Investors sue company rescued by Shkreli for return of $5 million

SAN FRANCISCO (Reuters) - Investors who backed a biotechnology company led by executive Martin Shkreli are suing to get back the $5.4 million they had invested just hours before his arrest, according to court papers.

Martin Shkreli, chief executive officer of Turing Pharmaceuticals and KaloBios Pharmaceuticals Inc, departs U.S. Federal Court in New York December 17, 2015. REUTERS/Lucas Jackson

Shkreli took control of KaloBios Pharmaceuticals Inc in November, saving the company from closing down. He became its chief executive on Nov. 20.

As part of Shkreli’s rescue, the company reached a deal with three individuals and two funds to invest $5.4 million in it under an agreement that KaloBios said was completed on Dec. 16.

On Dec. 17, Shkreli was arrested for allegedly engaging in a Ponzi-like scheme at his former hedge fund and Retrophin Inc, a pharmaceutical company he previously headed. KaloBios’ outside counsel, Evan Greebel, was also arrested, and on Dec. 29 KaloBios filed for bankruptcy.

The investors said KaloBios lied when it told them it and its officers were not subject to any pending investigation that could have a material impact on its business, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware.

According to court papers filed by the company on Monday, Shkreli owns about 47 percent of KaloBios stock and 26 percent is held by the investors suing the company: Gregory Rea, RTAT LLC, Edward Painter, Nancy Retzlaff and Armistice Capital Master Fund Ltd.

“KaloBios, through Shkreli, its outside counsel and potentially others, knew or should have known about the FBI investigation, the gravity of the potential charges, and the fact that Shkreli’s and its outside counsel’s arrest was imminent,” the investors said in court papers.

They are seeking a return of their money.

Shkreli gained notoriety when as chief executive of Turing Pharmaceuticals he raised the price of a drug used to treat a dangerous parasitic infection to $750 a tablet from $13.50. He resigned as Turing’s CEO on Dec 18.

KaloBios said the investors were all friends and associates of Shkreli who purchased its stock with full knowledge of the investigation of Shkreli.

The case is In re KaloBios Pharmaceuticals Inc in U.S. Bankruptcy Court for the District of Delaware, Case No. 15-12628.

Reporting by Jim Christie; Editing by Dan Grebler