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A boyish drug company entrepreneur, who rocketed to infamy by jacking up the price of a life-saving pill from $13.50 to $750, was arrested on securities fraud related to a firm he founded. Martin Shkreli, 32, ignited a firestorm over drug prices in September and became a symbol of defiant greed. The federal case against him has nothing to do with pharmaceutical costs, however. Prosecutors charged him with illegally taking stock from Retrophin Inc., a biotechnology firm he started in 2011, and using it pay off debts from unrelated business dealings. He was later ousted from the company, where he’d been chief executive officer, and sued by its board. In the case that closely tracks that suit, federal prosecutors accused Shkreli of engaging in a complicated shell game after his defunct hedge fund, MSMB Capital Management, lost millions. He is alleged to have made secret payoffs and set up sham consulting arrangements. Shkreli’s extraordinary history—and current hold on the public imagination—makes the case more noteworthy than most involving securities fraud. The son of immigrants from Albania and Croatia who worked as janitors and raised him deep in working-class Brooklyn, Shkreli both epitomizes the American dream and sullies it. As a youth, he showed exceptional promise and independence and, after dropping out of an elite Manhattan high school, began his conquest of Wall Street before he was 20. His name entered public consciousness after he raised the price more than 55-fold for Daraprim. It is the preferred treatment for a parasitic condition known as toxoplasmosis, which can be deadly for unborn babies and patients with compromised immune systems including those with HIV or cancer. His company, Turing Pharmaceuticals AG, bought the drug, moved it to a closed distribution system and instantly drove the price into the stratosphere. The moves drew shocked rebukes from Congress, public-interest groups, doctors and presidential candidates, and cast an unwelcome spotlight on the rising prices of older drugs. Donald Trump called Shkreli a “spoiled brat,” and the BBC dubbed him the “most hated man in America.” Bernie Sanders, a Democratic presidential candidate, rejected a $2,700 campaign donation from him, directing it to an HIV clinic. A spokesman said in October that the campaign would not keep money “from this poster boy for drug company greed.” Shkreli initially responded to the criticism by saying he would lower the Daraprim price and then changed his mind again. When Hillary Clinton tried one more time last month to get him to cut the cost, he dismissed her with the tweet “lol.” At a Forbes summit in New York this month, wearing a hooded sweatshirt, he said if he could have done it over, “I probably would have raised the price higher,” adding, “my investors expect me to maximize profits.” In fact, it is not only his drug pricing that has turned him into an object of public derision. He recently spent millions on the only copy of a Wu-Tang Clan album that music fans would love to hear and then told Bloomberg Businessweek that he had no immediate plans to listen to it. He spars often on Twitter and message boards, parading his business strategies, musical tastes and politics; he live-streams from his office for long stretches. Retrophin sued Shkreli in August for misuse of company funds, claiming he engineered numerous transactions between investors in MSMB and the biotechnology firm. Similar allegations are laid out in the company's regulatory filings. The company alleged in a complaint filed in Manhattan federal court that, through a disastrous trade with Merrill Lynch in 2011, Shkreli cost MSMB more than $7 million, leaving it virtually bankrupt. About 2000: Age 17, Shkreli interns for Jim Cramer, of “Mad Money," and correctly predicts biotech decline. Early 2000s: Sets up hedge funds, trash-talking companies he is shorting. About 2009: Founds MSMB Capital Management, which later suffers losses on a bad trade with Merrill Lynch. September 2014: Voted out as Retrophin's CEO, Shkreli tweets that the directors are “inane." February 2015: Launches new company, Turing Pharmaceuticals, which acquires an old drug and jacks up their prices. August 2015: Retrophin sues Shkreli for $65 million, saying he used company assets to pay off hedge fund investors. September 2015: Storm erupts over Turing's price increase—from $13.50 to $750 a pill—for anti-parasitic drug Daraprim. Sept. 21, 2015: Hillary Clinton tweets “Price gouging like this in the specialty drug market is outrageous. Tomorrow, I'll lay out a plan to take it on." October 2015: New York attorney general investigates the pricing and distribution of Daraprim. November 2015: A Shkreli-led group buys majority of KaloBios, presaging price increase in drug for Chagas disease. Nov. 5, 2015: To critics of his drug-pricing strategy, Shkreli tweets “lol." December 2015: News emerges that Shkreli bought the only copy of the Wu-Tang Clan's latest album. Shkreli tweets: “Within 10 years, more than half of all rap/hip-hop music will be made exclusively for me. Don't worry—I will share some of it." Retrophin also asserts that Shkreli entered into payoff agreements with as many as 10 MSMB investors who lost money when the hedge fund became insolvent. Shkreli paid some investors through fake consulting agreements and others through unauthorized appropriations of stock and cash, the company alleged. Complex financial maneuvers were used to conceal the payments, Retrophin said. For example, the company accused its former CEO of fraudulently reclassifying a $900,000 equity investment that MSMB made in Retrophin as a loan. He then allegedly had Retrophin pay off that loan to settle another unrelated legal dispute. The Securities and Exchange Commission, which according to court documents opened an investigation into Shkreli in 2012, is expected to file a parallel civil complaint against him, according to people familiar with the matter. Shkreli spoke cavalierly of the company’s lawsuit, saying, “The $65 million Retrophin wants from me would not dent me. I feel great. I’m licking my chops over the suits I’m going to file against them.” Earlier, he had denied wrongdoing in a post on InvestorsHub after Retrophin disclosed it had received a subpoena from federal prosecutors and the preliminary findings from its own investigation of Shkreli. He called the company's allegations “completely false, untrue at best and defamatory at worst.”
