Pharmaceutical executive Martin Shkreli, best known for significantly raising prices on drugs ealrier this year, was arested Thursday morning on fraud charges from previous work at a hedge fund. WSJ's Ashby Jones has details on Lunch Break With Tanya Rivero. Photo: AP

MARTIN Shkreli, the former hedge fund manager under fire for buying a pharmaceutical company and ratcheting up the price of a lifesaving drug, is in custody following a securities probe.

It is alleged he illegally used stock from biotechnology firm Retrophin to pay off debts related to his struggling hedge fund and to pay back angry investors.

Shkreli, 32, has denied these allegations.

His arrest was not linked to the 5000-per cent increase in the price of Daraprim, a drug used to treat malaria and infections suffered by HIV-positive individuals.

The FBI said he was targeted instead in an $US11 million embezzlement probe at another company he once led, Retrophin.

“As alleged, Martin Shkreli engaged in multiple schemes to ensnare investors through a web of lies and deceit,” said Robert Capers, US Attorney for the Eastern District of New York.

“His plots were matched only by efforts to conceal the fraud, which led him to operate his companies, including a publicly traded company, as a Ponzi scheme, where he used the assets of the new entity to pay off debts from the old entity.”

The former hedge fund manager is accused of cheating investors and the company out of $US11 million in what the FBI described as a “securities fraud trifecta of lies, deceit, and greed.”

He was also charged by the Securities and Exchange Commission.

“Over a five-year period, Shkreli is alleged to have perpetrated a series of frauds on investors in his hedge funds and Retrophin’s shareholders in order to cover up his poor trading decisions,” said Andrew Ceresney, director of the SEC’s enforcement division.

Shkreli is accused of siphoning about $US120,000 from one of the hedge funds to pay for food, clothing, rent and other personal expenses.

He’s also accused of lying to investors about one of the fund’s size and performance by claiming returns of nearly 36 per cent when it had really generated a loss of 18 per cent and saying the fund had $US35 million in assets when it really had less than $US7000.

He allegedly stole $US900,000 in 2013 from one of the funds to settle with a broker who was suing him and stole more money to pay off disgruntled investors who were threatening legal action.

Also arrested was Evan Greebel, a lawyer who was outside counsel to Retrophin.

Shkreli, 32, gained notoriety in September when his company, Turing Pharmaceuticals, raised the price of Daraprim from $US13.50 a tablet to $US750 after acquiring the drug.

The move was angrily denounced by US politicians.

“Price gouging like this in the specialty drug market is outrageous,” Democratic frontrunner Hillary Clinton said on Twitter, vowing to fight runaway drug prices.

Turing later announced that while it would not lower the drug’s per tablet price, it would negotiate agreements with health groups on wholesale prices.

Shkreli specialises in buying patents on inexpensive drugs and then hiking their price.

In November, he gained control of another drug company, Kalobios Pharmaceuticals, whose stock price plummeted on Tuesday on news of his arrest, falling 53.24 per cent to $US11.03 before trading was suspended.

Reveling in controversy, Shkreli made waves earlier this month by buying a secret Wu-Tang Clan album for $US2 million, “Once Upon a Time in Shaolin.

Rising pharmaceutical prices has become a topic in the upcoming US presidential race.