Pharma Bro Martin Shkreli Arrested in Multimillion-Dollar Fraud Scheme

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Notorious for raising the price of a lifesaving drug by 5,500%, Turing Pharmaceuticals CEO Martin Shkreli was arrested Thursday for allegedly participating in three interrelated multimillion-dollar fraud schemes. Charged with securities fraud, securities fraud conspiracy, and wire fraud conspiracy while defrauding investors and misappropriating assets, Shkreli became the most hated man in America after falsely promising to lower the price of Daraprim and later telling reporters that he should have increased the price even higher.

After purchasing the rights to a drug that prevents infections in people with weakened immune systems, including AIDS patients and cancer survivors undergoing chemotherapy, Turing Pharmaceuticals CEO Martin Shkreli raised the price of Daraprim by 5,500% this summer. Instead of paying $13.50 per pill, patients with life-threatening illnesses are now forced to pay $750 per pill. Led by a former hedge fund manager, Turing Pharmaceuticals was founded by Shkreli after his first startup biotech company, Retrophin, ousted him last year amid accusations of stock impropriety.

“As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit. 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. When regulators and auditors questioned Shkreli’s decisions, he joined forces with Evan Greebel, who used his law license and training to conceal and further the scheme,” stated U.S. Attorney Robert Capers on Thursday. “The charges and arrests announced today reflect our commitment to hold accountable corporate executives and licensed professionals who betray their positions of trust in order to fraudulently enrich themselves.”

According to the seven-count indictment, between September 2009 and September 2014, Shkreli and his co-conspirators orchestrated three multimillion-dollar schemes to defraud investors and potential investors in MSMB Capital, MSMB Healthcare, and Retrophin. Between September 2009 and January 2011, Shkreli failed to disclose to investors that he had lost all the money he managed in Elea Capital, his prior hedge fund, and that Lehman Brothers had a $2.3 million default judgment against him. Shkreli lied to his largest investor telling him that MSMB Capital had $35 million in assets under management, when in fact it had less than $700 in its bank and brokerage accounts.

After Shkreli bilked approximately $3 million from eight investors, MSMB Capital failed to settle a trade of over 11 million shares of Orexigen Therapeutics, Inc. (OREX) that Merrill Lynch ultimately closed at a loss of over $7 million. While providing investors with fabricated performance updates, Shkreli also allegedly misappropriated more than $200,000 from MSMB Capital to cover his personal and professional debts.

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Following the subsequent collapse of MSMB Capital, Shkreli began soliciting investments for MSMB Health while concealing his disastrous past performance, including the $7 million liability that Shkreli owed Merrill Lynch for the February 2011 OREX trades. From approximately February 2011 to November 2012, Shkreli also falsely represented that MSMB Healthcare had $55 million in assets under management. After acquiring $5 million from 13 investors, Shkreli improperly used MSMB Healthcare assets to pay for obligations that were not its responsibility, including the failed OREX trades.

In an effort to pay off Shkreli’s personal and professional debts, Shkreli, Greebel, and their co-conspirators engaged in a scheme to defraud Retrophin by misappropriating its assets between March 2011 and September 2014. After reportedly lying to the U.S. Securities and Exchange Commission (SEC), Shkreli and Greebel caused Retrophin to pay more than $3.4 million in cash and stocks to settle claims with seven MSMB Capital and MSMB Healthcare investors.

“The charges announced today describe a securities fraud trifecta of lies, deceit, and greed. As charged, Martin Shkreli targeted investors and retained their business by making several misrepresentations and omissions about key facts of the funds he managed. He continued to lie about the success of the investments and used assets from Retrophin to payoff MSMB investors. In the end, Shkreli and Greebel used a series of settlement and sham consulting agreements that resulted in Retrophin and its investors suffering a loss in excess of $11 million. While the charges announced today are significant, they are but one example of what’s left to come as the FBI continues this investigation,” stated FBI Assistant Director-in-Charge Diego Rodriguez.

In 2014, Retrophin’s board fired Shkreli and later sued him for breaching his duty of loyalty to the company. After purchasing the exclusive rights to sell Daraprim, Shkreli gained notoriety by suddenly raising the price of the drug by 5,500%. He also recently bought an unreleased Wu-Tang Clan album for $2 million and sent a campaign contribution to Sen. Bernie Sanders, but the presidential candidate refused to accept the dirty money.

Last month, KaloBios Pharmaceuticals named Shkreli its new chairman and CEO. Immediately following Shkreli’s arrest on Thursday, its stock fell by more than half before trading was suspended. According to U.S. Attorney Capers, the charges against Shkreli carry a maximum sentence of 20 years in prison.

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