Martin Shkreli could not be more of this moment. He livestreams freewheeling monologues on YouTube to anyone who will watch. He’s been suspended from Twitter. His hiking, overnight, of the price of a lifesaving drug in 2015 from $13.50 to $750 so perfectly embodied Americans’ current complaints about health care that he was denounced by both Hillary Clinton and Donald Trump.
Last Friday, Shkreli was found guilty on three counts of fraud (and acquitted on five) in a federal court in New York. The trial was not related to that infamous price hike, but rather to hedge funds he ran before his price gouging made news. One wrinkle is that even though the jury determined that Shkreli deceived his hedge-fund investors, he did ultimately pay them back, albeit with money from a separate endeavor. (In a livestream shortly after the trial concluded, as he drank an IPA, he said he guessed his sentence would be “close to nil,” adding, “I think we’re going to end up appealing this.”)
As quintessentially modern as Shkreli is, last week’s verdict added his name to a long list of convicted fraudsters that reaches back more than a century. Edward Balleisen, a professor of history at Duke University, is quite familiar with that list. Earlier this year, he published Fraud: An American History from Barnum to Madoff, which attributed Americans’ trust of con men to a deeply held belief in innovation and world-changing ideas. “From the American Revolution onward,” he writes, “the country’s lionization of entrepreneurial freedom has given aid and comfort to the perpetrators of duplicitous business schemes.”
Though Shkreli seems uniquely modern, Balleisen told me, there are many parallels between him and other American fraudsters before him. I talked with Balleisen about some of those parallels and about how financial crime has changed in the past century. The conversation that follows has been edited for length and clarity.
Joe Pinsker: When I heard about the verdict last week, you were one of the first people whose thoughts I was most curious to hear—Shkreli seems to be such a product of modernity, but I figured you’d be able to place him on more of a historical timeline.
Edward Balleisen: One of the elements of the case that stands out for me is the awareness, on the part of both the prosecution and the defense, of how much of the issue is dependent on defining the public image of Shkreli. So how do we make sense of him: Is he a ruthless predator, a congenital liar, a backpedalling conniver? Or alternatively, is he a well-meaning iconoclast who's focusing on this big social need around orphan drugs and niche diseases that doesn't get enough attention?
There's this battle for how to make sense of him that's actually quite resonant with many, many different public controversies around allegations of fraud, going back decades. There’s some resonance, perhaps, with a person like Preston Tucker, the car magnate who confronted allegations of fraud in the late 1940s—in that case, allegations that were unable to convince the jury to convict. There were clear elements of aggressive puffery, in the kinds of promises that Tucker and his company made to would-be dealers in his network, as well as to potential customers. And so one of the issues that emerged there was, was this just optimism that turned out to be misplaced, or did it involve intentional deceit? That's always a really difficult issue, especially in a case where there are complex facts and where things may look different at one point in time than they do once misfortune strikes. That's one comparison that comes to mind.
Pinsker: What are some others?
Balleisen: Another one would be with E.G. Lewis, who was a very aggressive entrepreneur in the early 20th century, operating out of St. Louis and pushing all kinds of aggressive new business models, including a mode of banking by mail. He developed a publication empire focused on very low-priced periodicals aimed at rural women. It wasn’t at all difficult to find specific actions of his that look deceptive. But the question around Lewis, in the end, really focused on how to make sense of the totality of the business.
One of the real parallels between Lewis and Shkreli is a focus on using innovative modes of communication to shape the public debate about their own business practices. So where Shkreli is livestreaming and tweeting, in Lewis's case, he was using the platform of his own magazine and press to churn out very aggressive narratives about the nature of his business efforts, and about the antagonists who he depicted as trying to pull him down.
Another person who fits this pattern to some extent is George Graham Rice, a prolific and flamboyant stock promoter in the early 20th century who similarly had a grasp of the power of new communications mechanisms. In his case the centerpiece of this efforts were financial newsletters that he would just send out all over the country, bypassing the establishment newspapers and financial press.
Pinsker: Something that seems unusual in this case is that Shkreli had already paid back the people who the court says were defrauded. Are there any historical examples of apparent fraudsters actually delivering on their big promises?
Balleisen: With fraud cases, especially, say, investment-fraud cases, one really significant issue is what victims really care about most. And often what they care about most is getting their money back. There are just dozens of promoters who’ve engaged in deceptive practices going back more than century who respond to insistent complaints from disgruntled investors by essentially buying them off, whether that's through the provision of settlement money or, in Shkreli’s case, the provision of stock in a different company as a mode of assuaging the concerns of the disgruntled investors.
In the early 20th century, in some public commentary, this is referred to as the “squawk fund”—those who squawk get a payment out of the squawk fund. One often doesn’t see those cases emerge at criminal trial because the victim just goes away.
Pinsker: Finance these days seems almost purposely opaque, and it seems markets have gotten more complex and harder to follow for a typical person—which seems more conducive to defrauding people than it was, say, 100 years ago. How does what Shkreli did compare to financial mischief from that era?
Balleisen: I think it always depends on what the baseline is. In the late 19th and early 20th century, compared to what had been the basic structure of finance in the preceding generations, there was a similarly significant explosion of financial complexity. Asymmetry of information has been a dominant thread in understanding the dynamics of the financial crisis of 2008, and I think there are definitely parallels in the late 19th century and certainly in the run-up to the Great Depression. So what we've seen in the way of complex financial instruments and modes of organizing investment in the last couple of decades certainly had their precursors in what, at the time, were called "investment trusts," but what we would now call mutual funds—a set of new modes of investing that were not that well understood by many investors, and that involved new potential for manipulation and insider dealing.
At the same time, I would also note where it was that Shkreli I think seems to have run afoul of the jury that convicted him of three of the eight counts—it was on falsehoods that would be palpable to just about anybody who might’ve heard them. Where they achieved conviction was with regard to the original misrepresentations to investors in the hedge funds, the claims that he had massively more money under management than he in fact did, that he had a record of profitability when in fact he had a record of enormous losses. I think those claims were not really about complex financial arrangements—they were really quite basic simple claims that were unquestionably false.