Investors sue company rescued by Shkreli for return of $5 million

Mon Jan 11, 2016 6:12pm EST
 
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By Jim Christie

SAN FRANCISCO (Reuters) - Investors who backed a biotechnology company led by executive Martin Shkreli are suing to get back the $5.4 million they had invested just hours before his arrest, according to court papers.

Shkreli took control of KaloBios Pharmaceuticals Inc in November, saving the company from closing down. He became its chief executive on Nov. 20.

As part of Shkreli's rescue, the company reached a deal with three individuals and two funds to invest $5.4 million in it under an agreement that KaloBios said was completed on Dec. 16.

On Dec. 17, Shkreli was arrested for allegedly engaging in a Ponzi-like scheme at his former hedge fund and Retrophin Inc, a pharmaceutical company he previously headed. KaloBios' outside counsel, Evan Greebel, was also arrested, and on Dec. 29 KaloBios filed for bankruptcy.

The investors said KaloBios lied when it told them it and its officers were not subject to any pending investigation that could have a material impact on its business, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware.

According to court papers filed by the company on Monday, Shkreli owns about 47 percent of KaloBios stock and 26 percent is held by the investors suing the company: Gregory Rea, RTAT LLC, Edward Painter, Nancy Retzlaff and Armistice Capital Master Fund Ltd.

"KaloBios, through Shkreli, its outside counsel and potentially others, knew or should have known about the FBI investigation, the gravity of the potential charges, and the fact that Shkreli's and its outside counsel's arrest was imminent," the investors said in court papers.

They are seeking a return of their money.   Continued...

 
Martin Shkreli, chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals Inc, departs U.S. Federal Court in New York December 17, 2015. REUTERS/Lucas Jackson