Martin Shkreli, a flamboyant pharmaceutical entrepreneur and former hedge fund manager who has come under fire on allegations of drug price gouging, was arrested Thursday morning by the federal authorities.
The investigation, in which Mr. Shkreli has been charged with securities fraud, is related to his time as a hedge fund manager and running the biopharmaceutical company Retrophin — not the price-gouging controversy that has swirled around him in recent months.
But his penchant for notoriety has played out through his Twitter taunts of everyone from critics to presidential candidates like Senator Bernie Sanders and his exhaustively raw live streaming. And one of his most recent boasts even came up at the news conference held by federal officials outlining his indictment.
Asked if agents had seized the Wu-Tang Clan album that Mr. Shkreli reportedly bought for $ 2 million, United States Attorney Robert L. Capers was coy.
"I wondered how long it was going to take to get to that," he said. "We're not aware of where he got the funds that he raised to buy the Wu-Tang Clan album."
News Conference on Shkreli Arrest
The United States Attorney's Office and the F.B.I. discussed the fraud charges for Martin Shkreli, the drug company entrepreneur who had drawn scrutiny for increasing the price of a life-saving pill to $ 750 from $ 13.50.
Photo by Craig Ruttle/Associated Press. Watch in Times Video »
Wearing a gray sweatshirt with the hood partially concealing his head, Mr. Shkreli, 32, the chief executive of Turing Pharmaceuticals, was escorted by federal agents outside the courthouse after his arrest earlier in the day at his Midtown Manhattan apartment.
Federal officials painted Mr. Shkreli's business dealings as "a securities fraud trifecta of lies, deceit and greed."
He committed "fraud in nearly every aspect of hedge-fund investments and in connection with his stewardship of a public company," said the director of enforcement at the Securities and Exchange Commission, Andrew J. Ceresney, at the news conference. He "should be barred from working in the securities industry, or from being the director or officer of a public company," Mr. Ceresney said.
At his arraignment late Thursday afternoon, Mr. Shkreli, dressed in a short-sleeve black V-neck T-shirt and dark jeans, pleaded not guilty. He was released on $ 5 million in bail, secured by a bank account and guaranteed by his father and brother.
Evan L. Greebel, a corporate lawyer who worked with Mr. Shkreli and was also named in the indictment, was released on $ 1 million in bail, secured by his house and guaranteed by his wife and mother.
During the arraignment, Mr. Shrkeli looked a little shaken, occasionally twisting his head to look at the packed courtroom. At one point, he questioned Magistrate Judge Robert M. Levy about a date, "Did you say 2016, your honor?"
He wore sunglasses to exit the court in the pouring evening rain, declining to speak to journalists.
Allegations in the indictment and S.E.C. lawsuit predate the public outrage and legislative scrutiny over Mr. Shkreli's decision at Turing to acquire a decades-old drug and raise the price of it overnight to $ 750 a pill, from $ 13.50.
But in a recent interview with The New York Times, he acknowledged the regulatory and criminal investigations into claims of wrongdoing at hedge funds he once controlled as well as at Retrophin, but was dismissive of the inquiries' importance.
The companion arrest of Mr. Greebel, who joined the law firm Kaye Scholer last summer, tossed a twist into the securities case. Prosecutors suggested that attorney-client privilege might not apply across the board, citing the exception for crime fraud when a lawyer and client commit crimes together or cover up those crimes.
Andrea Orzehoski, a spokeswoman for Kaye Scholer, said in an email seeking comment on Mr. Greebel's arrest that "the transactions in question predate his arrival to the firm."
The S.E.C.'s lawsuit detailed a timeline for the allegations: Mr. Shkreli told investors in his hedge fund that he had a prominent industry auditing firm, which he did not. In a 2010 email, he told investors his MSMB Capital Management fund had returned 37.77 percent since its founding when in fact it had sustained losses of 18 percent. He also told investors the firm had assets of $ 35 million when in fact it had less than $ 1,000 in the bank and its brokerage accounts.
In 2011, while running MSMB Capital Management, Mr. Shkreli started Retrophin, which adopted a controversial business strategy. It acquired old, neglected drugs often used for rare diseases and substantially raised their prices. Retrophin, for example, raised the price of Thiola, used to treat a disease that causes kidney stones, to $ 30 a pill from $ 1.50. In 2012, he took Retrophin public through a merger with a publicly traded shell company.
The federal charges partly parallel a lawsuit filed against Mr. Shkreli in August by Retrophin, whose board ousted Mr. Shkreli as chief executive in September 2014. In its lawsuit, Retrophin accused Mr. Shkreli of having used the company as a kind of personal piggy bank to help pay off upset investors who lost money at MSMB. Among the ways he did this, the lawsuit says, was by hiring some of these investors as sham consultants to Retrophin.
"Shkreli was the paradigm faithless servant," Retrophin's complaint, filed in Manhattan, said. "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)."
In the indictment unsealed Thursday morning in Federal District Court in Brooklyn, federal authorities said that Mr. Shkreli and Mr. Greebel routed funds from Retrophin to make two hedge funds Mr. Shkreli ran, MSMB Capital and MSMB Healthcare, appear to be doing better than they were.
The indictment also gives details on claims that Mr. Shkreli misrepresented the MSMB funds' performance. In one December 2010 email, for instance, he told a potential investor that MSMB Capital had $ 35 million in assets under management. The investor sent over $ 1.25 million as a result. In fact, the indictment claims, MSMB Capital's assets were $ 700.
Document: Indictment Charges Shkreli With Security Fraud
He was also withdrawing money for himself far beyond the 1 percent management fee and 20 percent of returns that he was entitled to, according to the indictment.
While he was at Retrophin, among other things, Mr. Shkreli is accused of creating fake consulting agreements for MSMB investors as a way of paying them off without alarming Retrophin's auditor. Retrophin paid Mr. Shkreli's old investors $ 7.6 million through those agreements, according to the indictment.
The indictment says that Mr. Shkreli ran three schemes.
First, he is accused of lying to investors at MSMB Capital, which he ran from 2009 to 2012, about how well the fund was doing and how much money it had, and of falsely claiming that it had an independent auditor and administrator. He prevented investors from redeeming their money in MSMB Capital, again by lying about the fund's performance. During this period, Mr. Shkreli "and others" were misusing the fund's assets, the indictment said.
He performed a similar scheme with MSMB Healthcare, which he ran in 2011 and 2012, the indictment alleges.
Finally, he and Mr. Greebel inappropriately routed money from Retrophin "in an effort to satisfy Shkreli's personal and unrelated professional debts and obligations," the indictment said. Mr. Greebel was the lead outside counsel to Retrophin from 2012 to 2014, when he was a partner at Katten Muchin Rosenman. His name appears on many of the Retrophin filings with the Securities and Exchange Commission.
Mr. Shkreli has said in earlier interviews that the Retrophin allegations were false and merely a way for the company to avoid paying him severance.
Mr. Greebel joined Kaye Scholer this summer from Katten Muchin Rosenman.
In recent years, Mr. Greebel had built expertise working with Bitcoin, the digital currency. He is listed on filings with the S.E.C. as one of the outside lawyers working on the Winklevoss Bitcoin Trust, the publicly traded Bitcoin investment vehicle that Cameron and Tyler Winklevoss have talked about starting.
Retrophin said in a statement on Thursday that its board had replaced Mr. Shkreli last year "because of serious concerns about his conduct" and said it had cooperated fully with government investigations into Mr. Shkreli's activities.
Retrophin, founded in 2011, initially tried to find cures for children with muscular dystrophy. Mr. Shkreli became chief executive in 2012, and stayed through September 2014. By 2012, it was a publicly traded company, eventually trading on Nasdaq. Its business was developing and selling drugs for severe, life-threatening diseases for which there were not many treatments.
Though Mr. Shkreli has positioned himself as a brilliant investor, the indictment suggests otherwise.
Among Mr. Shkreli's omissions to his MSMB Capital investors, the indictment says, is that "he had lost all the money he managed in Elea Capital, his prior hedge fund, and that there was a $ 2.3 million default judgment against him from Lehman Brothers resulting from his trading activity."
In one February 2011 short sale of a pharmaceutical stock, Orexigen, Mr. Shkreli ended up losing $ 7 million, the complaint says. The assets in MSMB Capital, not including that short-sale loss, plummeted from $ 1.12 million to $ 58,500 from January to February 2011.
Despite the losses, he was writing performance updates to his investors saying that profits for the fund were as high as 40 percent since its inception.
Then, to settle the $ 7 million loss on the Orexigen sale, which was handled by MSMB's brokerage firm, Merrill Lynch, Mr. Shkreli and others agreed to pay Merrill Lynch $ 1.35 million, according to the indictment.
He told investors in 2012, five days after the Merrill settlement agreement — in which he stated that MSMB Capital had no assets — that he was winding down the fund. Original investors, he wrote, "have just about doubled their money," he wrote in an email excerpted in the indictment.
He then moved on to running MSMB Healthcare. Again, the indictment accuses him of lying about the assets under management, telling a potential investor in 2012 that it had $ 55 million. It never had more than $ 6 million, the indictment says.
And he used investments in MSMB Healthcare to pay off the Merrill Lynch settlement from the Orexigen trades, which "were not the responsibility of MSMB Healthcare," the indictment says.
With the failures from the MSMB funds trailing him, he jumped to Retrophin, asking his investors in MSMB to support his new venture.
In November 2012, the Securities and Exchange Commission began asking Mr. Shkreli about the MSMB funds. Mr. Shkreli and Mr. Greebel made up a complicated scheme, involving at least two employees, to show backdated agreements and share transfers suggesting that MSMB was an investor in Retrophin before the S.E.C. investigation.
By 2013, seven MSMB investors were threatening to sue. Mr. Shkreli and Mr. Greebel used $ 3.4 million in Retrophin funds and stocks to settle claims with the MSMB investors, though Retrophin had no responsibility for those claims.
In August 2013, when Retrophin's auditor raised concerns about those settlements, causing a revision in Retrophin's public filings, Mr. Shkreli and Mr. Greebel started a long email chain excerpted in the indictment.
"There were serious faults with the agreements including lack of board approval," Mr. Shkreli wrote.
"That will open up some very big issues," Mr. Greebel wrote. "The current thinking is let RTRX pay," his email said, referring to Retrophin's trading symbol. "It would be easier than the road you are referring to," he continued, adding that the auditor "would get very spooked with what you are talking about (which could also spook your investors and counterparties)."
"That works for me," Mr. Shkreli replied.
Once the auditor questioned the settlement agreements, Mr. Shkreli and Mr. Greebel created fraudulent consulting agreements for the investors, thinking that they could pay the money back that way without upsetting the auditor. They created fake consulting agreements for four investors between September 2013 and March 2014, never getting approval from Retrophin's board for any of them. Through the consulting agreements, Retrophin paid $ 7.6 million in cash and stock that it didn't owe to Mr. Shkreli's old investors.
The indictment charges Mr. Shkreli with seven counts of wire and securities fraud, and Mr. Greebel with one count of conspiracy to commit wire fraud.
Mr. Shkreli's story seems that of the American dream run amok. He grew up in an apartment in Brooklyn, the son of Albanian immigrants who worked janitorial jobs, yet he made millions of dollars.
After being forced out of Retrophin, he started Turing, a privately held company with the same strategy.
Turing created a public furor in September, after it acquired the rights to Daraprim, a 62-year-old drug used to treat toxoplasmosis, a parasitic infection that can cause brain damage in babies and people with AIDS. Mr. Shkreli raised the price overnight to $ 750 a pill, from $ 13.50.
That turned Mr. Shkreli into a symbol of pharmaceutical industry greed, prompting a public discussion of drug pricing and setting off congressional investigations.
In November, Mr. Shkreli led an investor group that took control of KaloBios Pharmaceuticals, a publicly traded California biotech company that was about to go out of business. He is now the chief executive of KaloBios as well, running it separately from the privately held Turing, which is based in Manhattan, though the two companies share several executives.
KaloBios has already set off concerns by licensing the rights to a drug that has been used for decades to treat Chagas disease in Latin America, where the disease is most common. Mr. Shkreli said KaloBios hoped to win approval for the drug in the United States and sell it for around $ 60,000 to $ 100,000 for a course of treatment. In Latin America, the drug costs $ 50 to $ 100.
After Mr. Shkreli's arrest on Thursday, trading in KaloBios was halted.
News of the arrest was reported earlier by Bloomberg.
No comments:
Post a Comment