Martin Shkreli

Retrophin ($RTRX), a biotech founded by former hedge fund manager Martin Shkreli, is suing its former CEO for more than $65 million in damages, alleging he mismanaged the company's funds to settle personal debts, reward his friends and keep afloat his flailing investment firm.

The company's board fired Shkreli last year and has since been assessing the damage he did while at the helm, according to a lawsuit filed Monday in a New York district court. Through a series of schemes, Shkreli pocketed more than $5.6 million in undeserved cash from the company and obtained or used about $59 million worth of Retrophin shares, the lawsuit alleges.

The story centers on MSMB Capital Management, a hedge fund founded by Shkreli in 2009, whose gradual failure led the CEO to raid Retrophin's coffers, the company said.

In 2011, MSMB made a "disastrous" investment in Orexigen ($OREX), losing more than $7 million and becoming "virtually bankrupt," according to the lawsuit. Instead of telling his investors he'd lost their money, however, Shkreli formed a healthcare-focused offshoot of MSMB to bring in more cash and keep trading, the suit alleges. A year later, Shkreli told MSMB's clients that he was dissolving the fund to focus full-time on Retrophin, founded in 2011, and that they could redeem their investments in either cash or stock in his new company.

But that wasn't true, according to the lawsuit, and when MSMB's creditors came calling, Shkreli used a series of self-deals, falsified documents and extra-legal maneuvers to transform Retrophin into a personal bank that could clear his firm's debts and line his pockets, the company claims.

When 10 MSMB investors threatened to sue Shkreli over unrecouped investments, he got Retrophin to pay them more than $2.7 million in cash and hand over nearly 600,000 shares, the lawsuit said. And when Merrill Lynch, MSMB's partner in the "disastrous" trade, sued the firm over unpaid debts, Shkreli got creative to generate capital, according to the suit. MSMB had made a $900,000 equity investment in Retrophin, but Shkreli realized he could create some cash by recharacterizing that bet as a loan, and one that accrued interest, thus expropriating his company's money to pay his defunct investment firm's debts, according to the lawsuit.

The suit goes on to accuse Shkreli of doling out Retrophin shares to his friends, profiting off of the company's fundraising, striking sham deals to appease MSMB investors and using company assets to pay his personal debts, all without board approval. Retrophin also digs up allegations from 2014 that claim Shkreli tried to intimidate a former MSMB employee, telling his wife in a letter that "I hope to see you and your four children homeless and will do whatever I can to assure this," and reaching out to the ex-worker's teenage sons on Facebook to say their father "betrayed" and "stole $3 million from me."

Now Retrophin wants back every dollar Shkreli made off of the company, including salary, stock and options, plus more than $65 million in damages tied to the MSMB dealings and shares worth about $2.9 million.

Shkreli declined to comment on the lawsuit but characteristically took to Twitter with a "yeah whatever," an implication that he was planning a $150 million suit of his own and an invocation of the Wu-Tang Clan.

Since departing Retrophin last year, Shkreli founded Turing Pharmaceuticals, a privately held company developing a few assets the CEO bought from his last venture. Last week, Turing announced a $90 million fundraise to accelerate its work on treatments for rare diseases, with Shkreli playing the role of lead investor.

- read the lawsuit