Martin Shkreli arrested by FBI on securities fraud charges related to former firm
Update: Martin Shkreli has resigned as CEO of Turing Pharamceuticals. The current Chairman of the Board of Directors, Ron Tilles, will take his place as interim CEO.
- Bloomberg reported on Thursday morning that hedge fund manager-turned-biopharma CEO Martin Shkreli was arrested by the FBI at his New York City residence on securities fraud charges. He will also face parallel civil charges by the Securities and Exchange Commission. The allegations include unauthorized stock appropriations and setting up fake consulting arrangements with the help of his attorney, Evan Greebel (who was also arrested Thursday) in order to repay investors involved in Shkreli's other businesses. You can read the grand jury indictment here.
- The charges stem from Shkreli's time running the biotech Retrophin, which sued him back in August for $65 million for allegedly mismanaging company funds in order to settle disputes and debts unrelated to the firm's operations. Those are the very charges that led to his arrest on Thursday morning. Retrophin eventually wound up kicking Shkreli out of the company, and the combative investor has maintained his innocence and even spoken of counter-suing Retrophin. Shkreli's lawyer was also arrested on Thursday for allegedly conspiring with Shkreli.
- Federal prosecutors allege that Shkreli used Retrophin as a personal piggy bank in order to secretly pay off debts incurred through his hedge fund MSMB Capital Management. Retrophin has said that a disastrous trade with Merrill Lynch nearly tanked MSMB, and Shkreli is accused of using the biotech's funds (such as by retroactively restructuring a $900,000 as a loan that had to be repaid to MSMB) in order to funnel money to MSMB investors and settle personal and/or other unrelated debts and obligations.
- Brooklyn U.S. Attorney Robert Capers said at a press conference held at noon EST that Shkreli's and Greebel's activities essentially amounted to a Ponzi scheme and that the two conspirators used Retrophin as a personal piggy bank in order to help cover up lies that Shkreli had told MSMB investors. The FBI also slammed his "lies and deceit" at the presser.
Ever since news broke that Shkreli had attracted federal scrutiny since at least 2012, the question has been, When will the other shoe drop?
That drop arrived like a thunderbolt on Thursday morning, with Shkreli—who has become the most notorious biopharma exec in the country thanks to his extravagant price hikes on niche drugs like Daraprim and strikingly brazen pursuit of profit maximization—being taken into federal custody.
Here's the part of the federal indictment that involves Retrophin (there are also charges of schemes to defraud investors at MSMB and Elea Capital):
And here's the full indictment:
The SEC complaint against Shkreli is also available now.
Brooklyn U.S. Attorney Robert Capers held a press conference alongside FBI and SEC officials at noon EST in which he compared Shkreli's and Greebel's activities to a Ponzi scheme. In essence, Shkreli allegedly lost $7 million through a short sell gone wrong and then illegally used MSMB Healthcare funds in order to pay off a later settlement with the broker who executed the trade (Shkreli had allegedly also lost millions even before this transaction-gone-south).
Afterwards, Shkreli took Retrophin public and, in Capers' words, "arrived at a crossroads." Shkreli could either have confessed his alleged defrauding of MSMB investors (whom he had told were receiving stellar returns) or found another way to pay them back for their investment. It was at this point that Shkreli used $7.5 million in Retrophin funds and shares in order to cash out MSMB investors.
More recently, Shkreli had said that he would be hiking another drug's price (for treatment of Chagas disease) from approximately free to Sovaldi-like levels. He became the CEO of the floundering biotech KaloBios after saving it with a nearly $2 million investment and then used that outfit to snatch up the Chagas treatment, most likely in order to get his hands on an FDA priority review voucher that may be sold for ten, or even hundreds, of millions of dollars.
KaloBios shares were down more than 53% in premarket trading Thursday and was halted. Politicians like Democratic presidential contenders Hillary Clinton and Bernie Sanders, as well as Shkreli's other firm, Turing Pharma, have not released statements on the arrest as of press time. That is almost certain to change soon.
Shkreli is set to be arraigned at 2 pm EST.
Don't miss our roundup of how the media and biopharma have been reacting to Shkreli's arrest so far.
This is a developing story that will be updated.