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Martin Shkreli, CEO Who Spiked Drug Prices, Pleads Not Guilty To Fraud Charges

NEW YORK (CBSNewYork/AP) -- Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a lifesaving drug, was arrested Thursday on securities fraud charges unrelated to the furor.

Shkreli was arrested by the FBI at his home in Midtown Manhattan on Thursday, CBS2's Sonia Rincon reported.

The boyish-looking 32-year-old entrepreneur -- an unapologetically aggressive businessman and relentlessly self-promoting figure who has called himself "the world's most eligible bachelor'' on Twitter and recently plunged into the hip-hop world by buying an unreleased album by the Wu-Tang Clan -- was taken into custody in a gray hoodie and pleaded not guilty in federal court in Brooklyn.

PHOTOS: Martin Shkreli Busted For Securities Fraud

Shkreli was charged in an indictment unconnected to the drug price hikes imposed by his company Turing Pharmaceuticals. The charges instead involve his actions at another pharmaceutical company, Retrophin, which he ran as CEO up until last year.

Prosecutors said that in a "Ponzi-like scheme'' between 2009 and 2014, Shkreli lost hedge fund investors' money through bad trades, then raided Retrophin for $11 million in cash and stock to pay back his disgruntled clients.

Shkreli "engaged in multiple schemes to ensnare investors through a web of lies and deceit," U.S. Attorney Robert Capers said in a statement.

A seven-count indictment unsealed in Brooklyn federal court charged Shkreli with securities fraud and conspiracy. A second defendant, lawyer Evan Greebel, of Scarsdale, was charged with conspiracy and also pleaded not guilty.

Federal prosecutor Robert Capers said Shkreli lied to investors about how much his hedge fund MSMB capital was worth..

"When he lost the $3 million dollars that he gotten through a series of bad trades, he didn't tell his investors that he lost their money," Capers said. "Instead,  Shkreli started a new hedge fun...called MSNB Healthcare, which he founded in 2011. Here again, he lied to the investors in the same way."

Bail was set at $5 million for Shkreli, and $1 million for Greebel.

Upon being released on bond, Shkreli forfeited his passport and had his travel restricted to the Eastern and Southern districts of New York – an area that includes the five boroughs of New York City, Long Island, and the north suburban counties.

If convicted, both men could get up to 20 years in prison.

Shkreli stirred public outrage earlier this fall when Turing Pharmaceuticals jacked the price of a drug used to treat a life-threatening infection by more than 5,000 percent.

Headlines called him such things as "America's most hated man,'' the "drug industry's villain,'' "biotech's bad boy'' -- and those were just the more printable names.

Turing, with offices in New York and Switzerland, spent $55 million in August for the U.S. rights to sell Daraprim.

The company raised the price of the 62-year-old drug, whose patent expired decades ago, from $13.50 to $750 per pill. The drug is the only approved treatment for a rare parasitic infection called toxoplasmosis that mainly strikes pregnant women, cancer patients and AIDS patients.

Doctors and medical groups said the price hike was cutting patients off from lifesaving treatment, activists protested outside Turing's offices, and the episode helped prompt a Senate hearing on drug prices.

Shkreli defended the move in an interview with CBS News correspondent Don Dahler.

Dahler: "Why was it necessary to raise the price of Daraprim so drastically?"
Shkreli: "Well, it depends on how you define 'so drastically.' Because the drug was unprofitable at the former price, so any company selling it would be losing money. And at this price, it's a reasonable profit. Not excessive at all."

Shkreli said the company would cut the drug's price. Last month, however, Turing reneged on its pledge. Instead, the company is reducing what it charges hospitals for Daraprim by as much as 50 percent.

While most patients' copayments will be $10 or less a month, insurance companies will be stuck with the bulk of the tab, potentially driving up future treatment and insurance costs.

Shkreli has said that insurance and other programs allow patients to get the drug despite the cost and that the profits are helping fund research into new treatments.

But he has also unapologetically made a business-is-business argument for the price jump. In fact, he recently said he probably should have raised it more.

"No one wants to say it, no one's proud of it, but this is a capitalist society, a capitalist system and capitalist rules,'' he said in an interview at the Forbes Healthcare Summit this month. "And my investors expect me to maximize profits, not to minimize them or go half or go 70 percent, but to go to 100 percent of the profit curve.''

The uproar over price hikes at Turing and by other companies like Valeant Pharmaceuticals led to government investigations, proposals by politicians to fight "price gouging,'' heavy media scrutiny and a drop in stock prices for biotech companies.

Rising pharmaceutical prices has also become a topic in the upcoming U.S. presidential race.

Donald Trump was quoted as calling Shkreli a "spoiled brat," and when Hillary Clinton said he should lower the price, Shkreli responded on Twitter with"lol," Rincon reported.

Shkreli, the son of Albanian and Croatian immigrants, was raised in Brooklyn. He became an entrepreneur in the financial world at the age of 20. Today, at age 32, he's facing some very serious charges that could lead to time in prison.

He is known as a prolific user of Twitter and often livestreams his workday over the Internet, the camera showing him at his desk as he does business, kills time surfing the Web and invites people to chat with him.

Recently, it emerged that he bought the only copy of a Wu-Tang Clan album titled "Once Upon a Time in Shaolin,'' which the group sold on the condition that it not be released publicly. He said he paid $2 million.

Online, many people took instant glee in his arrest, some of them joking about a judge ratcheting up his sentence or lawyers jacking up their hourly fees 5,000 percent for defending him in his hour of need.

In August, Retrophin sued Shkreli for more than $65 million, accusing him of using his control of the company to enrich himself and to pay off the claims of financial fund investors he had defrauded.

Last month, Shkreli was named chairman and CEO of KaloBios Pharmaceuticals, a struggling cancer drug developer. At the time, the price of shares surged from around $2 to above $40.

After his arrest, its stock fell by more than half Thursday before trading in the company was suspended.

(TM and © Copyright 2015 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2015 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

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