Biotech CEO Shkreli Arrested on $11M Fraud

BROOKLYN, N.Y. (CN) - Martin Shkreli pleaded not guilty Thursday on charges of an $11 million securities fraud unrelated to the life-saving pill whose price the pharmaceutical CEO jacked up this fall.

At a 2 p.m. hearing in the borough where Shkreli grew up, U.S. Magistrate Judge Robert Levy released the widely reviled "pharma bro" on $5 million bond.

Though photographed this morning looking disheveled in a gray hoodie, Shkreli cleaned up casually for court.

Wearing a black T-shirt and blue jeans with slicked-back hair, Shkreli said little this afternoon, except to confirm for the judge that he understood his rights.

After authorities arrested the 32-year-old this morning at his home in Manhattan, U.S. Attorney Robert Capers held a press conference to discuss the "Ponzi-like scheme" Shkreli engineered long before his name earned instant revile in connection to pharmaceutical price gouging.

The seven-count indictment unsealed this morning accuses Shkreli of raiding millions from Retrophin, a publicly traded biotechnology company Shkreli founded in 2011. Shkreli allegedly used the funds to pay off investors he defrauded through a now-defunct hedge fund.

Having already ousted Shkreli as its CEO, Retrophin is suing Shkreli in Manhattan on claims that the government's case closely tracks.

The Securities and Exchange Commission hit Shkreli with a parallel civil complaint on Thursday as well.

Shkreli's defunct hedge fund, MSMB Capital Management, is named as a defendant to the SEC's action, as is MSMB Healthcare Management.

Before today's filings, Retrophin's lawsuit against Shkreli was the latest of 13 he faced in various New York jurisdictions, court records show.

At the noon press conference, prosecutor Capers described how Shkreli brought on a Scarsdale-based attorney to help cover his tracks.

"As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit," Capers said in a statement. "His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly trading company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity. When regulators and auditors questioned Shkreli's actions, he joined forces with Evan Greebel, who used his law license and training to conceal and further the scheme."

The indictment says Greebel worked for Katten Muchin Rosenman from 2012 to 2014, serving as lead outside counsel to Retrophin. Greebel pleaded not guilty at the Thursday arraingment. He is free on bail $1 million bond.

Under the terms of the bond, Shkreli and Greebel cannot speak to any employees from Retrophin, except for those who now work as Shkreli's employees at Turing.With throngs of reporters following Shkreli from the arraignment room to pretrial services, neither he nor his attorney, Marcus Asner of Arnold & Porter, made any comment.

Capers, the prosecutor, pointed to the crime-fraud exception as he waved off speculation that attorney-client privilege might shield Shkreli and Greebel at trial.

With the investigation continuing, the indictment states that a grand jury is currently probing alleged co-conspirators "Corrupt Employee 1" and "Corrupt Employee 2."

Capers declined to speculate where the probe into Shkreli will lead, or whether his gouging of medication prices was part of the Ponzi-like scheme.

Back in September, Shkreli's name earned instant revile when another of his companies, Turing Pharmaceuticals, bought the rights to the drug Daraprim, then hiked its price from $13.50 to $750.

For patients with the sometimes-deadly condition toxoplasmosis, especially babies and those with cancer or HIV, Daraprim is the preferred treatment.

Bloomberg says Turing has raised $90 million in financing by systematically buying drugs patents.

After New York Attorney General Eric Schneiderman opened an investigation into the price gouging in October, Shkreli bought a majority stake in another biotech company, KaloBios.

A corporatization of the Greek term for good life, KaloBios has announced plans to jack prices for a drug it recently bought called benznidazole, used to treat the deadly parasitic infection Chagas.

Bloomberg reports that KaloBios trading halted today after shares fell 53 percent, saying the courts could ban Shkreli from running a public company amid the charges against him.

Turing is privately held.

Retrophin, the company Shkreli stands accused of plundering, says it is cooperating with investigators and that the chubby-cheeked CEO's ouster stemmed from "serious concerns" about his conduct.

Bloomberg summarized Shkreli's eye-catching trajectory in explaining why the case against him stands apart from the typical securities fraud allegations.

The son of Croatian and Albanian immigrants working as janitors, Shkreli was raised in Brooklyn, dropped out of an elite Manhattan high school and "began his conquest of Wall Street before he was 20."

When the public and public officials began haranguing Shkreli over the Daraprim debacle, Shkreli kept the price inflated despite initially agreeing to lower it.

Bloomberg says presidential candidate Hillary Clinton reached out to Shkreli in November over Daraprim, but that Shkreli dismissed her with a cyber-laugh, tweeting "lol."

Clinton's opponent for the Democratic ticket, Bernie Sanders, reportedly received a $2,700 campaign donation from Shkreli and promptly directed it to an HIV clinic.

On the other side of the aisle, Donald Trump called Shkreli a "spoiled brat."

Aside from his biotech machinations, Shkreli made headlines recently for spending $2 million to purchase the only copy of the Wu Tang Clan album "Once Upon a Time in Shaolin."

When asked whether the album was seized, Capers quipped: "I wondered how long it would take to ask that question."

Declining to comment, he added: "We're not aware of where he got the funds that he used for the Wu Tang Clan album."

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit