Early on Thursday morning Martin Shkreli, a pharmaceutical entrepreneur and former hedge fund manager, was arrested by federal authorities for securities fraud. While most know Shkreli for infamously raising the price of a drug used to treat newborns and patients with HIV, the charges he currently faces are related to his former position at biopharmaceutical company Retrophin and his time as a hedge fund manager for MSMB Capital Management.
According to an article by the Washington Post, federal prosecutors allege that Shkreli spent five years lying to Retrophin and two separate hedge funds he founded. Shkreli supposedly lost stock bets he made through one hedge fund, so he started another and used the money coming in from new investors to pay off old ones. The indictment suggests that in 2011 MSMB Capital Management lost $7 million on Shkreli’s bet that the stock of a pharmaceutical company would drop. However, for months after the fund lost all of its money, Shkreli told investors that everything was fine and the fund was achieving profits as high as 40 percent.
Then, in 2011, he started Retrophin, which used a controversial business strategy of acquiring older drugs for rare diseases that did not have any competition on the market, and then heavily raise the price on those drugs. Shkreli reportedly used cash and stock from his new company to satisfy disgruntled investors.
He “engaged in multiple schemes to ensnare investors through a web of lies and deceit,” U.S. Attorney Robert L. Capers said to reporters. “His plots were matched only by efforts to conceal the fraud, which led him to operate his companies … as a Ponzi scheme.”
The New York Times reports that the current federal charges are parallel to a lawsuit that Retrophin filed against Shkreli in August. The company’s board had ousted Shkreli from his position as chief executive in September of last year, and now accuses him of using Retrophin to pay off investors from his hedge funds through means such as hiring the investors as sham consultants for the pharmaceutical company.
“Shkreli was the paradigm faithless servant,” said Retrophin’s complaint. “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 a statement released after Shkreli’s arrest on Thursday, Retrophin stated that it had replaced Shkreli “because of serious concerns about his conduct” and that the pharmaceutical company was cooperating fully with the government investigation.
Over the last several months Shkreli has guaranteed that he will be getting little to no sympathy from the American public. Controversy first began swirling around the businessman when his new company Turing Pharmaceutical purchased the drug Daraprim, a 62-year-old drug that is used to treat toxoplasmosis, an infection that can cause brain damage in infants and people with HIV. Turing Pharmaceutical immediately raised the price of the drug from $13.50 a pill to $750.
The move quickly turned Shkreli into a symbol of all that was wrong with the pharmaceutical industry. Everyone from Democratic front-runner Hillary Clinton to Republican Donald Trump called him out on it. Democratic candidate Sen. Bernie Sanders even rejected a donation from Shkreli giving the money to charity instead.
More fuel was added to the fire when Shkreli purchased the one-of-a-kind Wu-Tang Clan album ‘Once Upon a Time in Shaolin’ for $2 million. The sale was reportedly made before any light had been shed on Shkreli’s business practices, and now members of the group have gotten into something of a flame war with Shkreli over Twitter. “If I hand you $2 million … show me some respect. At least have the decency to say nothing or ‘no comment,’” said Shkreli.