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Shkreli, Arrested on Securities Fraud Charges

  1. Docta
    Martin Shkreli, the boyish drug company entrepreneur, who rocketed to infamy by jacking up the price of a life-saving pill from $13.50 to $750, was arrested by federal agents at his Manhattan apartment early Thursday morning and charged with securities fraud.

    Shkreli, 32, ignited a firestorm over drug prices in September and became a symbol of defiant greed. The federal case against him has nothing to do with pharmaceutical costs but suggests he was running a Madoff-style Ponzi scheme on a much smaller scale. Prosecutors in Brooklyn charged him with illegally taking assets from Retrophin Inc., a biotechnology firm he started in 2011, and using it to pay debts from unrelated business dealings. He was later ousted from the company, where he’d been chief executive officer, and sued by its board.

    Federal prosecutors accuse Shkreli of engaging in a complicated shell game after a hedge fund he started lost millions. He is alleged to have made secret payoffs and set up sham consulting arrangements. A New York lawyer, Evan Greebel, also arrested early Thursday, is accused of conspiring with him.

    Both Shkreli and Greebel appeared in Brooklyn federal court on Thursday afternoon and pleaded not guilty.

    Read the full text of the indictment here

    Spokeswomen for Katten Muchin Rosenman LLP where Greebel worked during the time in question, and Kaye Scholer, where he works now, declined comment. Greebel, who served as lead outside counsel to Retrophin from 2012 to 2014, joined Kaye Scholer in July, after the activities detailed in the indictment.

    In a federal indictment and complaint by the Securities and Exchange Commission, authorities outline years of investment losses and lies Shkreli allegedly told investors almost from the moment he began managing money. By his mid-20s, they said, he got nine investors to place $3 million with him, lost their money and covered it up. At one point, his fund’s accounts had a balance of $331.

    He covered up his losses with scheme after scheme, telling investors that his returns were as high as 35.8 percent when he was down 18 percent. He used client money to pay for clothing, food and medical expenses and lied to the broker handling his fund’s accounts, authorities said.

    “Shkreli essentially ran his company like a Ponzi scheme where he used each subsequent company to pay off defrauded investors from the prior company,” Brooklyn U.S. Attorney Robert Capers said at a press conference. Shkreli was walked through a gaggle of photographers outside FBI headquarters in Manhattan.

    Shkreli’s extraordinary history—and current hold on the public imagination—makes the case more noteworthy than most involving securities fraud. The son of immigrants from Albania and Croatia who worked as janitors and raised him deep in working-class Brooklyn, Shkreli both epitomizes the American dream and sullies it. As a youth, he showed promise and independence and, after dropping out of an elite Manhattan high school, began his conquest of Wall Street before he was 20.

    His name entered public consciousness after he raised the price more than 55-fold for Daraprim. It is the preferred treatment for a parasitic condition known as toxoplasmosis, which can be deadly for unborn babies and patients with compromised immune systems including those with HIV or cancer. His company, Turing Pharmaceuticals AG, bought the drug, moved it to a closed distribution system and instantly drove the price into the stratosphere.

    The moves drew shocked rebukes from Congress, public-interest groups, doctors and presidential candidates, and cast a spotlight on the rising prices of older drugs. Donald Trump called Shkreli a “spoiled brat,” and the BBC dubbed him the “most hated man in America.” Bernie Sanders, a Democratic presidential candidate, rejected a $2,700 campaign donation from him, directing it to an HIV clinic. A spokesman said in October that the campaign would not keep money “from this poster boy for drug company greed.”

    “The $65 million Retrophin wants from me would not dent me. I feel great. I’m licking my chops over the suits I’m going to file against them”

    Shkreli initially responded to the criticism by saying he would lower the Daraprim price and then changed his mind again. When Hillary Clinton tried one more time last month to get him to cut the cost, he dismissed her with the tweet “lol.” At a Forbes summit in New York this month, wearing a hooded sweatshirt, he said if he could have done it over, “I probably would have raised the price higher,” adding, “My investors expect me to maximize profits.”

    In fact, it is not only his drug pricing that has turned him into an object of public derision. He recently spent millions on the only copy of a Wu-Tang Clan album that music fans would love to hear and then told Bloomberg Businessweek that he had no immediate plans to listen to it. He spars often on Twitter and message boards, bragging about business strategies, musical tastes and politics; he live-streams from his office for long stretches.

    The SEC complaint and federal indictment lay out a series of schemes and cover-ups that mirror complaints of investors.

    Almost from the beginning, U.S. authorities say, Shkreli was losing his clients’ money, stealing it, and then lying about it.

    Barely 23, he was managing hedge fund Elea Capital in New York and lost it all in 2007. Around then, a trade with Lehman Brothers ended with a $2.3 million judgment against him, prosecutors said. In 2010, he lost his clients’ $3 million investment in his new fund, MSMB Capital.

    In 2011, he bet that shares of Orexigen Therapeutics Inc. would fall and wound up owing $7 million to his broker, Merrill Lynch, authorities said. He couldn’t pay, and he, an unnamed accomplice and MSMB Capital eventually extinguished the debt with a $1.35 million settlement, they said.

    Part of that money came from his next firm, authorities said. After the collapse of MSMB Capital, Shkreli launched MSMB Healthcare with about $5 million from 13 investors. He paid himself “far in excess” of the agreed-upon 1 percent management fee and 20 percent profit incentive, according to the SEC, which sued him Thursday.

    Shkreli then used cash from MSMB Healthcare to invest in Retrophin, the pharmaceutical company he founded in 2011, even though it “had no products or assets,” prosecutors said. Later, he used the assets of Retrophin to repay angry investors in his hedge funds, prosecutors said.

    As his losses mounted, so did his lies. He fabricated portfolio statements and, with his lawyer’s help, deceived the SEC and outside accountants. He backdated records, manufactured a phony loan agreement between Retrophin and a hedge fund, and created sham consulting agreements with Retrophin as a way to route the company’s cash to his earlier investors.

    Greebel, the arrested lawyer, made sure Retrophin’s outside accountants were unaware of Shkreli’s financial maneuvers and helped him concoct the consulting agreements used to repay the hedge fund investors, the U.S. said.

    The cases mirror a lawsuit brought by Retrophin. Shkreli blithely dismissed his old company’s claims, saying, “The $65 million Retrophin wants from me would not dent me. I feel great. I’m licking my chops over the suits I’m going to file against them.”

    Earlier, he had denied wrongdoing in a post on InvestorsHub after Retrophin disclosed it had received a subpoena from federal prosecutors and the preliminary findings from its own investigation of Shkreli. He called the company's allegations “completely false, untrue at best and defamatory at worst.”

    “Every transaction I’ve ever made at Retrophin was done with outside counsel’s blessing,” he said on the investment blog in February, without identifying the lawyers.

    Shkreli started his career interning for Jim Cramer's firm while still a teenager. After recommending successful trades, Shkreli eventually set up his own hedge fund, quickly developing a reputation for trashing biotechnology stocks in online chatrooms and shorting them, to enormous profit.

    Widely admired for his intellect and sharp eye, he pored over medical journals and taught himself biology. He set up Retrophin to develop drugs and acquire older pharmaceuticals that could be sold for higher profits.

    Turing, which is less than a year old and has raised $90 million in financing, has followed a similar strategy with the purchase of drugs, including Daraprim.

    Shkreli recently bought a majority stake in KaloBios Pharmaceuticals Inc. after Turing received a warning from the New York attorney general that the distribution network for Daraprim may violate antitrust laws. State officials made their concerns known to Turing and Shkreli in an Oct. 12 letter obtained by Bloomberg.

    KaloBios recently acquired the license for benznidazole, a standard treatment for Chagas, a deadly parasitic infection most common in South and Central America. The firm announced plans to increase the cost from a couple hundred dollars for two months to a pricing structure like that for hepatitis-C drugs, which can run to nearly $100,000 for 12 weeks.

    “Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies”

    With the federal charges and regulatory actions, Shkreli could be banned from running a public company, which could put the future of KaloBios into question. Trading in KaloBios shares was halted after the stock fell 53 percent. It’s less clear what the impact could be on Turing, which is closely held.

    Federal authorities will have to ask a judge to impose an asset freeze if they want to guarantee Shkreli doesn’t dispose of ill-gotten gains.

    The charges suggest that a small group of health-care firms—ones that acquire the rights to drugs and significantly increase their prices—is drawing the scrutiny of regulators and prosecutors, with a possible chilling effect on aggressive drug-pricing strategies.

    Legislators are already paying attention. A hearing of the Senate Special Committee on Aging on Dec. 9 scrutinized such tactics.

    Before Shkreli started Turing, Retrophin raised the price of Thiola, used to treat a rare condition causing debilitating recurrences of kidney stones, from $1.50 a pill to $30.

    “Some of these companies seem to act more like hedge funds than traditional pharmaceutical companies,” said Senator Susan Collins, a Maine Republican who ran the recent hearing.

    George Scangos, CEO of biotechnology giant Biogen Inc., went further, saying in an interview, “Turing is to a research-based company like a loan shark is to a legitimate bank.”

    By Christie Smythe and Keri Geiger | December 17, 2015


  1. Gradois
    That put a smile on my face. Since this guy is such a fan of hicking prices I suggest bail is placed at one hundred quadrillion dollars.
  2. Docta
    Yep just goes to show if the karma police don't get you the real ones will,....
  3. Killerqueen
    Sure doesn't have that smarmy look on his weasel face now,does he..
  4. DeepGreenSea
    Think on all the people that continued to invest with this Pale Weasel too! If they truly believed they were going to get a 37% return on Investment then they also had to know this guy was dirtier than Sin. Sigh. But as long as they get their 37% who cares who gets hurt in the process!?!

    He was nothing without Other People's Money-he had no real agency. So let's charge his investors with Manslaughter by Checkbook, confiscate whatever funds these Wall Street Privateers have left after being taken to the cleaners by a Pale Weasel and give those Funds to people struggling with Hepatitis!

    Virginia, there IS a Santa Claus!
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