Turing Pharmaceuticals CEO Martin Shkreli Arrested for Securities and Wire Fraud

PHOTO: Martin Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a life-saving drug, is escorted by law enforcement agents in New York City on Dec. 17, 2015.PlayCraig Ruttle/AP Photos
WATCH Pharmaceutical CEO Martin Shkreli Arrested for Securities Fraud

Turing Pharmaceuticals CEO and former hedge fund manager Martin Shkreli, who was heavily criticized for raising the price of a drug used to treat a life-threatening infection by more than 4,000 percent, is facing multiple charges of securities and wire fraud in what federal prosecutors call a “Ponzi scheme” that stretched on for years.

Robert Capers, United States Attorney for the Eastern District of New York, told reporters today that Shkreli allegedly defrauded investors in two hedge funds, MSMB Capital and MSMB Healthcare, and also plundered Retrophin, the biopharmaceutical company he ran as its CEO, in an effort to pay back debts related to the now-defunct hedge funds.

Prosecutors allege that Shkreli lost all of the investments in MSMB Capital but continued to provide inflated and false performance updates to its investors. According to the indictment, Shkreli told one investor that the value of his $1.25 million investment was now worth slightly more than $1.3 million, even though MSMB Capital had ceased trading almost a year before and had no assets.

“Shkreli essentially ran his company like a Ponzi scheme,” Capers told reporters, explaining that Shkreli then allegedly concealed the collapse of MSMB Capital from potential clients in order to get them to invest in MSMB Healthcare. Capers explained that Shkreli next proceeded to allegedly use the money invested in MSMB Healthcare to pay off his previous debts. He is also accused of creating fraudulent transactions of money out of Retrophin in order to pay off personal and professional debts. Prosecutors say, as a result, Retrophin and its investors lost in excess of $11 million.

"As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit," Capers told reporters.

Shkreli was arrested early Thursday morning and charged with conspiracy to commit securities fraud and conspiracy to commit wire fraud by federal prosecutors. An indictment filed by federal prosecutors alleged that Shkreli defrauded investors, made false representations to the Securities and Exchange Commission (SEC), and used assets from Retrophin in order to pay off his hedge fund investors.

The maximum sentence Shkreli faces if convicted is 20 years in prison, according to Capers. The FBI says it is continuing its investigation.

Shkreli was released on $5 million bond today.

Calls to Shkreli’s attorneys were not immediately returned.

Retrophin filed a lawsuit against Shkreli in August, alleging he used the company to “enrich himself” and pay off claims to other investors, according to court documents. The company sought $65 million in damages from the former manager. In a post from earlier this year, Shkreli defended his time at the company, and said that every transaction he made at the company was done with the “blessing” of outside counsel.

Shkreli called the lawsuit allegations “untrue at best and defamatory at worst,” in a post on Investorshub.com. “I am evaluating my options to respond," he said. "Every transaction I've ever made at Retrophin was done with outside counsel's blessing.”

Shkreli faced intense backlash after Turing Pharmaceuticals hiked the price of Daraprim, an antiparasite drug, from $18 to $750 earlier this year.

ABC News' Aaron Katersky contributed to this report.