For the last four months, Martin Shkreli has found himself at the center of one controversy after another, most related to the 5,000 percent price hike of Daraprim, a lifesaving drug that his company acquired in September. But his arrest on Thursday was the outcome of a different kind of scandal.

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On Thursday, federal law enforcement officials arrived at Shkreli's Manhattan apartment and arrested him on charges of securities fraud. The Securities and Exchange Commission alleged that Shkreli had "misappropriated money from two hedge funds he founded and made material misrepresentations to investors among other widespread misconduct."

Shkreli's plot was similar to Bernie Madoff, who was convicted of securities fraud, wire fraud, and money laundering (among other charges) in 2009. Madoff ran your classic Ponzi scheme: when his investment fund lost money, Madoff merely found new investors, took their money, and then redirected it to the old investors, giving off the impression that the fund was successful. Of course, the house of cards eventually failed, and Madoff became a symbol for Wall Street greed during the financial crisis at the end of the last decade.

Before he became the CEO of Turing Pharmaceuticals—the company behind the Daraprim price hike—Shkreli was a hedge fund manager. Still in his 20s, he raised $3 million from nine investors for MSMB Capital Management, a hedge fund he founded in 2009. But after making a bad bet on a therapeutics company, he ended up owing Merrill Lynch $7 million, Bloomberg Business reports.

Unable to pay the debt, he managed to reach a $1.35 million settlement. Authorities said that he was able to do this, in part, by using money from the next firm he founded, MSMB Healthcare, which raised $5 million in investments. The process of using funds from new ventures to pay off past debts was part of a theme, outlined in the SEC complaint and federal indictment.

"Shkreli essentially ran his company like a Ponzi scheme where he used each subsequent company to pay off defrauded investors from the prior company,” Brooklyn U.S. Attorney Robert Capers said at a press conference on Thursday.

In 2011, Shkreli started Retrophin, a biotechnology company, and he allegedly used assets from the firm to pay off unhappy investors who had lost money at his hedge funds. Retrophin's board ousted Shkreli as CEO last year and filed a lawsuit against him in August. The company claimed that Shkreli mishandled money and established "sham consulting arrangements" as a way to redirect Retrophin funds.

"As his losses mounted, so did his lies," Bloomberg Business reports. "He fabricated portfolio statements and, with his lawyer's help, deceived the SEC and outside accountants. He backdated records, manufactured a phony loan agreement between Retrophin and a hedge fund, and created sham consulting agreements with Retrophin as a way to route the company’s cash to his earlier investors."

Shkreli dismissed the company's allegations as false and said it was only suing him in an effort to avoid paying his severance.

"The $65 million Retrophin wants from me would not dent me," Shkreli said. "I feel great. I’m licking my chops over the suits I’m going to file against them."

Then, earlier this year, Shkreli launched Turing Pharmaceuticals, which is best known as the company that acquired a lifesaving drug and raised its price from $13.50 to $750 per pill. The pharmaceutical executive came under fire for the price hike; under pressure, he vowed to lower the price but later changed his mind and then moved on to his next project.

Shkreli led a group of investors to acquire 70 percent of a drug company called KaloBios Pharmaceuticals, which then named Shkreli its CEO. He planned to raise the price of another lifesaving drug, benznidazole, which KaloBios bought for $2 million.

But in the midst of these drug pricing scandals, federal investigators at the SEC and FBI were looking at the bigger picture: a Ponzi-like scheme five years in the making. The arrest on Thursday had nothing to do with Daraprim or benznidazole. Rather, it concerned Shkreli's financials dealings as a hedge fund manager.

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"Shkreli was charged with securities fraud, securities fraud conspiracy and wire fraud conspiracy," Reuters reports. "The maximum sentence for the top count is 20 years in prison."

He was released from custody on Thursday afternoon after making $5 million bail. ATTN: reached out to Shkreli for comment, but he could not be reached by the time of publication.