Biotech and Pharma

Turing names new CEO to replace Shkreli

Reuters with CNBC
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Turing Pharmaceuticals on Friday appointed a new interim chief executive to replace the controversial Martin Shkreli, who resigned a day after he was arrested by the FBI amid a federal investigation involving his former hedge fund and a pharmaceutical company he previously headed.

Shkreli, who is still CEO of KaloBios Pharmaceuticals, was charged Thursday in a federal indictment related to his time managing hedge fund MSMB Capital Management and as CEO of biopharmaceutical company Retrophin. The 32-year-old entrepreneur this year became a lightning rod for controversy over soaring drug prices at Turing.

Ron Tilles will take over as Turing's interim CEO, and will remain chairman of the company's board, a position he has held since its founding last year. In a statement, Turing said that leadership changes would not affect its business, and "no patient needing Daraprim" — the drug hiked to $750 a tablet from $13.50 this year — would be denied access.

On Thursday, the U.S. attorney's office in Brooklyn, New York, unsealed an indictment against Shkreli, charging him with seven counts including conspiracy to commit securities fraud and conspiracy to commit wire fraud. U.S. Attorney Robert Capers alleged Shkreli used Retrophin to cover personal debts.

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"As alleged in the indictment, Shkreli essentially ran his companies like a Ponzi scheme, where he used each subsequent company to pay off the defrauded investors in the prior company," Capers said.

Shkreli was released on a $5 million bond after a Thursday hearing, and had his travel restricted to parts of New York. He surrendered his passport and cannot contact MSMB or Retrophin employees.

He will next appear in court on Jan. 20.

Evan Greebel, whom the SEC said was Shkreli's lawyer, also faces a count of wire fraud conspiracy. He was arrested Thursday and released on a $1 million bail. Greebel's travel will also be restricted.

"We are deeply concerned that these charges have been made against Mr. Greebel. He has been with us for a relatively short period of time, and all the alleged activities occurred before he joined the firm," a spokeswoman for Greebel's firm Kaye Scholer said in a statement. "We are conducting our own internal investigation, and based on our findings we will take appropriate action."

Both Shkreli and Greebel were sued in a related lawsuit by the U.S. Securities and Exchange Commission, which also named MSMB Capital as a defendant.

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.

Trading in KaloBios was halted Thursday. Its share price fell 53 percent in premarket trading. (Get the latest quote here.)

Lawyers for Shkreli declined to comment to CNBC. Shkreli through his press relations firm said he is confident that he will be cleared of all charges, adding the charges regarding the MSMB entities involved "complex accounting matters" that authorities failed to understand.

He subsequently sent a tweet to his followers.


Retrophin said it has "fully cooperated" in government investigations of Shkreli. The company added Thursday that "a new chapter began" the day it replaced Shkreli, and the decision "has been vindicated" by the indictment.

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.

In a statement, Turing said the investigation of Shkreli has "no bearing" on the company. Turing said it would maintain its "deep commitment to patients, providers and the progress of our important R&D pipeline."

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Specifically, the SEC alleged that Shkreli 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.

A courtroom sketch of Martin Shkreli as he was indicted on Dec. 17, 2015.
Source: Elizabeth Williams.

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.

MSMB Capital Management was founded in 2009, and Shkreli announced its closure in 2012. Retrophin was founded in 2012, and Shkreli was its CEO until the company fired him in September 2014.

Retrophin in August sued Shkreli in federal court in Manhattan for $65 million, claiming he had used his control over Retrophin to enrich himself and pay off claims of investors in MSMB, which he had also defrauded.

Shkreli has denied the allegations.

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.

At least two separate congressional probes have been launched since September on the pricing issues of Daraprim, which had long been available as a generic drug used to treat toxoplasmosis in AIDS patients. Turing is under investigation by the New York state attorney general for antitrust concerns.

At a Senate hearing on drug pricing last week, a doctor who treats babies with life-threatening toxoplasmosis testified that a course of treatment with Daraprim went from about $1,200 to no less than $69,000.

Shkreli has also made headlines recently for reportedly purchasing the only known copy of a new Wu-Tang Clan album for $2 million.

CNBC's Everett Rosenfeld and Jacob Pramuk contributed to this report.