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Case 1:15-cv-07175-KAM-RML Document 25 Filed 02/18/16 Page 1 of 6 PageID #: 145

UNITED STATES DISTRICT COURT


EASTERN DISTRICT OF NEW YORK
_________________________________________

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Plaintiff,
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-against)
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MARTIN SHKRELI,
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EVAN GREEBEL,
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MSMB CAPITAL MANAGEMENT LLC,
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and
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MSMB HEALTHCARE MANAGEMENT LLC, )
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Defendants.
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_________________________________________ )
SECURITIES AND EXCHANGE
COMMISSION,

15-CV-7175-KAM
ECF CASE

PLAINTIFF SECURITIES AND EXCHANGE COMMISSIONS


MEMORANDUM IN REPLY TO DEFENDANTS OPPOSITION TO THE
GOVERNMENTS MOTION TO STAY AND IN OPPOSITION TO EVAN GREEBELS
APPLICATION FOR A LIMITED STAY
Plaintiff Securities and Exchange Commission (Commission) submits this reply to
defendants Martin Shkrelis and Evan Greebels opposition to the governments motion to stay
pending resolution of the criminal proceeding against Shkreli and Greebel. The Commission
takes no position on the governments motion to stay, and therefore does not oppose the motion.
However, the Commission opposes Defendant Greebels application for a very one-sided,
limited stay that would permit Defendants to obtain discovery while shielding Defendants
from having to provide discovery themselves. The Court should reject Greebels proposal as it is
unreasonable and patently unfair. 1

Shkreli does not appear to be asserting that he should be immune from discovery if the
governments motion is denied. Rather, we understand Shkrelis position to be that he will retain
the right to assert his Fifth Amendment privilege against self-incrimination in discovery. Such

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The Commissions Allegations Against Greebel


The Commission alleges that Shkreli engaged in widespread fraudulent conduct from
October 2009 through March 2014. The Commission alleges that Greebel aided and abetted
Shkrelis conduct commencing in late 2012. Compl. 52-55. Specifically, the complaint
alleges that Greebel drafted at least three consulting agreements that Shkreli caused Retrophin,
Inc. a public company of which Shkreli was CEO to enter into with disgruntled investors in
hedge funds Shkreli formerly operated to satisfy claims the investors had against Shkreli. The
complaint alleges that Greebel knew or recklessly disregarded the true purpose of the consulting
agreements and that Retrophins board members other than Shkreli had not been informed of the
true purpose of the consulting agreements.
Greebels Proposed Limited Stay
Greebel claims to be proposing a limited stay of discovery, characterizing his proposal as
allowing discovery to go forward except as against anyone who will assert the Fifth Amendment
privilege against self-incrimination, such as cooperating witnesses. He also offers to allow
counsel for the government to attend and participate at depositions, while preserving the
governments right to seek relief from the Court if any scheduled deposition or other discovery
threaten the criminal proceeding.

an assertion would entitle the Commission to an adverse inference and may lay the foundation
for a motion for summary judgment. E.g., SEC v. Pittsford Capital Income Partners, L.L.C., No.
06 Civ. 6353, 2007 WL 2455124 (W.D.N.Y. Aug. 23, 2007) (granting summary judgment in part
based on assertion of Fifth Amendment privilege). Shkreli writes cryptically, however, about
legitimate government interests that may require postponing specific disclosures during the
discovery process. Shkreli Opp. at 7 (docket no. 22). To the extent Shkreli is implying he will
not have to make full disclosure in discovery in this case without asserting his Fifth Amendment
privilege, thus essentially seeking the same one-way street as Greebel, the Court should deny
such a request.
2

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The Court Should Deny Greebels Unfair Proposal


Greebels proposal is inequitable and would unfairly prejudice the Commission.
Although Greebel does not come right out and say so, it is clear that Greebel and Shkreli would
assert the Fifth Amendment privilege against self-incrimination and thus be shielded from
discovery under Greebels proposal. That means that defendants would be free to obtain wideranging discovery from the Commission and third parties, while shielding their own information.
Greebels proposal that discovery proceed except as to him and Shkreli (and possibly unnamed
cooperating witnesses) is patently unfair.
As noted above, the Commission takes no position, and thus does not oppose, the
governments motion to stay. 2 Under Greebels proposal, the Commission would have to
provide initial disclosures (identifying our witnesses and documents we plan to use to support
our case), then respond to document requests (and the early Rule 34 request Shkreli attempted to
serve essentially asked for every document), respond to interrogatories, defend our witnesses at
depositions, and respond to requests for admissions. All the while defendants would be silent as
to who their witnesses are, what documents they plan to use to support their defense, etc., and
they could do so without even having to assert their Fifth Amendment privilege and being
subjected to the consequent negative inference against them. See Baxter v. Palmigiano, 425 U.S.
308, 317-18 (1976) (court can draw an adverse inference from refusal to testify in non-criminal
proceedings). This would put the Commission at a huge disadvantage in preparing for trial. As
2

In Shkrelis opposition to the motion to stay, he cites to Twenty First Century Corp. v.
LaBianca, 801 F. Supp. 1007 (E.D.N.Y. 1992), but he then flips it on its head. Shkreli Mem. in
Opposition to Motion for a Stay at 5-6. One factor that Twenty First Century says courts should
consider in deciding whether to stay a civil case pending a criminal case is prejudice to the
plaintiff. Shkreli argues that the plaintiff Commission cannot complain of prejudice if the stay is
denied. Shkreli Opp. at 6. That is clearly not the test articulated in Twenty First Century
indeed, it is the opposite. And, as the Commission does not oppose the stay request, there is
demonstrably no prejudice to the plaintiff Commission.
3

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such, it is simply (and grossly) unfair. See SEC v. Nicholas, 569 F. Supp. 2d 1065, 1070 (C.D.
Cal. 2008) (granting stay in SEC case and noting that proceeding with discovery would be onesided in favor of defendants).
Greebels contention that he needs discovery to commence because of the harm he will
suffer because of the unchallenged allegations in the Commissions complaint is baseless. The
allegations are just that: allegations. And Greebel can file an answer to the complaint to
challenge the allegations. Moreover, even if he were to conduct discovery, that would in no way
challenge the allegations discovery is not made public.
The Court should see Greebels request for what it is: a blatant attempt to obtain wideranging discovery to assist his defense of the criminal proceeding while Greebel provides no
discovery to the Commission (and simultaneously gains an advantage over the Commission in
preparing for trial). See, e.g., SEC v. Beacon Hill Asset Mgmt. LLC, No. 02 Civ. 8855, 2003 WL
554618 (S.D.N.Y. Feb. 27, 2003). If Greebel genuinely wishes to proceed with discovery in this
proceeding so he can go to trial promptly to seek to clear his name from the taint of the
Commissions allegations, then he and Shkreli must be willing to provide full discovery as well:
identify their witnesses, produce their documents, respond to interrogatories, respond to requests
for admissions, and testify at depositions; or alternately, they can assert their Fifth Amendment
privilege and accept the consequences of the negative inference against them flowing from that
assertion of the privilege. Absent full discovery on both sides, Greebels application for a
limited stay is patently unfair. The Court should therefore deny Greebels application.

Case 1:15-cv-07175-KAM-RML Document 25 Filed 02/18/16 Page 5 of 6 PageID #: 149

CONCLUSION
The Court should deny Greebels Application for a Limited Stay.
Dated: February 18, 2016
New York, New York
Respectfully submitted,
/s/ Paul G. Gizzi
/s/ Eric M. Schmidt
Paul G. Gizzi (gizzip@sec.gov)
Eric M. Schmidt (schmidte@sec.gov)
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
200 Vesey Street, Suite 400
New York, NY 10281-1022
(212) 336-1100

Case 1:15-cv-07175-KAM-RML Document 25 Filed 02/18/16 Page 6 of 6 PageID #: 150

CERTIFICATE OF SERVICE
I certify that on February 18, 2016, I electronically filed the foregoing PLAINTIFF
SECURITIES AND EXCHANGE COMMISSIONS REPLY TO DEFENDANTS
OPPOSITION TO THE GOVERNMENTS MOTION TO STAY with the Clerk of this Court
using the CM/ECF system, and I am relying upon the transmission of the Clerks Notice of
Electronic Filing for service upon all parties of record in these cases.

/s/ Eric M. Schmidt