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 5,400 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 the 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,” said U.S. Attorney Robert L. Capers. “His plots were matched only by efforts to conceal the fraud, which led him to operate his companies … as a Ponzi scheme.”
Turing and Shkreli’s attorneys did not return e-mails and calls seeking comment.
Shkreli pleaded not guilty in federal court in Brooklyn on Thursday. The judge set bail at $5 million.
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 CEO.
“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 (whom he had defrauded).”
On Thursday, after 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.”
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.
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.
