For Martin Shkreli, suspicions going back years

Last Updated Dec 17, 2015 5:05 PM EST

Already convicted of greed in the court of public opinion, Martin Shrekli now stands accused of fraud in a court of law.

The CEO of Turing Pharmaceuticals and KaloBios Pharmaceuticals is charged with misappropriating more than $11 million in assets from publicly traded Retrophin (RTRX) to pay back investors he had defrauded over a five-year period between September 2009 and September 2014.

Shrekli was arraigned on charges of securities fraud, securities fraud conspiracy, and wire fraud conspiracy for orchestrating three interrelated schemes: schemes to defraud investors in MSMB Capital and MSMB Healthcare and a scheme to misappropriate Retrophin's assets.

Shrekli managed hedge fund MSMB Capital Management before he closed it in 2012, and ran biopharmaceutical company Retrophin from 2012 to 2014.

Shkreli "ran his companies like a Ponzi scheme, using each subsequent company to pay off defrauded investors," U.S. attorney Robert Capers told a news conference in Brooklyn.

Shkreli pleaded not guilty in federal court in Brooklyn. A judge set bail at $5 million.

Had he not been so brash, Shkreli would likely not be in as hot water as he currently stands, according to one lawyer. "Had he not been so brazen, he probably would not be indicted at all, it would have stayed a civil matter," said Mark McBride, a criminal defense attorney based in Beverly Hills, California.

Shkreli could probably work out a plea arrangement with prosecutors, but "knowing his personality, he may try to win the case," said McBride, who called the 32-year-old "a mini-Madoff," a reference to Bernie Madoff, who pleaded guilty in 2008 to bilking investors out of $20 billion.

While Madoff was sentenced to 150 years in federal prison for his crimes, McBride believes that if convicted, Shkreli faces at most, one to three years in prison. "In federal criminal law, in white collar cases, time served is usually based on the amount of loss" involved, the attorney said.

Arrested at his apartment in midtown Manhattan Thursday morning, Shkreli, wearing a hoodie, was seen being escorted by FBI agents in a car, Reuters reported.

Evan Greebel, 42, a former partner at law firm Katten Muchin Rosenmann who was Retrophin's outside counsel, is accused of conspiring with Shkreli in the alleged scheme after MSMB Capital lost millions.

Shkreli is charged with illegally taking stock from Retrophin to pay off debts from other business deals. He eventually was forced from the company he started, and sued by its board.

"The directors of Retrophin replaced Martin Shkreli as Chief Executive Officer more than a year ago because of serious concerns about his conduct," a spokesperson with the company said by email after the fraud charges were disclosed. "Following his departure, the company authorized an independent investigation of Mr. Shkreli's conduct, publicly disclosed its findings, and has fully cooperated with the government investigations into Mr. Shkreli."

The arrest of Shkreli, who grew up in Brooklyn and who once served as a college intern at a hedge fund co-founded by CNBC's Jim Cramer, marks a strange twist for a business executive and investor whose career has seen both precocious financial success and, more recently, considerable notoriety.

Cramer, however, dissociated himself from Shkreli in a tweet.

Shkreli drew public outrage earlier this year after Turing jacked up the price of a life-saving pill, Daraprim to $750 from $13.50, a rise of some 5,000 percent. The ensuing tide of criticism from public interest groups, lawmakers and presidential candidates including Hillary Clinton seemed not to cow Shkreli. He told a Forbes summit earlier this month that he now regrets not raising the price of Daraprim even more.

Shkreli also attracted attention for his active, and unconventional, use of social media to bat away accusations that Turing was gouging consumers. "I like to stir the pot, but I would never, ever price a drug beyond a sick person's reach," he wrote Tuesday on Twitter. Shkreli also had a penchant for holding rambling live streams, including one posted on YouTube this week in which he noodled around on an electric guitar.

The boyish-looking Shkreli gained further notice for paying $2 million for the sole copy of the latest album, "once Upon A Time in Shaolin," by legendary rappers of the Wu-Tang Clan. The album remains in Shkreli's possession, at least for the time being.

But Shkreli's short-selling activities drew suspicions as early as 2012, when Citizens for Responsibility and Ethics in Washington asked Preet Bharara, U.S. Attorney for the Southern District of New York, and the Securities and Exchange Commission to investigate him for allegedly manipulating biotech and pharmaceutical company stocks while at MSMB Capital.

"This morning's arrest of Shkreli by the FBI shows that the law applies to everyone," the group, nonprofit focused on government and corporate accountability, said in a statement. "We commend the [Department of Justice] for sending a clear message that these types of action will not be tolerated."