On Thursday, Martin Shkreli was arrested for "widespread fraudulent conduct" from "at least October 2009 through March 2014," according to a complaint issued by the Securities and Exchange Commission.
Despite being only 32, Shkreli has been known in the finance community for some time. However, he became somewhat of a pop culture figure in recent months after his newest company, Turing Pharmaceuticals, acquired the rights to Daraprim, an antimalarial drug with a number of other uses. Shkreli raised the price of the drug overnight to $750 from $13.50, which caused an immediate outcry from health care professionals, politicians, and the media.
Today's charges brought against Shkreli and his lawyer Evan Greebel, however, are not tied to Turing Pharmaceuticals. Instead, the SEC charges list a series of fraudulent actions Shkreli is said to have committed during his time as portfolio manager at two hedge funds he founded: MSMB Capital Management and MSMB Healthcare. The charges also involve his time as CEO of Retrophin Pharmaceutical (RTRX), a pharmaceutical company he founded and took public.
"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," Andrew Ceresney, director of the SEC'S enforcement division, said in a statement on Thursday.
During a press conference on Thursday, U.S. Attorney Robert Capers characterized transactions Shkreli initiated between his three companies as having "Ponzi scheme similarities." Capers listed several occasions where Shkreli orchestrated transactions between the three companies to cover up losses or cash short falls.
The SEC provided the following examples of Shkreli's alleged fraudulent conduct:
- From October 2009 to July 2011, Shkreli misappropriated $120,000 of funds from MSMB Capital Management for office rent as well as to finance his personal life.
- In July 2010, Shkreli told a potential investor that MSMB Capital Management's performance since inception was 35.77%, when in fact the fund had losses of 18%.
- On Dec. 2, 2010, an MSMB Capital Management investor asked Shkreli to tell him what the firm's assets under management were. Shkreli replied to the investor via email and said the AUM was $35 million when in fact the firm had less than $1,000 in its bank and brokerage accounts.
- In February 2011, Shkreli "knowingly or recklessly" misrepresented his ability to cover short trades he initiated in MSMB Capital Management's account. The losses on the transaction were $7 million, which were covered by the executing broker.
- In 2013, Shkreli misappropriated $900,000 of funds from MSMB Healthcare to settle with the executing broker in the MSMB Capital Management transaction listed above.
- From September 2013 to March 2014, Shkreli and his attorney Greebel made Retrophin issue stock and make payments to "disgruntled investors" in Shkreli's hedge funds.
The charges brought against Shkreli today are not the first time his financial transactions came under scrutiny. In September 2014, Adam Feuerstein of TheStreet detailed several questionable transactions Shkreli made with Retrophin's stock. During that time, Shkreli frequently tweeted that he was buying shares of Retrophin while not publicly disclosing that he was simultaneously selling the stock in prepaid forward contracts.