. He was fucked in 2011, when he shorted a small biotech company, and lost $7M.

After originating from humble beginnings, Martin Shkreli had developed cred (street credibility) by shorting small biotech companies while simultaneously trolling their stock message boards with negativity.

Astonishingly, Shkreli had friends, and he managed to raise $3M from 8 people to launch his hedge fund, MSMB Capital. 

That is where our story begins:

February 1st, 2011 was a sunny day and Martin Shkreli was feeling confident. Last night he defeated his nemesis in World of Warcraft, and that morning at Starbucks he made eye contact with a female.

Feeling invulnerable, he declared, "today I will make a name for myself". He set his sights on Orexigen Therapeutics (OREX), which had just gapped down from $9 to $2.50 overnight.

Shkreli to himself:

“OREX is weak, vulnerable and down 70%. Could it mean revert? Nah, fuck that. I am going to bankrupt this bitch”
“I have so much conviction, let me size up in this. I’ll show the market who is boss”
“At most I have $3M of other peoples money in the fund. Leverage is my bitch. I’ll short $80M worth of OREX." 
“What do you mean you can’t locate 32,000,000 shares? Doesn’t matter, I am going to be right anyways. I'll cover before anyone notices."

Morgan Stanley, upon realizing Shkreli didn't locate any shares to borrow, forced him to buy back in at a $7M loss.

Losing $7M with 32M shares is very easy. A 20-cent move could knock you out, and in these trades, that can happen in a flash.

Moronic doesn’t begin to describe this trade; in fact, no word can adequately describe its absurdity. Only an egomaniac would fight the tape as hard as Shkreli did on that day.

If these allegations are true, Shkreli represented an astonishing 20% of the volume traded in OREX that day. Presumingly, OREX’s entire float was traded once, maybe twice over.

On 2/1/11, Martin Shkreli committed career suicide, shorting 32M shares of OREX. 

At one point, Shkreli may have represented the only seller in the market for OREX, absorbing the windfall of short sellers from they day before, who lifted his offers like kids in a candy store.

That was not Shkreli's first time blowing up. His prior hedge fund, Elea Capital evaporated and his trades resulted in a $2.3M default judgment against him from Lehman Brothers. He successfully hid this fact from succeeding investors of MSMB Capital

OREX was the beginning of Shkreli’s end. He spent the next 4 years deceiving people, creating enemies, and searching for the perfect facial re-construction surgeon. 

Until 2015, when under the guise of success from other illegal schemes, Shkreli emerged into the public spectrum for outrageously hiking prices for rare-drugs, and hoarding the coveted Wu-Tang Clan album “Once Upon A Time in Shaolin."

Do you think the Wu-Tang Clan have friends in prison?