‘Pharma Bro’ Martin Shkreli arrested for securities fraud

23 Dec 2015 | Author: | No comments yet »

‘The most hated man in America’ has been arrested.

Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York Thursday, Dec. 17, 2015, after being taken into custody following a securities probe. Shkreli and Evan Greebel, an associate, who was also arrested Thursday, were charged with two counts of securities fraud, three counts of conspiracy to commit securities fraud; and two counts of conspiracy to commit wire fraud. The 32-year-old pharmaceutical CEO, once accurately dubbed “the most hated man in America,” was taken down on Thursday, ostensibly for securities fraud. Brooklyn federal prosecutors are expected to charge him with his actions as CEO of biotech company Retrophin Inc. and manager of hedge fund MSMB Capital Management. He offered no resistance and was cooperative when agents hauled him out out of his luxury digs at the Murray Hill Tower Apartments on East 40th Street, law enforcement sources said.

Thus with the arrest of Martin Shkreli—the reviled “pharma bro” famous for jacking up the prices of life-saving drugs—many people immediately had the same thought: Whither Once Upon a Time in Shaolin? Prosecutors in Brooklyn charged him with illegally taking stock from Retrophin Inc., a biotechnology firm he started in 2011, and using it to pay off debts from unrelated business dealings. My colleague Spencer Kornhaber took this as the final proof that Wu-Tang’s stunt of producing an album with only one copy and selling it to the highest bidder had backfired. (I’m not sure I agree: After all, what poetic justice is greater than price-gouging a price-gouger? The drug is primarily used to treat toxoplasmosis, an infection that affects people with compromised immune systems, particularly those with HIV/AIDS and some forms of cancer.

On the one hand, he teased the idea he might play some pieces for the public; on the other hand, a recording was released in which he allegedly says, “I don’t know. 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. It began after his company, Turing Pharmaceuticals, spent $55 million in August for the U.S. rights to sell Daraprim, a 62-year-old drug for a rare parasitic infection, and promptly raised the price from $13.50 to $750 per pill. The company then filed a complaint in federal court against him earlier this year for evidence of “self-dealing transactions” to pay back former MSMB investors. “The $65 million Retrophin wants from me would not dent me. Doctors and medical groups said the price hike was cutting patients off from lifesaving treatment, activists protested outside Turing’s offices, and the episode helped prompt a Senate hearing on drug prices.

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. 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. … Shkreli started his career interning for “Mad Money” host Jim Cramer while still a teenager. After recommending successful trades, Shkreli eventually set up his own hedge fund, quickly developing a reputation for trashing biotechnology stocks in online chatrooms and shorting them, to enormous profit.

Police might, for example, stop someone with thousands of dollars in cash, surmise that the money is involved in drug transactions, and seize the cash. The problem here becomes clear fairly quickly: Not everyone carrying cash is a drug kingpin; some are (for example) just traveling with their life savings. (Sarah Stillman tells some heartbreaking stories here.) In recent years, a coalition of leftist police reformers and libertarians has mounted a major charge against the practice. But with the Shkreli arrest, even some faithful liberals wondered if this was the one time when seizure might be justified, and the indictment suggests the feds just might try: But experts seem to doubt it would work. But as my colleague James Hamblin noted soon after the controversy over the increased drug prices, Shkreli’s “may just as well be an imagined manifestation of national guilt over a broken health-care system, broken largely because of the costs of medications.” The little red guy with a pitchfork on our collective arthritic shoulder, Shkreli is a product, not a cause. Louis Rulli, a professor at the University of Pennsylvania Law School who is an expert on forfeiture, explained in an email: The government would need to either demonstrate that the property represented the direct proceeds of illegal activity or that there is a nexus—a substantial connection—between the underlying criminal offense with which he is charged and the property the government wishes to seize (and ultimately forfeit).

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 has said that insurance and other programs allow patients to get the drug despite the cost, and that the profits are helping fund research into new treatments.

It’s just the start of Shkreli’s big plans in the music space. “Within 10 years, more than half of all rap/hip-hop music will be made exclusively for me,” he announced on Twitter. Did it come from ill-gotten Retrophin gains? “I suspect that it would be very hard for the government in this case to directly tie the album (or its purchase funds) to the underlying offense, but I wouldn’t be surprised if prosecutors aren’t taking a hard look at all of Shkreli’s property and expenditures with this thought in mind,” Rulli said. It’s hard to find a reliable tally of Shkreli’s worth, but it’s likely in the tens of millions of dollars, so that reselling an album he bought for $2 million might not raise much money; besides, he clearly enjoys owning it to spite others. Alternatively, if Shkreli is convicted, he could lose the album when the case is resolved. “If the government secures a conviction and gets a money judgment against Shkreli, they can forfeit anything—even clean assets—to execute their judgment,” Steven L.

Kessler, an attorney and forfeiture expert, wrote in an email. “If, at the end of the day, he has none of the proceeds of the crime, the government may then forfeit the Wu-Tang Clan album together with grandma’s inheritance to satisfy their judgment.” But there’s one more possibility.

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