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 MSMB Capital Management, a hedge fund. In an indictment, prosecutors allege that Shkreli misled investors in his hedge fund, misrepresenting its financial health.
In one case, Shkreli allegedly told an investor that MSMB Capital had $35 million in assets and an independent auditor. But at the time the fund had no independent auditor, Shkreli had lost about $700,000 of the investor’s money and the value of the fund’s assets was just $700, according to the indictment.
Shkreli also failed to tell investors that he had lost all the money he managed at another hedge fund, and owed Lehman Brothers $2.3 million for a default judgment related to his trading activity, according to the indictment.
An FBI spokesperson confirmed that Shkreli was arrested this morning. Turing and Shkreli’s attorneys did not return emails and calls seeking comment.
Retrophin said its board removed Shkreli more than a year ago because of serious concerns about his conduct. In a August 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.”
U.S. Attorney Robert L. Capers has scheduled a press conference for noon Thursday to discuss the indictment of Shkreli and a lawyer who served as outside counsel to Retrophin.
The charges against Shkreli were first reported by Bloomberg.
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 themselves 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, Shkreli has remained most focused on defending the drug price increases he is most well known for. “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.