Pharmaceutical bro Martin Shkreli, who bought the unicorn of Wu-Tang Clan albums, and who was destined to bail Bobby Shmurda out and handle all his legal fees, was arrested for securities fraud. The price-gouging mogul was the villainous hero who we were all supposed to love and hate.
Bloomberg reports:
Shkreli, 32, ignited a firestorm over drug prices in September and became a symbol of defiant greed. The federal case against him has nothing to do with pharmaceutical costs, however. Prosecutors in Brooklyn charged him with illegally taking stock from Retrophin Inc., a biotechnology firm he started in 2011, and using it to pay off debts from unrelated business dealings. He was later ousted from the company, where he’d been chief executive officer, and sued by its board.
In the case that closely tracks that suit, federal prosecutors accused Shkreli of engaging in a complicated shell game after his defunct hedge fund, MSMB Capital Management, lost millions. He is alleged to have made secret payoffs and set up sham consulting arrangements. A New York lawyer, Evan Greebel, was also arrested early Thursday. He’s accused of conspiring with Shkreli in part of the scheme.
Retrophin replaced Shkreli as CEO “because of serious concerns about his conduct,” the company said in a statement. The company, which hasn’t been accused of any wrongdoing, has “fully cooperated with the government investigations into Mr. Shkreli.”
Shkreli’s lawyer didn’t immediately respond to requests for comment. Greebel, who worked at Katten Muchin Rosenman LLP and served as lead outside counsel to Retrophin from 2012 to 2014, helped Shkreli in several schemes, prosecutors said. A spokeswoman for Katten Muchin declined comment; a spokeswoman for Kaye Scholer, where Greebel now works, said he joined the firm after the alleged activities occurred.
Authorities outlined years of investment losses and lies Shkreli allegedly told his investors almost from the moment he began managing money. By age 26, they said, he got nine investors to place $3 million with him, began losing their money and covering it up. Within a year, his fund’s account was down to $331.
Shkreli attracted another $2.35 million investment in 2010 and lost about half of that in two months, the authorities said. As the hole grew, he covered it up with scheme after scheme, telling investors that his returns were as high as 35.8 percent when he was down 18 percent. He used client money to pay for his clothing, food and medical expenses and lied to the broker handling his fund’s accounts, authorities said.
Retrophin sued Shkreli in August for misuse of company funds, claiming he engineered numerous transactions between investors in MSMB and the biotechnology firm. Similar allegations are laid out in the company’s regulatory filings.
The company alleged in a complaint filed in Manhattan federal court that, through a disastrous trade with Merrill Lynch in 2011, Shkreli cost MSMB more than $7 million, leaving it virtually bankrupt.
From Wall Street Wunderkind to “Most Hated Man in America”
About 2000: Age 17, Shkreli interns for Jim Cramer, of “Mad Money,” and correctly predicts biotech decline.
Early 2000s: Sets up hedge funds, trash-talking companies he is shorting.
About 2009: Founds MSMB Capital Management, which later suffers losses on a bad trade with Merrill Lynch.
February 2011: Starts Retrophin, a biotech company.
September 2014: Voted out as Retrophin’s CEO, Shkreli tweets that the directors are “inane.”
February 2015: Launches new company, Turing Pharmaceuticals, which acquires an old drug and jacks up their prices.
August 2015: Retrophin sues Shkreli for $65 million, saying he used company assets to pay off hedge fund investors.
September 2015: Storm erupts over Turing’s price increase—from $13.50 to $750 a pill—for anti-parasitic drug Daraprim.
Sept. 21, 2015: Hillary Clinton tweets “Price gouging like this in the specialty drug market is outrageous. Tomorrow, I’ll lay out a plan to take it on.”
October 2015: New York attorney general investigates the pricing and distribution of Daraprim.
November 2015: A Shkreli-led group buys majority of KaloBios, presaging price increase in drug for Chagas disease.
Nov. 5, 2015: To critics of his drug-pricing strategy, Shkreli tweets “lol.”
December 2015: News emerges that Shkreli bought the only copy of the Wu-Tang Clan’s latest album.
Shkreli tweets: “Within 10 years, more than half of all rap/hip-hop music will be made exclusively for me. Don’t worry—I will share some of it.”
Retrophin also asserts that Shkreli entered into payoff agreements with as many as 10 MSMB investors who lost money when the hedge fund became insolvent. Shkreli paid some investors through fake consulting agreements and others through unauthorized appropriations of stock and cash, the company alleged.
Complex financial maneuvers were used to conceal the payments, Retrophin said. For example, the company accused its former CEO of fraudulently reclassifying a $900,000 equity investment that MSMB made in Retrophin as a loan. He then allegedly had Retrophin pay off that loan to settle another unrelated legal dispute.
The Securities and Exchange Commission, which according to court documents opened an investigation into Shkreli in 2012, is expected to file a parallel civil complaint against him, according to people familiar with the matter.
Also…
Shkreli spoke cavalierly of the company’s lawsuit, saying, “The $65 million Retrophin wants from me would not dent me. I feel great. I’m licking my chops over the suits I’m going to file against them.”
Earlier, he had denied wrongdoing in a post on InvestorsHub after Retrophin disclosed it had received a subpoena from federal prosecutors and the preliminary findings from its own investigation of Shkreli. He called the company’s allegations “completely false, untrue at best and defamatory at worst.”
“Every transaction I’ve ever made at Retrophin was done with outside counsel’s blessing,” he said on the investment blog in February, without identifying the lawyers.
This whole situation is a mess.
