Reviled US pharma chief arrested on fraud charges

[NEW YORK] A reviled US pharmaceutical boss who caused a storm in September by jacking up the price of a life-saving drug by 5,000 per cent was arrested Thursday on fraud charges, prosecutors said.

The arrest of Martin Shkreli - who has appeared to revel in his notoriety - was not linked to the massive increase in the price of Daraprim, a drug used to treat malaria and infections suffered by people with HIV.

The former hedge fund manager, 32, is accused of stealing US$11 million in what the FBI described as a "securities fraud trifecta of lies, deceit and greed." Prosecutors said the scheme - he denies all the charges - involved another company he once led, Retrophin, and two hedge funds.

"As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit," said Robert Capers, US Attorney for the Eastern District of New York.

"His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity."

It began in 2009 when Shkreli allegedly lied to eight people to get them to invest about US$3 million in his hedge fund, Mr Capers told a press conference.

When he lost the money through "bad trades" he started a new fund to try to cover the losses and continue to line his pockets.

Shkreli was also charged by the Securities and Exchange Commission.

"Over a five-year period, Shkreli is alleged to have perpetrated a series of frauds on investors in his hedge funds and Retrophin's shareholders in order to cover up his poor trading decisions," said Andrew Ceresney, director of the SEC's enforcement division.

Shkreli is accused of siphoning about US$120,000 from one of the hedge funds to pay for food, clothing, rent and other personal expenses.

He is 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 US$35 million in assets when it really had less than US$7,000.

Also arrested was Evan Greebel, a lawyer who was outside counsel to Retrophin.

Shkreli was later released after posting US$5 million bond, while Greebel was released after posting US$1 million bail, the prosecutor's office said.

In a statement, Shkreli denied all wrongdoing and said he expected to be fully vindicated.

"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," said a statement on his behalf.

That was a reference to September, when Shkreli gained notoriety after his company Turing Pharmaceuticals raised the price of Daraprim from US$13.50 a tablet to US$750 after acquiring the drug.

The move - and his arrogant response to the controversy - was angrily denounced by US politicians.

"Price gouging like this in the specialty drug market is outrageous," Democratic frontrunner Hillary Clinton said on Twitter, vowing to fight runaway drug prices.

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.

Shkreli, the chief executive of the company, specialises in buying patents on inexpensive drugs and then hiking their price.

In November, he gained control of another drug company, Kalobios Pharmaceuticals, whose stock price plummeted on news of his arrest, falling 53.24 per cent to US$11.03 before trading was suspended.

Reveling in controversy, Shkreli made waves earlier this month by buying a secret Wu-Tang Clan album for US$2 million, Once Upon A Time In Shaolin. Agents at the New York FBI office showed they had a sense of humour when they wrote about the case on Twitter.

"#Breaking no seizure warrant at the arrest of Martin Shkreli today, which means we didn't seize the Wu-Tang Clan album," the tweet said.


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