The rise and fall of Martin Shkreli, the disgraced millionaire pharma bro

23 Dec 2015 | Author: | No comments yet »

Drug C.E.O. Martin Shkreli Arrested on Fraud Charges.

As Turing Pharmaceuticals Chief Executive Officer Martin Shkreli contends with charges of securities fraud, major U.S. pharmacies are moving to assure patients of continued access to the company’s key drug, Daraprim.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.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 on Dec. 17, 2015, after being taken into custody following a securities probe.(Photo: AP) The reviled poster boy of drug price hikes perpetuated a Ponzi scheme on investors in hedge funds and a pharmaceutical company he founded and previously led, federal prosecutors and regulators alleged Thursday. In May the 32-year-old had bought rap group Wu-Tang Clan’s album ‘Once Upon a Time in Shaolin’ for a reputed $2million, before his current notoriety. “I wondered how long it was going to take to get to that,” US attorney Robert Capers told Time. “We’re not aware of where he got the funds that he raised to buy the Wu-Tang Clan album.” After Mr Shkreli’s business antics came to light, the Wu-Tang Clan distanced themselves from him – prompting a furious and foul-language filled rebuke from the businessman, even though he later admitted he had yet to listen to the album.

Shkreli, who was arrested Thursday morning on securities fraud charges, has effectively waved a red flag for months in front of federal prosecutors, keeping himself in the media glare with a hugely controversial price hike of a drug that benefits AIDS patients, pregnant women and cancer patients, attacking his critics, including presidential contender Hillary Clinton, and lighting up Twitter with outrageous statements. Shkreli’s arrest was not related to drug prices, but instead stems from allegations by federal prosecutors that he illegally took stock from Retrophin — a biotechnology company he started in 2011 and was ousted from in 2014 — to pay off unrelated business debts. After reportedly paying $2 million for a rare Wu-Tang Clan album, he goaded a member of the hip-hop group to “show me some respect.” Then, at 6 a.m. Leading pharmacy chain Walgreens Boots Alliance WAG 0.00% , currently the exclusive U.S. supplier of Daraprim, said it has inventory of the drug, which has a list price of $750 per dose.

In doing so, the 32-year-old Shkreli acted contrary to what most criminal defense lawyers and public relations managers recommend for someone in the cross-hairs of a United States Attorney’s office. “I would think that members of his legal team and the communication team would advise him not to do the things that he has done, particularly in light of an ongoing criminal investigation,” said Judy Smith, a PR crisis management expert who represented President Bill Clinton’s former mistress Monica Lewinsky. “Most people that are aware they are under a criminal investigation would not behave in such a public way,” said Smith, whose career inspired the hit ABC series “Scandal.” “The risk of it is that it attracts and invites attention, review and investigation of ongoing business practices in a very public way, quite frankly.” The spectacle that Shkreli created around himself and his company Turing Pharmaceuticals since late summer, even as the criminal probe proceeded, raised the question of whether he had any idea of the risk he was running — or whether his conduct was part of a plan to beat the rap in Brooklyn federal court and generate business. But growing public backlash against that price has resulted in the entry of new competitors—compounding pharmacies able to produce similar versions for a fraction of the cost. CVS Health CVS -0.17% , the No. 2 U.S. drug benefit manager, told Reuters on Thursday it can provide an alternative to Daraprim that is compounded by Avella Specialty Pharmacy, at a price of $30 per 30 pills.

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. The CVS arrangement is similar to one between Imprimis Pharmaceuticals, a compounding pharmacy based in San Diego, and Express Scripts Holdings ESRX -0.96% , the largest U.S. manager of prescription drug plans, to offer lower-cost pyrimethamine, the generic version of Daraprim.

Investigators alleged that Shkreli, 32, siphoned millions of dollars from Retrophin to repay investors he’d defrauded in two defunct hedge funds that focused on health care investments: MSMB Capital and MSMB Healthcare. Shkreli has emerged as a symbol of pharmaceutical greed for acquiring a decades-old drug used to treat an infection that can be devastating for babies and people with AIDS and, overnight, raising the price to $750 a pill from $13.50.

He was also accused of using company funds to settle personal disputes with investors, unjustly enriching himself with company funds and forming false ties to consultants. 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. For example, Shkreli told one investor on Dec. 2, 2010, that his hedge fund held $35 million assets, even though it had only had $700, the criminal indictment alleged. Instead, such pharmacies can prepare medications only for individual patients once they have a prescription, and must comply with state and federal regulations.

Meanwhile, several major medical groups have started to urge doctors to seek out such lower-cost alternatives to Daraprim, providing detailed instructions on how to do so. Walgreens said in an emailed statement that it has “urged Turing to expand the number of specialty pharmacies to promote greater access, and it is our understanding that they will be doing so in the near future.” Turing officials could not be reached for comment. On Thursday, the Securities and Exchange Commission unsealed a civil case against Shkreli, accusing him of orchestrating “widespread fraudulent conduct” from 2009 through 2014. Federal Magistrate Judge Robert Levy later freed Shkreli on $5 million bond secured by funds and other collateral posted by the entrepreneur and family members who appeared with him at a federal court arraignment. Turing, founded by Shkreli early this year, has made front-page headlines since it bought the rights to Daraprim in August for $55 million from Impax Laboratories IPXL 0.52% .

The lightly-bearded defendant, dressed in a black vee-neck tee shirt and blue jeans, said nothing in court beyond identifying himself, indicating he understood the charges and entering a not guilty plea. The move sparked widespread criticism – first by medical groups such as the Infectious Diseases Society of America and the HIV Medicine Association, followed by presidential candidates Hillary Clinton, Bernie Sanders, and Donald Trump. He said the MSMB-related transactions “involve complex accounting matters that the EDNY” — prosecutors of Eastern District of New York — “and SEC fail to understand.” “It is no coincidence that these charges, the result of investigations which have been languishing for considerable time, have been filed at the same time of Shkreli’s high-profile, controversial and yet unrelated activities,” spokesman Craig Stevens said. Shkreli’s lawyers had informed their client their hourly legal fees had increased by 5,000 percent. “Personally, I think Martin Shkreli has become wealthy at the expense of the public good.

I don’t believe for a second that his manipulation of drug prices fuels valuable research as he has claimed,” said Katie Uva, a 2006 alumna of Hunter College High School in Manhattan where Mr. Shkreli was president and CEO at Retrophin, which says it focuses on treatments for serious, catastrophic, or rare diseases, until October 2014, when he was fired by the company’s board. Imprimis CEO Mark Baum said that even if Turing’s other investors decided to remove Shkreli, that alone would not be enough to change the fortunes of Daraprim. He grew up in a crowded apartment on Ocean Avenue in Brooklyn, the son of Albanian immigrants who worked janitorial and other side jobs to support him and his three siblings.

A separate securities fraud case filed in December 2014 by Retrophin investors accused Shkreli, Retrophin and other company officials of making false or misleading statements about the firm’s finances. Shkreli as a somewhat shy person who could often be found lingering in the school’s hallways, playing chess, his guitar or looking at stocks in the newspaper. The complaint said his actions included: • Fraudulently conspiring with Greebel to get Retrophin to issue stock and deliver cash compensation for phony consulting contracts to cover up disputes with MSMB investors over the hedge fund’s performance. Noah Bookbinder, executive director of Citizens for Responsibility and Ethics in Washington, a nonprofit that called for federal investigations into Shkreli in 2012, said in a statement that the arrest “shows that the law applies to everyone.

He received the credits needed for his high school diploma through a program that introduced him to Wall Street, placing him at an internship at the Wall Street hedge fund Cramer, Berkowitz & Company. We commend the DOJ for sending a clear message that these types of action will not be tolerated.” Shkreli has gained a measure of public attention by cultivating a flamboyant persona on Twitter, where he aggressively defended Turing’s price hikes. He also posted long YouTube videos that showed him sitting at his computer, with electric guitars and amplifiers in the background, as he mused about his businesses, his love of rap music and other matters. Shkreli started Retrophin, which quickly adopted a controversial business strategy, acquiring old, neglected drugs used for rare diseases and quickly raising their prices. Shkreli and Evan Greebel, the lead outside counsel for Retrophin, used $3.4 million in Retrophin funds and stock to settle the investors’ claims, even though Retrophin had no responsibility, the indictment says.

Greebel created fraudulent consulting agreements for the investors, thinking they could pay the money back without upsetting the auditor, the indictment states. Even as he defends his strategy on his never-ending Twitter feed, arguing that no one is denied the drugs or pays more than $10 out of pocket, a fair trade-off for more research, he asserts, he still makes time to heckle his critics. Last week, he tweeted: “Should one of my companies change its name to Wu-Tang Pharmaceuticals? (Lawsuits be damned.)” And then there are the bizarre, hourslong live streams, including a conversation he had on Monday with a girl who identified herself as a student at Hunter.

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