Martin Shkreli Arrested For Using Hedge Fund In Illegal Ponzi Scheme

Martin Shkreli was arrested by FBI agents yesterday morning at his apartment in Manhattan on charges of securities fraud. The Turing Pharmaceuticals CEO is being accused by the U.S. government for running an illegal Ponzi scheme.

Along with Shkreli, New York lawyer Evan Greebel was also arrested for allegedly helping with the scheme. The attorney denied any wrongdoing and was freed on a $1 million bond.

Brooklyn U.S. Attorney Robert Capers explained how Shkreli would take assets from one company to pay off debtors in another.

"Shkreli essentially ran his company like a Ponzi scheme where he used each subsequent company to pay off defrauded investors from the prior company," he said.

CEO Martin Shkreli used hedge fund in Ponzi scheme.
Robert Capers, U.S. Attorney for the Eastern District, explains Martin Shkreli's elaborate Ponzi scheme. [Photo by Spencer Platt/Getty Images]

Capers went on to say that Shkreli has been under investigation by the SEC since 2014.

After denying the charges in Federal District Court, Shkreli was later released on a $5 million bond. According to a statement released on his behalf, the 32-year-old executive is confident the charges will be dropped.

"The government suggested that Mr. Shkreli was involved in a Ponzi scheme. Ponzi victims do not make money, yet Mr. Shkreli's investors enjoyed strong results," according to the statement.

Additionally, Shkreli thinks it coincidental that the government's Ponzi scheme accusation comes at a time when he is in the spotlight for other "controversial and yet unrelated activities."

Shkreli became the face of corporate greed after his company, Turing Pharmaceuticals, raised the price of an infection-fighting drug used to treat babies and AIDS patients from $13.50 a pill to $750. Despite coming under fire from the public and politicians, he later claimed his only real mistake was not raising it further.

More recently, Shkreli bought a major stake in KaloBios Pharmaceuticals. The drug firm owns the license for benznidazole, which treats a deadly parasite infection known as Chagas. In a related Inquisitr report, Shkreli plans a price increase from a couple hundred dollars for two month's supply to possibly as much as $100,000.

With federal charges pending, it is unlikely Shkreli's plan will ever see the light of day.

However, the federal indictment and SEC complaint against Martin Shkreli have nothing to do with Turing or KaloBios. The alleged crimes have to do with when he was a hedge fund manager and head of biopharmaceutical company Retrophin.

The Makings Of A Ponzi Scheme

In 2007, Shkreli's first hedge fund, Elea Capital, collapsed after making some very poor stock choices. Then, in 2009, a second hedge fund was created named MSMB Capital, and investors put in $3 million.

Over a three-year period, MSMB depleted the majority of the money through bad investments. Additionally, some assets had to be used to settle a substantial debt with Merrill Lynch. However, Shkreli managed to hide the losses, meanwhile telling investors the fund was earning double-digit returns. MSMB Capital ultimately buckled just as Elea did.

Next Shkreli took $5 million from 13 investors and started MSMB Healthcare. The SEC contends the unscrupulous businessman profited by paying himself way more in management fees than was agreed upon. He used money from MSMB Healthcare to launch Retrophin.

Retrophin was started for the sole purpose of buying old, neglected drugs used to treat rare diseases and then raising their prices. According to government prosecutors, Shkreli funneled the profits to irate investors in MSMB, thereby creating the Ponzi scheme.

In 2013, several MSMB investors threatened to file a lawsuit against the hedge fund. To quiet them down, $3.4 million of Retrophin assets were used to pay the investors, even though the company had no obligation to do so.

While Shkreli created deceptive portfolio statements, lawyer Evan Greebel managed to deceive outside accountants as well as the SEC with backdated records, a false loan agreement between Retrophin and a hedge fund, plus phony consulting agreements.

It was Greebel who carefully hid Shkreli's financial movements, according to federal documents.

When Retrophin's board became suspicious of the consulting agreements, Shkreli was removed from the chief executive position in 2014. Earlier this year, the company filed a lawsuit accusing the former CEO of similar charges as the federal indictment.

New York lawyer Evan Greebel helped Martin Shkreli defraud investors.
Lawyer Evan Greebel arrested for allegedly helping Shkreli with Ponzi scheme. [Photo by Andrew Burton/Getty Images]

After walking out of the courtroom yesterday, Shkreli refused to answer any questions about the alleged Ponzi scheme and neither would his lawyers. Legal counsel for Evan Greebel also declined comment as well.

[Photo by AP Photo/Seth Wenig]