NEW YORK — Martin Shkreli, the 32-year-old former hedge fund manager notorious for jacking up the price of an obscure but critical drug, was arrested Thursday on securities fraud charges.
The charges are unrelated to Shkreli’s leadership of Turing Pharmaceuticals, which bought a drug, Daraprim, for $55 million this summer, then increased the price of the 62-year-old drug by more than 4,000 percent.
Instead, the charges brought by the U.S. attorney for the Eastern District of New York are related to Shkreli’s time at Retrophin, another bio-pharmaceutical company he founded, and his time at MSMB Capital Management, a hedge fund.
Federal prosecutors alleged that for five years, Shkreli lied to investors in two hedge funds and bio-pharmaceutical company Retrophin, all of which he founded. After losing money on stock bets he made through one hedge fund, Shkreli allegedly started another and used his new investors’ money to pay off those who had lost money on the first fund. Then, as pressure was building, Shkreli started Retrophin, which was publicly traded, and used cash and stock from that company to settle with other disgruntled investors, prosecutors contended.
Shkreli “engaged in multiple schemes to ensnare investors through a web of lies and deceit,” U.S. Attorney Robert L. Capers told reporters. “His plots were matched only by efforts to conceal the fraud, which led him to operate his companies … as a Ponzi scheme.”
At his arraignment Thursday afternoon, Shkreli pleaded not guilty. He was released on $5 million bond. Turing and Shkreli’s attorneys did not return emails and calls seeking comment.
Evan Greebel, former outside counsel to Retrophin, was also arrested and has been charged with helping Shkreli with his fraudulent schemes.
Retrophin said its board removed Shkreli more than a year ago because of serious concerns about his conduct. In an Aug. 17 securities filing, the company said it had filed suit against its former chief executive.
“Shkreli was the paradigm faithless servant,” the filing stated. “Starting sometime in early 2012, and continuing until he left the Company, Shkreli used his control over Retrophin to enrich himself, and to pay off claims of MSMB investors (who he had defrauded).”
On Thursday, following Shkreli’s arrest, Retrophin issued a statement:
“Following his departure, the company authorized an independent investigation of Mr. Shkreli’s conduct, publicly disclosed its findings, and has fully cooperated with the government investigations into Mr. Shkreli. Until we have had the opportunity to review the charges against Mr. Shkreli, we cannot comment further.”
Retrophin said it has since added new members to its board and management team, implemented new financial controls and “further developed its pipeline of promising drugs for patients with rare diseases while steadily improving its operating performance.”
The charges against Shkreli were first reported by Bloomberg News.
Shkreli became a symbol of Wall Street greed when it was reported in mid-September that he raised the price of Daraprim — a drug primarily used for newborns and HIV patients — so that the average cost of treatment jumped from $1,130 to $63,000.
Critics labeled Shkreli a “putz” and a “psychopath.”
Congress called him out on it. Democratic presidential front-runner Hillary Clinton tore into Shkreli. Sen. Bernie Sanders of Vermont, also a Democratic presidential candidate, rejected a donation from America’s most unpopular businessman. Even Republican front-runner Donald Trump called Shkreli a “spoiled brat.”
Shkreli did not do his reputation any favors by calling a journalist a “moron,” quoting defiant rap lyrics on Twitter and defending the price increase as a “great business decision.”
“Our shareholders expect us to make as much as money as possible,” he said during a health-industry summit earlier this month, dressed nonchalantly in a hooded sweatshirt and sneakers. “That’s the ugly, dirty truth.”
Shkreli eventually agreed to lower the price of the drug, but the former hedge fund manager has remained outspoken in the face of intense media scrutiny. After it was revealed that he paid millions for a one-of-a-kind Wu-Tang Clan album, he lashed out at the group for distancing itself from him. “If I hand you $2 million … show me some respect. At least have the decency to say nothing or ‘no comment,’ ” he said on Twitter.
Still, even though Shkreli seemed to take the criticism of Turing’s decision to raise drug prices in stride (“I like to stir the pot, but I would never, ever price a drug beyond a sick person’s reach, he said on Twitter earlier this week), it may be harder to shake off the reputation as a poor investor.
According to the indictment, Shkreli repeatedly lost millions in investors’ money over several years. In 2011, MSMB Capital lost $7 million on a bet that the stock of a small pharmaceutical company would fall. For months after the fund lost all of its money, Shkreli continued to tell investors that the fund was achieving profits as high as 40 percent, law enforcement officials said.
Miller reported from Washington.