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The rise, infamy, and downfall of "pharma bro" Martin Shkreli, explained

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Martin Shkreli became one of the most hated men on the internet back in September when he raised the price of an essential drug, Daraprim, more than 5,000 percent. Shkreli seemed to revel in his notoriety, firing taunts right back at people who attacked him on social media.

This morning, federal officials arrested the entrepreneur at his apartment in Manhattan. And it appears the charges have nothing to do with the Daraprim price hike that made him infamous online.

Instead, Shkreli is charged with defrauding his investors. According to the federal indictment, Shkreli moved funds between companies he co-founded under false pretenses, effectively stealing millions from the investors of one company in order to settle legal disputes involving another company.

It’s a sudden and shocking downfall. And he’s not likely to get much sympathy from his legions of online haters.

Shkreli became infamous for charging astronomical prices for an essential drug

<a href="">Rich Howells</a>

Martin Shkreli. (Rich Howells)

Toxoplasmosis is a parasitic disease. It’s harmless in healthy people, but in those with weakened immune systems it can cause headaches, fever, fatigue, and seizures. Expectant mothers are particularly at risk, as toxoplasmosis can cause miscarriage.

Back in 1953, Nobel Prize–winning American scientist Gertrude Elion developed a drug called Daraprim, which can treat both toxoplasmosis and malaria. It’s included in the World Health Organization’s List of Essential Medicines — the basics required for any health system.

Until recently, Daraprim wasn’t very expensive. In 2014, a single pill cost $13.50 in the United States. Then a Shkreli company, Turing Pharmaceuticals, came onto the scene. Shkreli bought up the rights to Daraprim and immediately jacked up the price to $750 per pill.

The extortionate move caused national uproar. Unlike in the UK and Europe, US law allows drug companies to set their prices with little regulation. But that didn’t mean people had to like it.

Bernie Sanders publicly refused a $2,700 campaign donation from Shkreli. Donald Trump called him a "spoiled brat." People began to label him the "pharma bro." He’s become so toxic even PhRMA, the biotech industry group, has distanced itself from him.

Shkreli seemed to revel in this hatred. After Hillary Clinton criticized Daraprim’s pricing, he simply tweeted back, "lol."

He’s bragged about being the world’s most eligible bachelor and taunted DC lawmakers.

Shkreli outraged Wu-Tang fans by buying the only copy of their latest album

Isaiah Trickey/FilmMagic

(Isaiah Trickey/FilmMagic)

Earlier this year, the seminal rap group Wu-Tang Clan finished their seventh album, Once Upon a Time in Shaolin. A single copy of the recording was made, 31 new songs presented in a hand-carved wooden box with a price tag of $2 million.

"We’re about to put out a piece of art like nobody else has done in the history of music," RZA told Forbes. "We’re making a single-sale collector’s item. This is like someone having the scepter of an Egyptian king."

The album was sold through Paddle8, an online bidding agency, which organized private listening parties for prospective buyers in New York. When the buyer’s name was kept anonymous, fans speculated it might have been Quentin Tarantino.

No one was excited when it was revealed the buyer was Shkreli. It’s reported his favorite Wu-Tang song is "C.R.E.A.M," which stands for "Cash Rules Everything Around Me."

Shkreli is supposedly yet to listen to the album, saving it "for a rainy day." RZA has given away most of his proceeds from the sale in protest of Shkreli’s business practices.

Shkreli was arrested Thursday morning for securities fraud

While the public hatred was mostly focused on Shkreli’s arrogance and greed, it’s his creative accounting that may prove his real downfall.

Early Thursday he was led from his apartment in handcuffs, charged with misusing $11 million in company funds from Retrophin, a biopharmaceutical company he founded in 2011.

Before he became a notorious pharmaceutical executive, Shkreli was something of a Wall Street wunderkind. Starting as an intern at Mad Money host Jim Cramer’s hedge fund at age 17, he worked his way up to found three companies in his mid-20s — Elea Capital Management, MSMB Capital Management, and MSMB Healthcare. Then at just 28 years old, he shifted to pharmaceuticals, launching Retrophin.

In September 2014, Retrophin dumped Shkreli as chief executive and launched an investigation into his actions at the helm. Shkreli then founded Turing, the firm whose extortionate pricing for Daraprim made him famous. Meanwhile, Retrophin’s board found that Shkreli had used company funds to settle the debts of MSMB, which he’d left in financial ruin.

According to the federal indictment unsealed on Thursday, Shkreli and his outside counsel Evan Greebel orchestrated "three interrelated fraudulent schemes" between September 2009 and September 2014. The pair allegedly defrauded investors in MSMB Capital and MSMB Healthcare, before using funds from Retrophin to pay off both companies' debts.

In a filing with the Securities and Exchange Commission, Retrophin reported that Shkreli had used Retrophin funds to pay off former MSMB investors, as well as to settle personal lawsuits. According to the company, Shkreli fraudulently reclassified a $900,000 investment MSMB made in Retrophin as a loan. Shkreli then allegedly had Retrophin pay this "loan" back to MSMB — enabling the hedge fund to use the money to settle one of its many legal disputes. And while Shkreli founded both companies, that doesn’t give him the right to shift money between them without consent from the companies’ boards.

Between September 2013 and March 2014, 612,500 company shares were issued to former MSMB investors. While Shkreli described them as "consulting agreements," Retrophin now says that was a ruse. Rather, their purpose "appears to have been to settle and release claims against the MSMB Entities or Mr. Shkreli personally, and not to provide meaningful and sustained consulting services to the Company."

In August this year, Retrophin sued Shkreli for $65 million. The former chief quickly shot back, demanding $70 million from the firm and citing damage to his image as a businessman.

Even before Retrophin announced the findings of its internal investigation of Shkreli, there had been a criminal investigation underway by the US Attorney for the Eastern District of New York.

In January, Retrophin received a subpoena requesting "information regarding, among other things, the Company’s relationship with the MSMB Entities and Mr. Shkreli." In its SEC filings Retrophin made it clear that Shkreli, not the company itself, was the focus of the criminal investigation.

Share prices of KaloBios Pharmaceuticals, a company Shkreli recently acquired a majority stake in, fell 50 percent today before Nasdaq halted its trading indefinitely. Shkreli and Greebel, who was also arrested, are yet to comment or tweet about the charges.

On the internet, people have been having fun with Shkreli's arrest: