Health and Science

Martin Shkreli sues investor over $420,000 debt that the 'Pharma Bro' owes the man's dad

Key Points
  • Notorious "Pharma Bro" Martin Shkreli filed suit in federal court against a Florida man, accusing him of fraudulently inducing Shkreli into signing a promissory note that has left him owing $420,000 to the man's father.
  • Shkreli is waging his legal battle from a federal prison in Pennsylvania, where he is serving a seven-year fraud sentence.
  • Shkreli gained infamy in 2015 for hiking the price of a drug called Daraprim by more than 5,000% while running another drug firm then known as Turing Pharmaceuticals.
Former pharmaceutical executive Martin Shkreli departs the U.S. District Court for the Eastern District of New York, August 3, 2017 in the Brooklyn borough of New York City.
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Notorious "Pharma Bro" Martin Shkreli on Friday filed suit in federal court in Brooklyn against a Florida man, accusing him of fraudulently inducing Shkreli into signing a promissory note that has left him owing $420,000 to the man's father.

Shkreli is waging his legal battle from a federal prison in Pennsylvania, where he is serving a seven-year fraud sentence for crimes related to hedge funds he previously ran and to a drug company he founded, Retrophin.

Shkreli gained infamy in 2015 for hiking the price of a drug called Daraprim by more than 5,000% while running another drug firm then known as Turing Pharmaceuticals. Turing is now called Phoenixus.

His new lawsuit case stems from a civil judgment against Shkreli last December in New York state court, which said he owed a Massachusetts man named George Yaffe for having failed to pay Yaffe off on a $250,000 promissory note that Shkreli signed in 2012.

The note provided for annual interest compounded at a rate of 8%.

Yaffe's lawsuit said Shkreli signed the note after keeping a $100,000 investment Yaffe had made in one of Shkreli's hedge funds in 2007 at the suggestion of Yaffe's son, Lee, who lives in Florida. Lee Yaffe at the time was friendly with Shkreli.

George Yaffe's suit said that Shkreli in 2007 and 2008 had failed to respond to his requests for information about his investment's performance, and that Shkreli in 2008 told Yaffe in an email that he "might have to give back money to your dad-it's about 125k fyi sorry about the miscommunication or lack of it appreciate your trust."

Martin Shkreli gets 7 years
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Martin Shkreli gets 7 years

With compounded interest, Shkreli's debt under the note is more than $420,000.

George Yaffe now is seeking to collect on that judgment from Shkreli. In turn, Shkreli is pursuing an appeal of the judgment.

On Tuesday, a hearing is scheduled on the question of whether Shkreli should be deposed by George Yaffe's lawyers while he is still pursuing an appeal of the judgment, and of his criminal conviction. Yaffe's lawyers want to ask him about assets and financial accounts as they seek to collect on the judgment.

Brianne Murphy, who is representing Shkreli in that case, declined to comment.

Shkreli's new federal court lawsuit is against Lee Yaffe.

In that suit Shkreli claims that George Yaffe "lost" his money because of poor performance of Shkreli's fund, and that Shkreli "had no legal obligations to pay any money to George Yaffe."

Shkreli's suit, which alleges fraud, claims that Lee Yaffe falsely advised Shkreli that making the $250,000 promissory note was the "right thing" to do and that Shkreli should "man up."

The suit says the note is "invalid as a matter of New York law because it was given for no consideration and was not given as payment of an antecedent obligation or debt."

"The promissory note also included usurious compound interest that is invalid under New York law," the suit said.

"As a result of Lee Yaffe's fraud, Mr. Shkreli has a $420,000 judgement against him," the suit said. Shkreli is asking for monetary damages "to be determined at trial."

Debra Guzov, a lawyer for George Yaffee, who said her firm is likely to be retained by Lee Yaffe in the new case, told CNBC that Shkreli "has filed what amounts to a frivolous lawsuit" against Lee.

"He's saying he was duped," Guzov said, referring to Shkreli's claim.

She called that claim "ironic," because "the note in question was prepared by Martin Shkreli, so he's complaining about a document that he actually drafted."

Edward Kang, a lawyer for Shkreli in the Brooklyn federal suit, declined to comment, saying that the lawsuit spoke for itself. George and Lee Yaffe did not immediately return a call requesting comment.

Lee Yaffe testified at Shkreli's criminal trial that Shkreli proposed to pay him off for his father's investment in the hedge fund known as Elea by giving Lee Yaffe a $200,000 consulting deal with Retrophin and 15,000 shares in Retrophin stock. Lee Yaffe testified that the agreement, for "research on cluster headaches," was a sham.

He signed a non-prosecution agreement with authorities and also agreed to pay back $355,000, which represents his cash payments under the consulting deal, the Retrophin shares he received and the investment returns on those shares.