SEC, in complaint against Shkreli, alleges 'widespread' fraud over nearly 5 years
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Martin Shkreli, a lightning rod for growing outrage over soaring prescription drug prices, was arrested by the FBI on Thursday after a federal investigation involving his former hedge fund and a pharmaceutical company he previously headed.
The securities fraud probe of Shkreli, who is now chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals, stems from his time as manager of hedge fund MSMB Capital Management and CEO of biopharmaceutical company Retrophin.
In a complaint made public Thursday, the SEC alleged that Shkreli engaged in "widespread fraudulent conduct" from at least October 2009 to March 2014.
During that time, the SEC complaint alleged, Shkreli "made material misrepresentations and omissions to investors and prospective investors," lied to one of MSMB's executing brokers about the firm's ability to settle short sales he had made, and misappropriated funds.
Additionally, the complaint alleged that once Shkreli took Retrophin public, he "fraudulently induced" the company to fund settlements with individuals who had claims against Shkreli from their investments in his hedge funds.
Shares of KaloBios fell about 50 percent in premarket trading. (Get the latest quote here.)
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Lawyers for Shkreli, whose arrest was witnessed by Reuters, did not immediately respond to a request for comment. Turing and KaloBios declined to comment.
Retrophin said it has 'fully cooperated' in government investigations of Shkreli, and declined further comment.
Turing sparked controversy earlier this year after news reports that it had raised the price of Daraprim, a 62-year-old treatment for a dangerous parasitic infection, to $750 a tablet from $13.50 after acquiring it.
Shkreli, 32, was expected to be charged on Thursday.
Specifically, the SEC alleged that he misappropriated about $120,000 in investor funds from MSMB; lied about the fund's performance, assets under management, and retention of an independent auditor and administrator; misrepresented a naked short to a broker; and misappropriated about $900,000 of investor funds from MSMB Healthcare to fund an arbitration settlement tied to the firm's failure to settle short sales.
The final allegation in the complaint is that Shkreli induced Retrophin to issue stock and cash to disgruntled hedge fund investors, falsely saying the payments were for consulting services.
The complaint was also filed against Evan Greebel, whom the SEC said was Shkreli's lawyer.
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The probe, by federal prosecutors in Brooklyn, dates back to at least January when Retrophin said it received a subpoena from prosecutors seeking information about its relationship with Shkreli.
That subpoena also sought information about individuals or entities that had invested in funds previously managed by Shkreli, Retrophin said in a regulatory filing.
A noon ET press conference on the arrest is scheduled at the U.S. Attorney's Office in Brooklyn, N.Y.
Shkreli regularly live streamed videos of himself online. One such video from Wednesday shows him apparently playing online chess and surfing an online dating site while strumming a guitar.
—CNBC's Everett Rosenfeld contributed to this report.
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