It’s not a reason most people were expecting/hoping Martin Shkreli would be put in handcuffs, but it’ll do.
Unfortunately, recent KaloBios Pharmaceuticals Inc (KBIO) investors are paying part of the price for Shkreli’s possible misdeed. Trading of the stock was halted today following the 53% plunge from shares in the wake of the news that its CEO — Shkreli — had been taken into custody by the FBI. The charge? Securities fraud (though nothing to do with KBIO … yet).
And with these charges, should they stick, the beginning of end is nigh for what would have made a great John Grisham novel had it not been a true story.
Who’s Martin Shkreli?
If the name rings a bell, it may be because the CEO of KalaBios, Martin Shkreli, is also the CEO of a company called Turing Pharmaceuticals, which presidential hopeful Hillary Clinton took a shot at back on Sept. 21 when she tweeted, “Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. -H”
Yep, same guy. He certainly gets around.
The Clinton tweet was in response to reports that Turing had been acquired by Shkreli, who promptly turned around and ratcheted up the price of its parasite treatment from $13.50 per pill to $750.
It’s not illegal … but it’s certainly not an argument in favor of his humanity, either.
It also wasn’t the first time Martin Shkreli has been in the spotlight for making questionable, perhaps unethical decisions.
Another company called Retrophin (RTRX), which he founded in 2011, removed him as CEO in 2014 after the board of directors had “serious concerns about his conduct.”
That conduct apparently included unfair treatment of RTRX shareholders. Late last year, investors of Retrophin filed four different lawsuits against Shkreli, all of which ultimately suggest he knowingly and willingly deceived shareholders to enrich himself.
Shkreli also made more than a few waves in 2011, as he may have been the reason MannKind (MNKD) didn’t win approval for Afrezza the first time around. Simply put, Shkreli sent a letter to the FDA explaining why the agency had an obligation to not approve the inhaled insulin. It suspiciously looks like the FDA listened, too.
Oh yeah: And Shkreli’s fund happened to have a short position in MNKD at the time.
The Allegation: It’s Complicated.
As for why Shkreli was whisked away in handcuffs by the FBI on Thursday morning, it’s got nothing to do with KalaBios or Turing. His legal battle with Retrophin shareholders just got a lot more … interesting.
Broadly speaking, prosecutors are charging him with illegally taking RTRX shares, and clouding the stock movement using his hedge fund MSMB Capital Management as the recipient. The indictment specifically claims Shkreli, along with attorney Evan Greebel (who had at one point served as part Retrophin’s legal counsel), established sham agreements to collect RTRX shares, which he then used to pay back his hedge fund’s investors.
The FBI also claims that Shkreli lied to MSMB investors, touting strong gains when in reality the fund had been losing ground.
U.S. Attorney Robert Capers, along with the Federal Bureau of Investigation and U.S. Securities and Exchange Commission, will be holding a press conference at noon EST on Thursday to offer more details and explain the charges.
Moral of the Story
Sometimes, people make a regrettable decision and then feel remorse. Other times, people are a victim of unfortunate circumstances beyond their control.
Neither of those situations can be used to describe the trail of indecency and poor result Martin Shkreli has blazed over the past few years, though.
Even before taking over Turing and boosting the price of its one drug by more than 50-fold overnight, he had established himself as a player who wanted to push the boundaries of legality by exerting as much manipulative force on certain stocks as he could.
Anyone who walks on the edge of that cliff long enough is going to fall off of it eventually.
In other words, where there’s smoke, there’s fire.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
