NEW YORK (Reuters) - Martin Shkreli, the boyish pharmaceutical entrepreneur who caused a public uproar after he drastically raised the price of a life-saving prescription drug, 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.
Shkreli, who has become a lightning rod for growing outrage over soaring prescription drug prices, was arrested before dawn at the tony Murray Hill Tower Apartments in midtown Manhattan. Clad in a grey hoodie, the 32-year old could be seen being escorted by a slew of law enforcement, including FBI, into a car.
It was a dramatic turn of events for Shkreli, who in recent months became a pariah for his controversial remarks in the press and taunts on social media outlets, including to Democratic presidential candidate Bernie Sanders.
Many on social media said Shkreli was getting what he deserved. On Twitter, the top hashtag and keyword related to his arrest was #Karma. But ironically his downfall was not related to expensive drug pricing.
In a video posted last night on his YouTube page, Shkreli is seen answering a phone call during a live stream in which the caller identifies himself as a "special agent" before Shkreli appears to cut him off and hangs up. (here
Shkreli, who is 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.”
Authorities highlighted what they called the “brazenness” of his actions. 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.
The indictment, the result of an ongoing investigation, also charged Evan Greebel, a former partner at law firm Katten Muchin Rosenman who was Retrophin’s outside counsel. Greebel, 42, was also arrested on Thursday.
Shkreli and Greebel entered pleas of not guilty through their lawyers.
Both were also sued in a related lawsuit by the U.S. Securities and Exchange Commission, which also named New York-based hedge fund MSMB Capital Management as a defendant.
Later, a magistrate approved a $5 million bond package, allowing Shkreli to go home after processing pre-trial paperwork. During the bail hearing, unshaven Shkreli was wearing a black V-neck t-shirt with blue jeans. He appeared relaxed, smiling at what appeared to be family members in the courtroom.
When Shkreli left the courtroom, he was mobbed by reporters who shouted questions about the allegations. Shkreli did not answer any questions.
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.
Shares of KaloBios fell 53 percent to $11.03 in premarket trade before being halted. Retrophin, which said in a statement that it had fully cooperated with the government investigations of Shkreli, closed down 1.9 percent at $20.94.
Turing and KaloBios declined to comment. Lawyers for Shkreli had no comment.
A lawyer for Greebel did not immediately respond to requests for comment. In July, Greebel had joined the law firm Kaye Scholer, which in a statement noted the “transactions in question predated his arrival to the firm.”
Social media lashed out at Shkreli over the Daraprim fiasco. He in turn provoked his critics, and was often vocal on Twitter and other online platforms about his business strategies, politics and even musical tastes.
On Thursday, the online social network was buzzing with hashtags #Shkreli and #Karma trending heavily. Many said Shkreli was getting what he deserved and mocked his $2 million purchase of a Wu-Tang Clan album.
In recent days, he even 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 has hosted other live YouTube sessions. In one, he can be seen sitting at a computer in a plain white room with two electric guitars and an amplifier visible behind him while he answers infrequent questions from viewers.
In a video posted on Wednesday he flippantly referred to “the miserable monotony of being ultra-rich.”
Shkreli is also an avid video game player who uses the handle “Imagine Cerebral,” according to one of his Twitter posts. He is an executive of a team of players, called Team Imagine, which participates in the online multiplayer game League of Legends, according to various media reports.
Thursday’s charges relate to Shkreli’s management of 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 those allegations.
Reporting by Nate Raymond and David Ingram; additional reporting by Caroline Humer, Melissa Fares, Angela Moon and Lawrence Hurley; Writing by Bernard Orr; Editing by Ted Kerr, Lisa Von Ahn, Noeleen Walder and Diane Craft