February 3, 2016 / 1:32 PM / 4 years ago

Retrophin to pay $3 million in U.S. lawsuit over Shkreli's tenure

NEW YORK (Reuters) - Retrophin Inc has agreed to pay $3 million to resolve a lawsuit by investors accusing the pharmaceutical company of failing to disclose transactions that benefited former Chief Executive Officer Martin Shkreli, who has since been indicted for securities fraud.

Former drug executive Martin Shkreli (L) arrives with his lawyer Benjamin Brafman at the U.S. Federal Courthouse in the Brooklyn borough of New York February 3, 2016. REUTERS/Brendan McDermid

The proposed class action settlement, which also resolves claims against Shkreli, was filed in federal court in Manhattan on Friday and granted preliminary approval by U.S. District Judge Kevin Castel on Tuesday.

The $3 million settlement equals 7 percent to 10 percent of the $26 million to $41 million in likely recoverable damages, according to lead plaintiff Grachya Kazanchyan’s lawyers at Pomerantz LLP, who will seek $1 million in legal fees.

The lawsuit centers on many of the same allegations at the heart of the criminal case in federal court in Brooklyn against Shkreli, who founded Retrophin and was fired in 2014, the year the lawsuit was filed.

Prosecutors said Shkreli engaged in a Ponzi-like scheme, defrauding investors in his MSMB Capital Management hedge fund and misappropriating $11 million in assets from Retrophin to repay them.

The indictment came after Turing Pharmaceuticals, which Shkreli later headed, caused a public outcry by raising the price of a drug used to treat a dangerous parasitic infection to $750 from $13.50.

Shkreli, 32, has pleaded not guilty. He appeared in court on Wednesday and was expected at a congressional hearing on drug pricing on Thursday.

Retrophin, which continues to deny the lawsuit’s allegations, in a statement said it was pleased with the settlement, which a spokeswoman said insurance would cover.

Scott Vernick, a lawyer for Shkreli, said there was “no admission of wrongdoing or liability by Mr. Shkreli, and we are pleased to see that the matter has been resolved.”

A lawyer for the plaintiffs did not respond to a request for comment.

In the lawsuit, investors said Retrophin, its executives and directors failed to disclose millions of dollars worth of related-party transactions, including sham consulting agreements and settlements that benefited Shkreli and MSMB.

The lawsuit said Retrophin also made improper stock grants to employees without shareholder authorization, which investors only learned about when news reports in October 2014 attributed Shkreli’s termination to stock irregularities.

Retrophin in August filed a $65 million lawsuit against Shkreli, who was indicted in December.

The case is In re Retrophin Inc. Securities Litigation, U.S. District Court, Southern District of New York, No. 14-08376.

Reporting by Nate Raymond in New York; Editing by Lisa Von Ahn and David Gregorio

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