U.S. Attorney Unveils Indictment Against Turing CEO Martin Shkreli

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December 17, 2015
By Alex Keown, BioSpace.com Breaking News Staff

NEW YORK – While chief executive officer of Retrophin Pharmaceuticals , Martin Shkreli used the company as his “personal piggy bank” to pay off investors, U.S. Attorney Robert Capers said in a press conference this afternoon following Shkreli’s arrest for securities fraud earlier in the morning.

“He was entrusted with protecting Retrophin and its assets, but he abused that power to pay off his own personal debts,” Capers said.

Shkreli, the current chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals , was arrested early Thursday morning following a months-long investigation by federal authorities. On Thursday the U.S. Attorney’s Office for the Eastern District of New York unveiled a seven count indictment against Shkreli, including multiple charges of securities fraud, securities fraud conspiracy and wire fraud conspiracy. According to the indictment, Shkreli and his partners, including attorney Evan Greebel, orchestrated three interrelated fraudulent schemes: a scheme to defraud investors and potential investors in MSMB Capital; a scheme to defraud investors and potential investors in MSMB Healthcare; and a scheme to defraud Retrophin, the company Shkreli founded. The indictment said Shkreli’s schemes, which caused his investors to suffer a loss of more than $11 million, was carried out over a five-year period, from 2009 to 2014.

Shkreli created a web of lies as he ran MSMB Capital Management and Retrophin Pharmaceuticals like a Ponzi scheme, Capers said.

“As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit. His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity,” Capers said during a press conference Thursday afternoon.

When Shkreli was helming MSMB Capital Management, Capers said he made a number of risky investments and then lied to his investors about how the investments were doing. After founding Retrophin Pharmaceuticals, he used funds from that publicly traded company to pay off his hedge fund investors, Capers said.

“He did that to conceal the lies he told to his investors,” Capers said. “He lied to his investors about how the investments were doing and what he was doing with the money, all the while promising his investors they were receiving good returns.”

In August, Retrophin sued Shkreli for $65 million over his use of company funds while leading that company. In its lawsuit, Retrophin said Shkreli breached his duty of loyalty to the biopharmaceutical company and he engaged in self-dealing. The company also seeks disgorgement of money paid to him. Retrophin said Shkreli used company funds for personal use, enriched himself through false consulting contracts and referred to Shkreli as “the paradigm faithless servant” who “is not entitled to compensation or post-separation benefits.” Retrophin alleges Shkreli struck payoff agreements with up to 10 MSMB investors who lost money when the hedge fund collapsed. Shkreli paid some investors through fake consulting agreements and others through unauthorized appropriations of stock and cash, the company alleged in its lawsuit.

Shkreli, who maintains a defiant presence on social media, said the lawsuit was without merit and said Retrophin still owes him millions of dollars. Shkreli defended himself in a post at Investorshub.com. He said the accusations noted in the Retrophin internal investigation are “false, untrue at best and defamatory at worst,” he said in his post.

“Every transaction I’ve ever made at Retrophin was done with outside counsel’s blessing (I have the bills to prove it), board approval and made good corporate sense. I took Retrophin from an idea to a $500 million public company in 3 years—and I had a lot of help along the way,” he said in his post.

The criminal case has been assigned to United States District Judge Kiyo A. Matsumoto. If convicted, Shkreli and Greebel each face a maximum sentence of 20 years of imprisonment, according to the U.S. Attorney’s Office.

Shkreli’s latest troubles predate the price increase controversy he has been at the center of since founding Turing Pharmaceuticals. In August ,the company acquired Daraprim, a treatment for toxoplasmosis, for $55 million, and then increasedthe price of the drug used by about 2,000 people in the United States by 5,000 percent. That move earned him endless amounts of public derision and acquired a majority stake in KaloBios and became the CEO of that company. Since news broke of his arrest, shares of KaloBios plummeted in 50 percent in Thursday’s pre-market session. It last traded at $11.75 before being halted at 6:50 a.m., Yahoo Finance reported this morning.