Price-hike pharma boss Martin Shkreli arrested on securities fraud

Martin Shkreli, a lightning rod for growing outrage over soaring prescription drug prices, was arrested by the FBI on Thursday after a federal investigation involving his former hedge fund and a pharmaceutical company he previously headed.

The securities fraud probe of Shkreli, who is now chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals Inc, stems from his time as manager of hedge fund MSMB Capital Management and CEO of biopharmaceutical company Retrophin Inc, a person familiar with the matter said.

Reuters witnessed the arrest at the Murray Hill Tower Apartments in midtown Manhattan. Law enforcement including Federal Bureau of Investigation agents could be seen escorting Shkreli, who was wearing a hoodie, into a car. FBI spokeswoman Kelly Langmesser confirmed Shkreli's arrest.

Shkreli was released from jail Thursday afternoon on a $5 million bond.

Shares of KaloBios fell 53 percent to $11.03 in premarket trading.

Lawyers for Retrophin and Shkreli did not immediately respond to a request for comment. Turing and KaloBios declined to comment.

A privately held startup, Turing sparked controversy earlier this year after news reports that it 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.

He was charged in a seven-count indictment unconnected to the drug price hikes imposed by his company. The charges instead involve his actions at another drug company, Retrophin, which he ran as CEO from 2012 to 2014.

The indictment said Shkreli and others orchestrated three interrelated fraud schemes from 2009 to 2014. It said they fraudulently induced investors to sink their money into two separate funds and misappropriated Retrophin's assets to satisfy Shkreli's personal and professional debts.

Shkreli "engaged in multiple schemes to ensnare investors through a web of lies and deceit," U.S. Attorney Robert Capers said in a statement. 

A second defendant, lawyer Evan Greebel, of Scarsdale, New York, was charged with conspiracy. It was not immediately clear who would represent him. If convicted, both men could get up to 20 years in prison.

The probe, by federal prosecutors in Brooklyn, dates back to at least January when Retrophin said it received a subpoena from prosecutors seeking information about its relationship with Shkreli.

That subpoena also sought information about individuals or entities that had invested in funds previously managed by Shkreli, Retrophin said in a regulatory filing.

MSMB Capital Management was founded in 2009, and Shkreli announced its closure in 2012. Retrophin was founded in 2012, and Shkreli was its CEO until the company fired him in September 2014.

Retrophin in August sued Shkreli in federal court in Manhattan for $65 million, claiming he had used his control over Retrophin to enrich himself and pay off claims of investors in MSMB, which he had also defrauded.

Shkreli has denied the allegations.

At least two separate Congressional probes have been launched since September on the pricing issues of Daraprim, which had long been available as a generic drug used to treat toxoplasmosis in AIDS patients. Turing is under investigation by the New York state attorney general for antitrust concerns.

At a Senate hearing on drug pricing last week, a doctor who treats babies with life-threatening toxoplasmosis testified that a course of treatment with Daraprim went from about $1,200 to no less than $69,000.

Earlier this month, reports emerged that Shkreli purchased the sole copy of the Wu Tang album, “Once Upon a Time in Shaolin,” for millions of dollars. After the rap group discovered the buyer was Shkreli, they decided to donate some of the income. 

The sale “was agreed upon in May, well before Martin Skhreli’s business practices came to light,” RZA, a member of the group, told Bloomberg Businessweek magazine. “We decided to give a significant portion of the proceeds to charity.”

The FBI's New York office said on Twitter that agents did not seize Shkreli's album. Said Capers, the chief federal prosecutor: "We're not aware of how he raised the funds to buy the Wu-Tang album."

Al Jazeera and wire services