The reviled poster boy of drug price hikes perpetuated a Ponzi scheme on investors in a hedge fund and pharmaceutical company he had founded and previously led, prosecutors alleged Thursday.
Martin Shkreli, a pharmaceutical industry entrepreneur previously criticized for raising the price of life-saving drugs such as those used to fight HIV and cancer, was arrested early Thursday in New York City and indicted on criminal and civil securities fraud charges
Shkreli's detention was not related to drug prices but instead stems from allegations by federal prosecutors that he illegally took stock from Retrophin — a biotechnology company he started in 2011 and exited in 2014 — to pay off unrelated debts.
Evan Greebel, a New York lawyer who served as Retrophin's outside counsel, was also arrested on similar charges, FBI spokeswoman Kelly Langmesser said.
Prosecutors charged Shkreli with two counts of conspiracy to commit securities fraud, three counts of conspiracy to commit wire fraud and two counts of securities fraud. The U.S. Securities and Exchange Commission concurrently filed a separate civil complaint.
Shkreli potentially faces a maximum 20-year federal prison term if convicted on the top conspiracy count.
Investigators accused Shkreli and his now-defunct hedge fund MSMB Capital of defrauding investors by falsifying investment returns, using company funds to settle personal disputes with investors, unjustly enriching himself with company funds and forming false ties to consultants.
For example, Martin Shkreli told one investor on Dec. 2, 2010, that his hedge fund had $35 million assets, but it only had $700, according to the indictment.
At a press conference, Brooklyn U.S. Attorney Robert Capers charged that Shkreli, with Greebel's help, used Retrophin as his personal "piggy bank" to funnel millions of dollars in illegal repayments to investors he'd defrauded in virtually defunct hedge funds.
"These charges in today's indictment highlight the brazenness and breadth of Shkreli's schemes and the outrageous web of lies and deceit weaved by both defendants," Capers said.
Caper said the investigation was continuing and could lead to additional charges. Shkreli was scheduled to be arraigned later Thursday afternoon in Brooklyn federal court.
In an unrelated development this year, as CEO of Turing Pharmaceuticals, Shkreli became the target of heavy criticism from health industry experts, presidential candidates and others in September after he raised the price of a drug called Daraprim by more than 5,000%, from $13.50 a pill to $750.
The Food and Drug Administration-approved Daraprim is used to treat toxoplasmosis, a parasitic disease that afflicts people with weakened immune systems, such as those with AIDS and pregnant women.
Shkreli initially said he would roll back the Daraprim price hike. But he subsequently dropped that plan and publicly defended the increase.
Capers declined to speculate whether Shkreli might have raised the price of Turing-controlled drugs to raise funds for other potentially illegal transactions.
A Turing Pharmaceuticals spokesman did not respond to requests seeking comment Thursday morning.
Shkreli, 32, has previously denied any wrongdoing related to his business dealings with Retrophin. But Retrophin's board of directors ousted him in September 2014.
In August, Retrophin filed a lawsuit against Shkreli, accusing him of defrauding investors and forming false business deals to enrich himself, among other things, according to court documents. Retrophin is seeking more than $65 million in damages.
A separate securities fraud case filed in December 2014 by Retrophin investors accused Shkreli, Retrophin and other company officials of false or misleading statements about the firm's finances. The lawsuit seeks class-action status on behalf of burned shareholders.
A King & Spalding lawyer for Shkreli did not immediately have any comment, a spokesman for the firm said Thursday morning.
According to the SEC complaint, Shkreli engaged in "widespread fraudulent conduct" from October 2009 through March 2014. His actions, according to investigators, included:
--Misappropriating more than $1 million of his hedge fund investors' funds.
--Lying about his hedge fund's investment returns.
--Fraudulently conspiring with Greebel to get Retrophin to issue stock and deliver cash compensation for faux consulting contracts to cover up disputes with MSMB investors over the hedge fund's performance.
The SEC is pursuing a disgorgement of ill-gotten profits, civil penalties and a ban on serving as an corporate officer and director.
Noah Bookbinder, executive director of Citizens for Responsibility and Ethics in Washington, a nonprofit that called for federal investigations into Shkreli in 2012, said in a statement that the arrest "shows that the law applies to everyone. We commend the DOJ for sending a clear message that these types of action will not be tolerated."
The polarizing Shkreli was known to consumers for a cultivating a flamboyant persona on Twitter, where he aggressively defended Turing's price hikes. He also posted long YouTube videos that showed him sitting at his computer, with electric guitars and amplifiers in the background, as he mused about his businesses, his love of rap music and other matters.
Shkreli famously paid $2 million earlier this year for the one-of-a-kind double album featuring the Wu-Tang Clan, an iconic, Staten Island, N.Y. rap band he favored. The band later said the deal for the Once Upon a Time in Shaolin was struck before news about the Turing drug price hikes approved by Shkreli.
Capers, the prosecutor, said he did not know where Shkreli got the funds to buy the Wu Tang Clan album.
#Breaking no seizure warrant at the arrest of Martin Shkreli today, which means we didn't seize the Wu-Tang Clan album.
— FBI New York (@NewYorkFBI) December 17, 2015
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
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