Pharma karma: Price-gouging drug CEO Martin Shkreli is arrested for fraud

Martin Shkreli, a lightning rod for growing outrage over soaring prescription drug prices, has been arrested by the FBI and charged with fraud after a federal investigation involving his former hedge fund and a pharmaceutical company he previously headed. The securities fraud probe of Shkreli, who is now chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals Inc, stems from his time as manager of hedge fund MSMB Capital Management and CEO of biopharmaceutical company Retrophin Inc, a person familiar with the matter said. The baby-faced 32-year-old is accused of stealing US$11 million in what the FBI described as a “securities fraud trifecta of lies, deceit and greed.” READ MORE: Will arrested 'pharma bro' Martin Shkreli have to hand over his US$2m Wu-Tang Clan album? The arrest occurred on Thursday morning at the Murray Hill Tower Apartments in midtown Manhattan. Law enforcement including Federal Bureau of Investigation agents could be seen escorting Shkreli, who was wearing a hoodie, into a car. FBI spokeswoman Kelly Langmesser confirmed Shkreli’s arrest. He was charged later in the day and pleaded not guilty. Shares of KaloBios fell 53 per cent to US$11.03 in premarket trading. Lawyers for Retrophin and Shkreli did not immediately respond to a request for comment. Turing and KaloBios declined to comment. “As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit,” said Robert Capers, US Attorney for the Eastern District of New York. “His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity.” It began in 2009 when Shkreli allegedly lied to eight people to get them to invest about US$3 million in his hedge fund, Capers told a press conference. When he lost the money through “bad trades” he started a new fund to try to cover the losses and continue to line his pockets. Shkreli was also charged by the Securities and Exchange Commission. “Over a five-year period, Shkreli is alleged to have perpetrated a series of frauds on investors in his hedge funds and Retrophin's shareholders in order to cover up his poor trading decisions,” said Andrew Ceresney, director of the SEC’s enforcement division. In addition to the US$11 million, Shkreli is accused of siphoning about US$120,000 from one of the hedge funds to pay for food, clothing, rent and other personal expenses. He is also accused of lying to investors about one of the fund’s size and performance by claiming returns of nearly 36 per cent when it had really generated a loss of 18 per cent and saying the fund had US$35 million in assets when it really had less than US$7,000. He allegedly stole US$900,000 in 2013 from one of the funds to settle with a broker who was suing him and stole more money to pay off disgruntled investors who were threatening legal action. Also arrested was Evan Greebel, a lawyer who was outside counsel to Retrophin. Shkreli was later released after posting a US$5 million bond, while Greebel was released after posting a US$1 million bail, a spokesperson with the prosecutor’s office said. A privately held start-up, Turing sparked controversy earlier this year after news reports that it had raised the price of Daraprim, a 62-year-old treatment for a dangerous parasitic infection, to US$750 a tablet from US$13.50 after acquiring it. The probe, by federal prosecutors in Brooklyn, dates back to at least January when Retrophin said it received a subpoena from prosecutors seeking information about its relationship with Shkreli. That subpoena also sought information about individuals or entities that had invested in funds previously managed by Shkreli, Retrophin said in a regulatory filing. MSMB Capital Management was founded in 2009, and Shkreli announced its closure in 2012. Retrophin was founded in 2012, and Shkreli was its CEO until the company fired him in September 2014. Retrophin in August sued Shkreli in federal court in Manhattan for US$65 million, claiming he had used his control over Retrophin to enrich himself and pay off claims of investors in MSMB, which he had also defrauded. Shkreli has denied the allegations. At least two separate Congressional probes have been launched since September on the pricing issues of Daraprim, which had long been available as a generic drug used to treat toxoplasmosis in AIDs patients. Turing is under investigation by the New York state attorney general for antitrust concerns. At a Senate hearing on drug pricing last week, a doctor who treats babies with life-threatening toxoplasmosis testified that a course of treatment with Daraprim went from about US$1,200 to no less than US$69,000. Additional reporting by Agence France-Presse