When Federal authorities froze the $45 million account of vilified health care investor Martin Shkreli, they are likely to be keeping an eye on the account’s equity level closely as shares of his primary asset, KaloBios Pharmaceuticals, Inc., could fall significantly in value as criminal charges and lawsuits swirl around Shkreli, potentially implicating those around firm management to various degrees.
Federal authorities freeze Shkreli investment account
Court documents reveal that, as of January 6, 2016 the “Shkreli E*TRADE Account” was valued at $45 million, $5 million of which is being used as bond collateral in case the man accused of securities fraud flees the jurisdiction. The court documents instruct E*TRADE to notify the United States Attorney’s Office for the Eastern District of New York if the account dips below $5 million in assets, and Shkreli is prohibited from many any transfers or sales out of the account. Shkreli overall account value could be as high as $68.1 million based on the stock value of a 70% stake when trading was halted. If the stock value returns to investment values before Shkreli’s stake was known, the value could dip below $5 million.
One sale Shkreli, 32, might be forced to make is his reported stake in KaloBios, the value of which is currently uncertain as trading in the stock was halted Dec. 16, 2015 and price discovery cannot take place.
KaloBios value skyrockets after Shkreli takes control
The rapid stock price increase following the announcement of Shkreli’s involvement was attributed to the potential for KaloBios to use its “pricing power” to raise the price of its drugs significantly and a potential short squeeze that was created when purchasing the stock and absorbing liquidity tipped the supply and demand scales, which some reports had speculated created an inflated stock price as a result. Shkreli is perhaps most famous for purchasing Turning Pharmaceuticals and raising the price of a life-saving aids drug by 5,500% and investors had initially assumed he would engage in similar tactics at KaloBios.
Shkreli purchased KaloBios stock in mid-November when it was trading under $2 per share. Late on Nov. 18 the stock, trading at $2.07 just before the announcement, it steadily rocketed higher to $39.50 on Nov. 23 soon after the company announced Shkreli had purchased “more than a 50% stake.” He was later reported to have acquired a 70% stake in the firm, owning near 2.887 of the 4.124 million shares outstanding. “Our board of directors is prepared to entertain any constructive proposal, which we will act upon promptly. Addressing short-term cash needs is our first priority, and we continue to be open to further dialogue,” Ronald Martell, Executive Chairman of KaloBios, said at the time.
Shkreli KaloBios value rises from $5.98 million to $114 million in near a week, then drops to $68.1 million
When Shkreli was walking a free man on Nov. 18, with KaloBios shares trading at $2.07, a 70% stake was worth nearly $5.98 million. Momentum would quickly build heading into the Thanksgiving Day holiday weekend, the stock price rose to $39.50 for a brief moment. At that point 2.887 million shares would have been valued at near $114 million, assuming Shkreli did not leg into his position.
How life changes.
On December 16, with Shkreli under investigation and soon to face a perp-walk in handcuffs, trading in KalaBios was halted at trading at $23.59. At that point a 70% stake would have been valued at near $68.1 million. He was forced out at the firm just days later.
Last month, before he was placed in custody, Shkreli was reported by Bloomberg to have purchased exclusive rights to the rap album “Once Upon a Time in Shaolin” from the band Wu-Tang Clan. The $2 million Shkreli paid for the only copy of the album was often used as fodder to highlight how Shkreli’s success raising drug prices led to such unique behavior, none of which is the subject of the criminal charges against him, which center on his defrauding hedge fund investors.