Infamous US drug entrepreneur arrested on suspicion of fraud

Martin Shkreli known for raising price of life-saving pill from $13.50 to $750

Martin Shkreli, a lightning rod for growing outrage over soaring prescription drug prices, was arrested in New York by the FBI on Thursday on securities fraud charges involving his former hedge fund and a pharmaceutical company he previously headed.

Mr Shkreli, who is now chief executive of Turing Pharmaceuticals and KaloBios Pharmaceuticals, was charged in a federal indictment related to his time managing hedge fund MSMB Capital Management and heading biopharmaceutical company Retrophin.

The indictment, filed in Brooklyn, New York, also charged Evan Greebel, a former partner at law firm Katten Muchin Rosenmann who was Retrophin's outside counsel. Both were also sued in a related lawsuit by the US Securities and Exchange Commission, which also named MSMB Capital as a defendant.

The investigation predated the controversy surrounding Mr Shkreli since September, when reports surfaced that his privately held Turing had raised the price of Daraprim, a 62-year-old treatment for a dangerous parasitic infection, to $750 (€694) a tablet from $13.50 after acquiring it.

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Midtown arrest

Mr Shkreli was arrested at the Murray Hill Tower Apartments in midtown Manhattan. Law enforcement officers, including FBI agents, could be seen escorting Mr Shkreli, who was wearing a hoodie, into a car. FBI spokeswoman Kelly Langmesser confirmed the arrests of Mr Shkreli and Mr Greebel.

Shares of KaloBios were down 53 per cent at $11.03 in the premarket before trading in them was halted. Retrophin, which said in a statement that it had fully cooperated with the government investigations of Mr Shkreli, was down 1.5 per cent at $21.03 at midday.

Turing and KaloBios declined to comment. Lawyers for Mr Shkreli had no comment. A lawyer for Mr Greebel did not immediately respond to requests for comment.

Mr Greebel, 42, in July had joined the law firm Kaye Scholer, which in a statement noted the “transactions in question predated his arrival to the firm.”

Boyish entrepreneur

The outcry over Daraprim turned Mr Shkreli, a boyish drug company entrepreneur, into a pariah on the internet, where he persistently provoked his critics on Twitter. In recent days, he has said that journalists do not “matter” and asked about a Democratic presidential candidate, “If @BernieSanders was a parasite what would he be?”

Mr Sanders, who advocates a single payer healthcare system to control drug prices, has refused to accept a donation from Mr Shkreli, instead giving the money to a health clinic in Washington, DC.

Mr Shkreli also called himself “the world’s most eligible bachelor” and boasted about buying the only copy of a Wu-Tang Clan album for $2 million. Robert Diggs, the rap group’s producer, later gave away most of the proceeds in protest of Mr Shkreli’s business practices.

On Twitter, the top hashtag and keyword related to Mr Shkreli’s arrest was #Karma, with many saying on social media that the drug company executive was getting what he deserved.

Hedge fund

The charges relate to Mr Shkreli’s management of New York-based hedge fund MSMB Capital Management, whose closure he announced in 2012, and his time as chief executive of Retrophin from 2012 to 2014.

The indictment said Mr Shkreli made false representations to MSMB investors to draw in $3 million in investments. After MSMB suffered devastating trading losses in 2011 and ceased trading, Mr Shkreli for months sent fabricated updates to investors touting profits of as high as 40 per cent since inception, the indictment said. He also solicited $5 million from investors for another fund, MSMB Healthcare Management LP, while concealing his performance managing MSMB Capital and a prior fund and providing investors an inflated valuation of his then-private firm Retrophin, the indictment said. To pay back the MSMB funds’ investors, Mr Shkreli and Mr Greebel misappropriated $11 million in Retrophin assets through settlement agreements and sham consulting deals, according to the indictment.

Another lawsuit

The case mirrors a lawsuit Retrophin filed in August against Mr Shkreli in federal court in Manhattan for $65 million, claiming he had used his control over the company to enrich himself and pay off MSMB investors’ claims.

Mr Shkreli has denied the allegations. It is unclear how the case and other continuing investigations could affect Turing or KaloBios. At least two separate Congressional probes have been launched since September on the pricing issues of Daraprim, which had long been available as a generic drug used to treat toxoplasmosis in AIDS patients.

Turing is also under investigation by the New York state attorney general for antitrust concerns. At a Senate hearing on drug pricing last week, a doctor who treats babies with life-threatening toxoplasmosis testified that a course of treatment with Daraprim went from about $1,200 to no less than $69,000.

Reuters