Shkreli, former Baruch student, faces multiple fraud charges

Following the controversial 5,000 percent price jump of Daraprim, Martin Shkreli continues to make headlines with his fraud-related arrest and a congressional hearing set for Feb. 4.

Before delving into the events that unfolded two weeks ago, one must ask: Who is Martin Shkreli?

According to BBC, Shkreli is the child of working-class immigrants who settled in Brooklyn, New York. He skipped two grades in school, graduated from Baruch College in 2004 and landed an internship at a hedge fund when he was only 17.

Four years after graduating college, Shkreli created his second hedge fund named MSMB. His decisions regarding how the hedge fund was managed greatly contributed to his December arrest. Before founding Turing Pharmaceuticals, Shkreli founded another pharmaceutical company, Retropin, in 2011, but lost his position as the company’s CEO three years later. In February 2015 he launched Turing.

Shkreli’s name began appearing in headlines when Turing raised the price of Daraprim by over 5,000 percent, or from $13.50 to $750 per pill. The drug is widely used to treat acute malaria and toxoplasmosis.

When speaking about the drug’s price increase, Shkreli believes in the righteousness of the decision. In his recent interview with Vice, Shkreli claims that Turing spends 60 percent of its profit on research and development—more than most pharmaceutical companies—and the price hike may contribute to improving Daraprim and easing the side effects.

Turing’s press release on third-quarter business highlights supports Shkreli’s statement. The document states that the pharmaceutical company will spend at least 60 percent of revenue on research and development in the near future. Turing is allocating the funds to develop drugs for the treatment of post-traumatic stress disorder, major depressive disorder, Canavan disease and Lafora Disease.

Furthermore, an article published by The Washington Post on Feb. 11, 2015 points out that big pharmaceuticals spend more money on sales and marketing than research and development. Pfizer spends $11.4 billion on sales and marketing but only $6.6 billion on research and development. Of the 10 companies mentioned, only Roche spent more money on research and development—$9.3 billion compared to the $9 billion that it spent on sales and marketing.

“You’re talking to someone who cares deeply about other people’s lives,” Shkreli told the interviewer.

Shkreli claimed that because Daraprim makes up such a negligible portion of the healthcare market, the price increase would have little to no effect on healthcare premiums. He also pointed out that a lot of the medications are purchased by big companies that have the ability to pay the $750 a pill price tag.

“I don’t care. For Daraprim to cost more money, fine. If that’s the price I have to pay to find a new medicine for a dying kid, I’ll raise it even more. You know, what do I care? You know, Microsoft is going to lose money? Walmart is going to lose money? Why are we crying about this?” Shkreli defended himself in the Vice interview.

Ever since the price hike, Shkreli continued to make headlines, whether it is through his brash behavior on- and off-line or purchasing the sole copy of Wu-Tang Clan’s Once Upon a Time in Shaolin for $2 million without any intention of playing it. He eventually played a few tracks in the recent Vice interview, claiming that he would make the songs available if that is what the fans wanted.

His controversial behavior received a lot of backlash, whether from social media users or presidential candidates. Bernie Sanders reportedly rejected Shkreli’s $2,700 donation by donating it to a health clinic. During a press conference, Donald Trump called Shkreli a “spoiled brat.”

On Dec. 17, word of Shkreli’s arrest began circulating around news outlets.

According to a U.S. Department of Justice press release from Dec. 17, Skhreli was charged with a seven-count indictment in a federal court in Brooklyn, New York. The document states that Shkreli was charged with “securities fraud, securities fraud conspiracy and wire fraud conspiracy.”

Between 2009 and 2014, Shkreli allegedly carried out schemes that defrauded investors in MSMB Capital and MSMB Healthcare, and later defrauded Retrophin.

“Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit,” United States Attorney Robert L. Capers summarized in the document. “His plots were matched only by efforts to conceal the fraud, which led him to operate his companies … as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity.”

In the same document, FBI Assistant Director-in-Charge Diego Rodriguez elaborated on the severity of Shkreli’s crimes. Shkreli reportedly lied to his investors about the success of his investments back when he ran his second hedge fund, MSMB Capital. He then used assets from Retropin to pay back the MSMB investors. In the end, both Retropin and MSMB’s investors lost $11 million.

According to the document, Shkreli “falsely represented” how MSMB was performing financially. He lied about the hedge fund’s transparency, the money he earned from net assets and net profits. To make things even worse, he did not reveal that he lost all his money from his first hedge fund, Elea Capital, and that Lehman brothers had a “$2.4 million default judgement against him.”

Later on, Shkreli again allegedly lied to investors by stating that MSMB Healthcare held $55 million in assets in order to gain investments totaling $5 million. He then went on to allegedly misinform his investors with false performance updates, misuse MSMB funds and withdraw more money than the amount to which he was entitled.

Rodriguez expects that more details will unfold as the FBI continues to investigate, possibly extending the severity of Shkreli’s crimes.

Following his arrest, it has been reported that Shkreli has stepped down from his position as the CEO of Turing.

February 8, 2016

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