How Martin Shkreli’s Price Gouging Scandal Led to Stricter Laws for Drug Pricing

In 2015, Martin Shkreli captured national headlines when he raised the price of a life-saving medication by 5,000%—from $13.50 to $750 per pill. But the audacious price hike wasn’t what ultimately landed him behind bars.

The real story involves a web of deception spanning multiple companies, millions in misappropriated funds, and a brash personality that loved to court controversy. This is the story of how a former hedge fund manager’s pharmaceutical scheme unraveled, revealing his criminal fraud while also helping to change how drugs are priced in America.

The Setup: From Wall Street to Pharma

After founding two hedge funds—MSMB Capital and MSMB Healthcare—Shkreli established himself as an aggressive investor targeting the healthcare sector. At Retrophin in the early 2010s, he gained a reputation for controversial tactics—using company funds for private investigators and creating a hedge fund within Retrophin that wasn’t company authorized—resulting in his termination as CEO.

He then launched Turing Pharmaceuticals in 2015, targeting overlooked medications. This gave Shkreli control over drug pricing, setting the stage for his most notorious actions.

The Scheme: The $750 Pill and Securities Shell Game

Daraprim, FDA-approved in 1953 to treat toxoplasmosis, a parasitic infection, was a low-profile drug until Turing’s acquisition granted it exclusive rights to distribution. After securing those rights, Turing raised the price from $13.50 to $750 per tablet—an increase of more than 5,000%—putting the drug out of reach for many patients. Shkreli contended that revenues from the drug would fund development of better formulations, but critics noted no transparent R&D plans.

Behind the scenes, Shkreli had been engaging in securities fraud, using Retrophin funds to pay investors he had defrauded through his failed hedge funds.

The Unraveling: Congressional Hearings and Criminal Charges

Despite his removal as Retrophin’s CEO, venture capitalists still backed Shkreli’s next venture. News of the Daraprim repricing generated widespread condemnation on social media, where Shkreli’s provocative posts and media appearances fueled further outrage. “I would have raised prices higher,” Shkreli told a Forbes healthcare conference in late 2015. “That’s my duty”—presumably to company shareholders, whom he was also defrauding.

In December 2015, Shkreli was arrested for securities fraud. His February 2016 testimony to the U.S. House Oversight Committee—he smirked continually, though he invoked the Fifth—gained him still further infamy.

In March 2018, a jury convicted him on two counts of securities fraud and one count of conspiracy. Before sentencing, a sobbing Shkreli told a Brooklyn federal court judge he was to blame for his predicament, despite years of claiming otherwise. Speaking of himself in the third person, he said, “I took down Martin Shkreli with my disgraceful and shameful actions.”

The judge then sentenced him to seven years in prison—half the time sought by prosecutors—and ordered a $7.4 million forfeiture of assets he gained from his crimes.

The Legacy of the Case

While Shkreli was never criminally charged for price-gouging, his high-profile notoriety sparked pharmaceutical pricing reforms:

• Several states passed anti-price-gouging legislation and price transparency requirements.
• The U.S. Department of Health and Human Services mandated in 2018 that direct-to-consumer ads for drugs costing over $35 per month display list prices.
• In 2019, Congress passed the CREATES Act to dismantle distribution barriers that delayed generic competition, directly addressing tactics Shkreli had employed.
• The pharmaceutical industry has become more cautious about dramatic price increases. Annual price hikes of about 10% have come down to about 4%.

The Bottom Line

Shkreli’s Daraprim pricing controversy became a watershed moment in pharmaceutical policy, triggering new legislation and drawing attention to the outsized increases in the prices that Americans pay for pharmaceuticals.