Turing CEO Martin Shkreli arrested in securities fraud probe

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US Attorney: Shkreli Orchestrated 3 Schemes

Martin Shkreli, who caused public outrage after raising the price of a prescription drug by more than 5,000 percent, was arrested on Thursday for engaging in what U.S. prosecutors said was a Ponzi-like scheme at his former hedge fund and a pharmaceutical company he previously headed.

Reuters witnessed Shkreli's predawn arrest at the Murray Hill Tower Apartments in midtown Manhattan. Law enforcement, including FBI agents, could be seen escorting the hoodie-clad 32-year-old into a car.

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Many on social media said Shkreli was getting what he deserved. On Twitter, the top hashtag and keyword related to his arrest was #Karma.

Shkreli, who is now chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals Inc (KBIO.O), was charged in a federal indictment filed in Brooklyn relating to his management of hedge fund MSMB Capital Management and biopharmaceutical company Retrophin Inc (RTRX.O).

Brooklyn U.S. Attorney Robert Capers said at a news conference that Shkreli "essentially ran his companies like a Ponzi scheme, where he used each subsequent company to pay off defrauded investors in the prior company."

Shkreli's efforts to conceal the fraud led him to use the assets of Retrophin to pay off debts from his hedge funds, Capers said.

Shkreli was charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy. The maximum sentence for the top count is 20 years in prison.

See photos of Shkreli during his arrest:

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Martin Shkreli arrested
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Turing CEO Martin Shkreli arrested in securities fraud probe
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is belted into an awaiting car after being taken into custody following a securities probe, on Thursday, Dec. 17, 2015 in New York. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, sits in an awaiting car after being taken into custody following a securities probe, on Thursday, Dec. 17, 2015 in New York. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York Thursday, Dec. 17, 2015, after being taken into custody following a securities probe. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York Thursday, Dec. 17, 2015, after being taken into custody following a securities probe. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York Thursday, Dec. 17, 2015, after being taken into custody following a securities probe. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
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The indictment, the result of an ongoing investigation, 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 U.S. Securities and Exchange Commission, which also named MSMB Capital as a defendant.

Andrew Ceresney, director of the SEC's enforcement division, said Shkreli should be barred from the finance industry and from serving as an officer of a publicly traded company.

The securities fraud investigation predated the controversy surrounding 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 a tablet from $13.50 after acquiring it.

Asked if Shkreli raised drug prices to pay back investors, Capers said that was not part of the investigation. "I wouldn't want to speculate on his reasoning for trying to increase the price on those drugs," he added.

Both Shkreli and Greebel, who was also arrested, are expected to appear later on Thursday in federal court.

Pictures of the pharma CEO prior to the drug price raising controversy:

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Pharma CEO Martin Shkreli
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Turing CEO Martin Shkreli arrested in securities fraud probe
Pharmaceutical chief Martin Shkreli, right, huddles with his attorney Benjamin Brafman on Capitol Hill in Washington, Thursday, Feb. 4, 2016, following his appearance before the House Committee on Oversight and Reform Committee. Shkreli refused to testify before U.S. lawmakers who excoriated him over severe hikes for a drug sold by a company that he acquired. (AP Photo/Susan Walsh)
Benjamin Brafman, right, attorney for pharmaceutical chief Martin Shkreli, foreground, speaks on Capitol Hill in Washington, Thursday, Feb. 4, 2016, during a House Committee on Oversight and Reform Committee hearing on rising drug prices. Shkreli refused to testify before U.S. lawmakers who excoriated him over severe hikes for a drug sold by a company that he acquired. (AP Photo/Susan Walsh)
Pharmaceutical chief Martin Shkreli waits on Capitol Hill in Washington, Thursday, Feb. 4, 2016, for the start of the House Committee on Oversight and Reform Committee hearing on his former company's decision to raise the price of a lifesaving medicine. Shkreli refused to testify before U.S. lawmakers who excoriated him over severe hikes for a drug sold by a company that he acquired. (AP Photo/Susan Walsh)
Pharmaceutical chief Martin Shkreli waits on Capitol Hill in Washington, Thursday, Feb. 4, 2016, for the start of the House Committee on Oversight and Reform Committee hearing on his former company's decision to raise the price of a lifesaving medicine. Shkreli refused to testify before U.S. lawmakers who excoriated him over severe hikes for a drug sold by a company that he acquired. (AP Photo/Susan Walsh)
Former Turing Pharmaceuticals CEO Martin Shkreli, center, listens as his lawyer Benjamin Brafman, left, speaks to reporters as they leave court in New York, Wednesday, Feb. 3, 2016. Shkreli, who has become the poster child of pharmaceutical-industry greed after hiking the price of an anti-infection drug by more than 5,000 percent, is scheduled to appear at a congressional hearing on Thursday. (AP Photo/Seth Wenig)
Martin Shkreli, chief investment officer of MSMB Capital Management, sits for a photograph in his office in New York, U.S., on Wednesday, Aug. 10, 2011. MSMB made an unsolicited $378 million takeover bid for Amag Pharmaceuticals Inc. and said it will fire the drugmaker's top management if successful. Photographer: Paul Taggart/Bloomberg via Getty Images ***Local Caption ** Martin Shkreli
FILE - In this Thursday, Dec. 17, 2015, file photo, Martin Shkreli, center, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York after being taken into custody following a securities probe. U.S. Rep. Elijah Cummings, D-Maryland, said a lawyer for Shkreli indicated he has not sought permission from a New York judge to appear at a congressional hearing Tuesday, Jan. 26, 2016, on drug prices, despite receiving a subpoena. (AP Photo/Craig Ruttle, File)
Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is belted into an awaiting car after being taken into custody following a securities probe, on Thursday, Dec. 17, 2015 in New York. A seven-count indictment unsealed in Brooklyn federal court Thursday charged Shkreli with conspiracy to commit securities fraud, conspiracy to commit wire fraud and securities fraud. (AP Photo/Craig Ruttle)
Martin Shkreli, center, leaves the courthouse after his arraignment in New York, Thursday, Dec. 17, 2015. Shkreli, the former hedge fund manager vilified in nearly every corner of America for buying a pharmaceutical company and jacking up the price of a life-saving drug more than fiftyfold, was arrested Thursday on securities fraud charges unrelated to the furor. (AP Photo/Seth Wenig)
Martin Shkreli, chief investment officer of MSMB Capital Management, sits behind a chess board in New York, U.S., on Wednesday, Aug. 10, 2011. MSMB made an unsolicited $378 million takeover bid for Amag Pharmaceuticals Inc. and said it will fire the drugmaker's top management if successful. Photographer: Paul Taggart/Bloomberg via Getty Images ***Local Caption ** Martin Shkreli
Martin Shkreli, chief investment officer of MSMB Capital Management, works on a computer in his office in New York, U.S., on Wednesday, Aug. 10, 2011. MSMB made an unsolicited $378 million takeover bid for Amag Pharmaceuticals Inc. and said it will fire the drugmaker's top management if successful. Photographer: Paul Taggart/Bloomberg via Getty Images ***Local Caption ** Martin Shkreli
"THEY SEE ME ROLLING..." http://t.co/D1mDBEeZMq
Turing Pharma Puppy Party 2015 http://t.co/0xf1zKUYXy
Activists hold signs containing the image of Turing Pharmaceuticals CEO Martin Shkreli in front the building that houses Turing's offices, in New York, Thursday, Oct. 1, 2015, during a protest highlighting pharmaceutical drug pricing. Turing Pharmaceuticals sparked an angry backlash last month after it raised the price of Daraprim, the only approved treatment for a rare, life-threatening parasitic infection, by more than 5,000 percent. (AP Photo/Craig Ruttle)
FILE - In this Thursday, Oct. 1, 2015, file photo, carrying an image of Turing Pharmaceuticals CEO Martin Shkreli in a makeshift cat litter pan, AIDS activists and others are asked to leave the lobby of 1177 6th Ave. in New York, during a protest highlighting pharmaceutical drug pricing. A Senate committee tasked with protecting seniors launched an investigation Wednesday, Nov. 4, 2015, into drug price hikes by Turing, Valeant Pharmaceuticals, Retrophin Inc. and Rodelis Therapeutics, responding to public anxiety over rising prices for critical medicines. (AP Photo/Craig Ruttle, File)
Activists hold signs containing the image of Turing Pharmaceuticals CEO Martin Shkreli in front the building that houses Turing's offices, in New York, Thursday, Oct. 1, 2015, during a protest highlighting pharmaceutical drug pricing. Turing Pharmaceuticals sparked an angry backlash last month after it raised the price of Daraprim, the only approved treatment for a rare, life-threatening parasitic infection, by more than 5,000 percent. (AP Photo/Craig Ruttle)
Activists hold signs containing the image of Turing Pharmaceuticals CEO Martin Shkreli in front the building that houses Turing's offices, in New York, Thursday, Oct. 1, 2015, during a protest highlighting pharmaceutical drug pricing. Turing Pharmaceuticals sparked an angry backlash last month after it raised the price of Daraprim, the only approved treatment for a rare, life-threatening parasitic infection, by more than 5,000 percent. (AP Photo/Craig Ruttle)
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Shares of KaloBios fell 53 percent 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 Shkreli, was down 1.2 percent at $21.10 in the early afternoon.

Turing and KaloBios declined to comment. Lawyers for Shkreli had no comment.

A lawyer for Greebel did not immediately respond to requests for comment. 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."

INTERNET PARIAH

The outcry over Daraprim turned 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?"

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

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 Shkreli's business practices.

Capers said on Thursday that authorities were "not aware of where he got the funds that he raised for the Wu Tang Clan album." While he declined to say if it was seized, an FBI spokeswoman said no seizure warrant had been issued.

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

The indictment said 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, Shkreli for months sent fabricated updates to investors touting profits of as high as 40 percent 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, Shkreli and Greebel misappropriated $11 million in Retrophin assets through settlement agreements and sham consulting deals, according to the indictment.

The case mirrors a lawsuit Retrophin filed in August against 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.

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.

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