Martin Shkreli Steers His Company From Prison—With Contraband Cellphone
Having made friends including ‘Krispy’ and ‘D-Block,’ the disgraced pharmaceutical executive is planning his billion-dollar comeback
From a top bunk in a 12-person prison cell in Fort Dix, N.J., Martin Shkreli is at work on a big second act.
Wielding little more than a contraband smartphone, the disgraced pharmaceutical executive remains the shadow power at Phoenixus AG, the drug company that became a national lightning rod for jacking up the prices of rare drugs under its former name, Turing Pharmaceuticals AG. Mr. Shkreli still helps call the shots. A few weeks ago he rang up his handpicked chief executive during a safari vacation—to fire him, according to a person familiar with the exchange.
This is the secret life of inmate 87850-053, 16 months into a seven-year sentence for securities fraud.
He flouted Twitter Inc.’s ban from the social-networking site by posting from a new account, @sriole, that doesn’t list his name. On a personal blog, he compares himself to famed entrepreneurs like Elon Musk and regularly criticizes the justice system with offbeat humor, such as a Jan. 25 “Memo to Roger Stone Jr.,” the former Trump campaign adviser, in which he hoped “a supra-judiciary entity will intervene in your case.” He added: “P.S. Never, ever, ever snitch.”
Even his uniform of sweatpants and T-shirts remains essentially unchanged.
Mr. Shkreli reads about research into fatty acids and the prevention of cardiovascular disease in the inmate computer lab or on his phone. He cuts his own hair with safety scissors and is growing a patchy beard. The low-security federal correctional institution is built on the grounds of an old army base about 90 minutes from Mr. Shkreli’s former multimillion-dollar Manhattan penthouse.
He has made prison friends, including “Krispy” and “D-Block,” some of whom affectionately call him “Asshole,” according to people familiar with his new life. They walk alongside him in the hall to ward off shenanigans from other inmates. For reputational reasons they persuaded him to turn down a gig playing guitar in a prison band because the other members were locked up for child molestation.
Martin Shkreli Steers His Company From Prison—With Contraband Cellphone
Mr. Shkreli’s continued involvement with Phoenixus, his private Swiss drug company operating out of Manhattan, could prove perilous. The Federal Bureau of Investigation has interviewed associates about his role there, say people who have been interviewed. An FBI spokeswoman declined to comment.
The prison warden denied a Wall Street Journal reporter’s request to visit Mr. Shkreli, citing “safety and security concerns.” The prison inmate handbook says: “Conducting a business, in any way, is a prohibited act.” A spokesperson said the Bureau of Prisons “continues to tackle the problem of contraband being introduced into our facilities, including contraband cell phones.”
For Mr. Shkreli, 35 years old, the risk is worth it. He plans to emerge from jail richer than he entered.
His back-of-the-commissary-envelope calculation indicates that Phoenixus could be worth $3.7 billion by the time he is due to be freed in 2023, according to a person familiar with his thinking. His plan involves acquiring more rare drugs in various stages of development and plowing money into an ambitious research-and-development agenda. Both are guided by his long days reading pharmaceutical research. He has, for now, abandoned the strategy that led to his explosion into the limelight in 2015 when Turing raised the cost of an HIV drug to $750 per pill from $13.50.
The company’s minority shareholders are tired of big promises and want to curtail Mr. Shkreli’s influence so the company can be sold. “This investment is an absolute disaster,” says Austrian interior designer Sabine Gritti, who owns a million-dollar stake in Phoenixus. “We can’t get information, and anything they do send out, we don’t know if it is trustworthy.”
Others say they fear an attempt from Mr. Shkreli to enrich himself by seizing control of the cash-rich company through complicated financial transactions.
Martin Shkreli on the Fox Business Network in 2016.
Martin Shkreli on the Fox Business Network in 2016. PHOTO: UNCREDITED
Akeel Mithani, a Phoenixus board member, said in an email that Mr. Shkreli “gets treated like any other shareholder.” He said the fact that Mr. Shkreli has a cellphone in prison is “widely known” but that his “business related communication is limited via his lawyers.”
Executives at Phoenixus as well as lawyers working for the firm didn’t respond to requests for comment. This story is based on interviews with investors, employees, business partners and others who know Mr. Shkreli, as well as investor documents reviewed by the Journal.
‘Bad Boy’
Long before newspaper headlines christened him “pharma bro,” “bad boy” and “the most hated man in America,” Mr. Shkreli was one of four children born to Montenegrin immigrant custodial workers in New York City’s Coney Island neighborhood.
He dropped out of high school and parlayed an interest in chemistry and money into Wall Street gigs, including one at a hedge fund run by television host Jim Cramer. At 23, Mr. Shkreli launched his own fund. Three years later, he and a partner launched a second, called MSMB Capital Management, with $3 million in backing.
Martin Shkreli Steers His Company From Prison—With Contraband Cellphone
A wrong-way bet in 2011 on the shares of an obesity drug company wiped out MSMB. To cover up the loss, Mr. Shkreli created phony documents with exaggerated assets under management and raised a new fund, federal prosecutors later alleged. Mr. Shkreli pleaded not guilty and denied wrongdoing.
The new fund invested in a pharmaceutical company Mr. Shkreli created, Retrophin , which sought drugs that treated rare diseases. Later, he gave his original hedge-fund investors cash and stock from Retrophin to cover up the earlier losses, prosecutors later alleged.
The Retrophin board fired Mr. Shkreli as chief executive in 2014 for what it described as reckless decision-making, including making stock bets using Retrophin’s money.
Undeterred, Mr. Shkreli created another drug company, Turning, raising around $55 million from banks and wealthy investors impressed by what they saw as an ability to identify undervalued drugs. Mr. Shkreli put most of his net worth into the new company.
In August 2015, Turing made its first big move, acquiring the U.S. marketing rights to Daraprim, a treatment for pneumonia in patients with a rare parasitic disease. Mr. Shkreli’s business plan involved boosting the sticker price more than fiftyfold.
Overnight, he became a sensation, fueled by colorful and what even he later admitted were inappropriate, public comments.
“All of us were horrified, but he was having the time of his life,” says Bertrand des Pallieres, a French financier who invested in Turing months before the Daraprim hullabaloo. “He was on fire. He loved the controversy.”
The public attention encouraged authorities to prioritize an examination of Mr. Shkreli’s broader business history, the Journal earlier reported, and led to Mr. Shkreli’s December 2015 arrest for securities fraud and conspiracy. He resigned as Turing chief executive a few days after the arrest.
“The day he was arrested, I felt relieved,” Mr. des Pallieres says. “I thought, ‘Now we can seize back control of the company.’”
The pharmaceutical executive is escorted by law enforcement agents in New York after being taken into custody following a securities probe.
The pharmaceutical executive is escorted by law enforcement agents in New York after being taken into custody following a securities probe. PHOTO: CRAIG RUTTLE/ASSOCIATED PRESS
’Blow my brains out’
After his release on bail, Mr. Shkreli appointed Ron Tilles, a Wall Street wheeler-dealer who had helped him raise money in the past, to run Turing as CEO.
Mr. Tilles had the title, but not the votes. Between his roughly 40% personal stake in the company and shares owned by loyalist investors, Mr. Shkreli wielded final decision-making power. The two men sometimes got into shouting matches over the company. It went on for nearly a year-and-a-half.
“I’m ready to blow my brains out,” Mr. Tilles told a friend, about a year into his tenure.
Ron Tilles served for a time as chief executive of Mr. Shkreli’s company.
Ron Tilles served for a time as chief executive of Mr. Shkreli’s company. PHOTO: PATRICK MCMULLAN AGENCY
In April 2017, Mr. Shkreli argued that Mr. Tilles was spending to much money and persuaded the board to fire him as chief executive, but kept him on as a director. Mr. Tilles’s successor, Turing’s former chief scientist Eliseo Salinas, was fired after less than two months. It was then that Mr. Shkreli proposed a new five-person board that included three of his former employees and an acquaintance.
Mr. Shkreli, in a missive to shareholders, wrote that he estimated the company was worth $500 million. “Many of you have profited from my other ventures,” he wrote. “This one will generate an enormous return, as well, if you let it.”
Mr. Shkreli’s slate of directors won.
“People just wanted more governance of the board,” says Mr. Mithani, 27 years old, who first met Mr. Shkreli on Twitter and earlier sold rare sneakers online.
The new team took over in June 2017. A few months later, Kevin Mulleady, an ex-executive at Mr. Shkreli’s defunct hedge fund, became CEO. Mr. Mulleady was referred to as “Co-conspirator 1” in the criminal case where Mr. Shkreli was sentenced last year, people familiar with the matter say. Mr. Mulleady, who wasn’t charged with a crime, didn’t respond to requests for comment.
Mr. Shkreli’s team changed the company’s name to Vyera AG from Turing to make it easier to do deals with other pharmaceutical companies because potential partners were wary of being seen as doing business with Mr. Shkreli.
Attorney Benjamin Brafman advises his client during a congressional hearing on prescription drug prices in 2016.
Attorney Benjamin Brafman advises his client during a congressional hearing on prescription drug prices in 2016. PHOTO: PETE MAROVICH/BLOOMBERG NEWS
Investment bankers who examined the company’s books had less rosy assessments than Mr. Shkreli’s $500 million valuation. Mr. Shkreli blocked at least two offers to acquire the company, one for around $100 million.
After one person involved in the nixed sale expressed misgivings to others, he received a text message from an unlisted number that couldn't be traced. “You like talking to people about Turing? Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad. Bad,” the message read. “We are watching and listening.”
Name change
Mr. Shkreli repeatedly predicted he would avoid incarceration altogether. Before the trial, he wrote out a spreadsheet of comparable white-collar offenses that drew limited sentences. A judge remanded him immediately in September 2017 after Mr. Shkreli, then out on bail after his conviction, offered $5,000 to any stranger who would grab a strand of Hillary Clinton’s hair to disrupt her book tour. The judge called it a “solicitation to assault in exchange for money.” The same judge in March 2018 sentenced him to seven years in prison on the conspiracy and securities-fraud conviction.
That left Mr. Mulleady in charge of day-to-day operations, right as the company’s business degenerated. He sometimes exchanged messages with Mr. Shkreli through his criminal-defense attorney Benjamin Brafman, who was permitted to visit his client in jail. Mr. Brafman said “our only communications with Mulleady after Martin’s conviction were our efforts to satisfy Martin’s court ordered restitution and forfeiture issues.”
Marc Kasowitz is another prominent attorney who represented Mr. Shkreli.
Marc Kasowitz is another prominent attorney who represented Mr. Shkreli. PHOTO: PATRICK MCMULLAN AGENCY
Mr. Shkreli’s company meanwhile hired well-known lawyer Marc Kasowitz—a longtime counsel to Donald Trump—to advise it. The company laid off dozens of staff in late 2017 and early 2018. Last summer, Vyera changed its name yet again to Phoenixus, an amalgamation of the Latin words for phoenix, the bird that rises from the ashes, and nixus, to struggle or progress.
From prison, Mr. Shkreli phoned in advice to company officials when he could. He hasn’t always been plugged in. He spent a few weeks in solitary confinement for unspecified violations and suffered a painful infection after needing dental fillings. Perennially slight of build, he has gained weight and plans to begin a weightlifting program, says Christie Smythe, an author writing a book about Mr. Shkreli who has visited him several times in prison. He can now do 15 push-ups in a row.
He has seen a prison therapist and taken on the job of caring for prison cats. He occasionally argues with his cellmates about proper grammar.
“The guards still mispronounce his name repeatedly, which he thinks is on purpose,” Ms. Smythe says. Based on testimony at Mr. Shkreli’s congressional hearing in 2016, the “h” is nearly silent.
Martin Shkreli Steers His Company From Prison—With Contraband Cellphone
Banned by Twitter for lewd missives, Mr. Shkreli frequently tweeted in prison from his new account at would-be foes such as Rep. Alexandria Ocasio-Cortez, a Democrat, and Twitter Chief Executive Jack Dorsey. The account, which was deleted Tuesday, included the profile description “scaffold hopper,” an apparent reference to a process for discovering new drugs in medicinal chemistry.
“Here we go with the virtue signaling and white male shaming. @jack walks right into it, apologizing for making billions of dollars,” he wrote on Feb. 12, in response to a chain involving Mr. Dorsey.
Despite being behind bars, he has worked to consolidate control of the company. He advised on two offers in 2018 to buy shares from existing shareholders at a steep discount. Some investors took the deal, while others held out in the belief that they could make more in a sale to a third party.
As of the end of September, Phoenixus had $37.7 million of cash, according to the company’s private third-quarter financial statement. It reported $48.3 million of sales for the year to date, with a $10.3 million net loss after operating expenses including $9.4 million spent on unspecified “research and development,” the statement says.
Mr. Shkreli recently oversaw a series of Phoenixus deals it hopes will lead to new cash cows like Daraprim, people familiar with the matter say. In September, it signed a commitment to provide $20 million to Orphan Star Therapeutics LLC to work on drug candidates for several rare diseases, according to people familiar with the deal. Orphan Star’s public announcement didn’t name Phoenixus and the company didn’t respond to a request for comment.
In January, Phoenixus told shareholders it licensed one of its drugs to Seelos Therapeutics , receiving $1.5 million and 250,000 shares in Seelos.
Investors were given little information about the deals, they say. Seelos didn’t comment.
“We suspect a lot of self-dealing,” Mr. des Pallieres says, citing Mr. Shkreli’s checkered history. He is banding together with other investors to push for more insight into the company’s operations, and to force a sale.
Mr. Shkreli isn’t getting out of prison anytime soon, but he may be running out of time to control Phoenixus. He needs to repay at least $7.6 million to the federal government as part of his sentence, pending appeal. Court filings show he has only $5 million in cash, meaning he may need to sell shares in Phoenixus to pay the bill, paring his voting power. He was earlier ordered to forfeit his one-of-a-kind Wu-Tang Clan album and a Picasso painting.
Retrophin is pursuing a civil lawsuit against Mr. Shkreli, seeking to recover cash and shares he used to repay his original hedge-fund investors without authorization, court records show.
At Fort Dix, Mr. Shkreli recently lost patience yet again with his executives. At year-end, Mr. Mulleady put in for a seven-figure pay increase. Mr. Shkreli, who has been generous with fellow prisoners and even paid their poker debts, was livid. He phoned the chief executive, who was on an African vacation with his new fiancée, to fire him, a person familiar with the matter said. Mr. Shkreli later agreed to make it a suspension.
Mr. Mithani, the Phoenixus board member, declined to say who was now acting as chief executive of the firm.
Martin Shkreli walking in Brooklyn before his conviction.
Martin Shkreli walking in Brooklyn before his conviction. PHOTO: VICTOR J. BLUE/BLOOMBERG NEWS