FBI Arrests Pharma CEO Martin Shkreli on Securities Fraud Charges

23 Dec 2015 | Author: | No comments yet »

Exec who jacked up price of a lifesaving drug is arrested.

Martin Shkreli stirred public outrage earlier this fall when his company, Turing Pharmaceuticals, jacked up the price of a drug used to treat a life-threatening infection by more than 5,000 percent.When he learned he was under criminal investigation by the FBI, Turing Pharmaceuticals CEO Martin Shkreli could have kept a low profile and gone to the Caribbean.It is tempting to savour the Schadenfreude of the pharma Scrooge getting screwed, or the karma of the hedge-fund Grinch being hoisted on his own petard – especially at Christmas.

It is alleged he illegally used stock from biotechnology firm Retrophin to pay off debts related to his struggling hedge fund and to pay back angry investors. The boyish-looking 32-year-old entrepreneur — a relentlessly self-promoting figure who has called himself “the world’s most eligible bachelor” on Twitter and recently plunged into the hip-hop world by buying an unreleased album by the Wu-Tang Clan — was taken into custody in a gray hoodie and pleaded not guilty in federal court in Brooklyn.

Shkreli was again recently in the headlines for buying the only copy of the latest Wu Tang Clan album, “Once upon a time in Shaolin”, for a reported two million dollars. Online, many people were gleeful over in his arrest, some of them joking about a judge ratcheting up his bail or lawyers jacking up their hourly fees 5,000 percent for defending him in his hour of need.

Shkreli, who is now 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). He’s also accused of lying to investors about one of the fund’s size and performance by claiming returns of nearly 36 per cent when it had really generated a loss of 18 per cent and saying the fund had $US35 million in assets when it really had less than $US7000. In January 2013, according to court documents in a lawsuit, he engaged in a campaign of harassment against a former employee of Retrophin, a pharmaceutical company that Shkreli had started.

Retrophin also disclosed it had received subpoenas from federal prosecutors in Brooklyn, a clear sign that authorities were interested in possible criminal conduct at the company. Rather, he is a symptom of a much larger problem: The way drugs are approved and priced can lend itself to perverse disincentives and make essential drugs unavailable.

Turing later announced that while it would not lower the drug’s per tablet price, it would negotiate agreements with health groups on wholesale prices. U.S. presidential hopeful Hillary Clinton harshly criticized Shkreli for acquiring the manufacturing rights to an anti-parasite medication used by AIDS patients and infants – and raising its price from $13.50 a pill to $750.

The indictment, the result of an ongoing investigation, also charged Evan Greebel, a former partner at law firm Katten Muchin Rosenmann who was Retrophin’s outside counsel. In November, he gained control of another drug company, Kalobios Pharmaceuticals, whose stock price plummeted on Tuesday on news of his arrest, falling 53.24 per cent to $US11.03 before trading was suspended. Shkreli, beyond all his bombast, is simply exploiting an obscure U.S. government initiative that was supposed to spur development of drugs for neglected diseases and has, paradoxically, made them unaffordable. Andrew Ceresney, director of the SEC’s enforcement division, said Shkreli should be barred from the finance industry and from serving as an officer of a publicly traded company.

Shkreli has kept up media appearances since then, suggesting he would cut Daraprim’s price, then avoiding doing so, then saying he would cut the price, but only for certain health providers. Prosecutors believe Shkreli’s antics behind the scenes were far more serious, charging him with defrauding both his hedge fund investors and Retrophin, a company he founded and left in disgrace. Congress adopted rules that would grant companies that develop drugs for rare tropical diseases and rare pediatric conditions a voucher that entitles them to expedited approval from the Food and Drug Administration. The move sparked outrage on the presidential campaign trail, helped prompt a Capitol Hill hearing on drug prices, and turned the Brooklyn-born Shkreli into the new face of corporate greed.

Headlines called him such things as “America’s most hated man,” the “drug industry’s villain,” ”biotech’s bad boy” — and those were just the more printable names. On Thursday, the Securities and Exchange Commission unsealed a civil case against Shkreli, accusing him of orchestrating “widespread fraudulent conduct” from 2009 through 2014.

Retrophin, which said in a statement that it had fully cooperated with the government investigations of Shkreli, was down 1.2 percent at $21.10 in the early afternoon. Hillary Clinton called it price-gouging and said the company’s behavior was “outrageous.” Donald Trump called Shkreli “a spoiled brat.” Bernie Sanders returned a donation from Shkreli. Lefcourt said that except in rare cases, where he believes it’s important for clients to speak publicly to make their position known in the media, talking to reporters is something “that I almost never advise my clients to do.” Lefcourt said that Shkreli’s high-profile statements and actions in recent months “raise his profile to a degree that could be devastating to him if he ever has to face a judge at sentencing.” “Your profile is so high that the court has to make an example for the public,” Lefcourt said. “By raising his profile, he potentially worsens his situation.” Lefcourt said that the way the judge who handles Shkreli’s criminal case views his public conduct could affect the judge’s decision on pretrial motions and arguments, which in turn can affect Shkreli’s chances of beating the charges The NASDAQ index of the value of biotech stocks has quadrupled over the past four years before falling recently, and hospitals and health insurers have also done extraordinarily well. While most patients’ copayments will be $10 or less a month, insurance companies will be stuck with the bulk of the tab, potentially driving up future treatment and insurance costs.

Shkreli said that insurance and other programs would allow patients to get the drug despite the cost and that the profits are helping fund research into new treatments. “No one wants to say it, no one’s proud of it, but this is a capitalist society, a capitalist system and capitalist rules,” he said in an interview at the Forbes Healthcare Summit this month. “And my investors expect me to maximize profits, not to minimize them or go half or go 70 percent but to go to 100 percent of the profit curve.” The Campaign for Accountability, a nonprofit watchdog group that urged Congress to investigate Shkreli’s price increases, called his arrest “long overdue” and added: “He has avoided accountability despite a pattern of fraudulent behavior.” Shkreli is known as a prolific user of Twitter and often livestreams his work day over the Internet, the camera showing him at his desk as he does business, kills time on the Web and invites people to chat with him. Treatment for Chagas currently costs $50 to $100 in Latin America, and, in the U.S., the drug is actually provided free of charge, but requires a lot of paperwork. 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.

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