WEST PALM BEACH, Fla. — A biotech
company’s financial near-death spiral in 2007 was largely the fault
of its chief executive officer, not the attorneys advising the firm,
defense witnesses testified last week.
The Greenberg Traurig
legal-malpractice trial is now in its fifth week, with plaintiff
Dyadic International alleging that Greenberg’s legal advice cost
the company up to $700 million in lost business.
Gregory Yadley, a
former Securities Exchange Commission official and former assistant
general counsel for the Federal Home Loan Mortgage Corporation, told
jurors that Greenberg attorneys advising Dyadic acted with honesty,
balance and fairness. They gave the biotech firm advice a decade ago
on how to handle anonymous whistle-blower allegations.
allegations involved phony tax reporting and other alleged financial
wrongdoing at the company’s Asian subsidiary, Puridet. Greenberg
attorneys counseled Dyadic to stop trading on the American Stock
Exchange, to ask CEO Mark Emalfarb to take a temporary leave of
absence and to publicly declare that its previous financial
statements were not reliable.
Yadley stressed that the seriousness
of the whistleblower emails sent to Emalfarb in 2007 were affirmed by
an initial investigation by company Chief Financial Officer Wayne
Moor, who spoke with Puridet employees while in Hong Kong, as well as
attorneys and representatives of the company’s auditors at Ernst &
“Moor seemed pretty coherent to me, and he did synthesize
all of his thoughts in a chronological memorandum that was provided
to the (Dyadic) Audit Committee,” the expert witness told
Plaintiff attorney Steven Katzman previously highlighted
email communications suggesting that Moor was sleep-deprived and
overworked while trying to get to the bottom of the Puridet financial
issues. The subsidiary had at times provided up to 40 percent of
Dyadic’s revenues, according to previous testimony.
Greenberg reasonably advised the board, and the board issued a press
release that in my judgment was appropriate,” Yadley said,
referring to Dyadic’s decision to disclose to investors the
potential financial irregularities.
Halting trading of the
company’s shares averted any possibility of insider trading, said
Yadley, who rejected the idea that Greenberg attorneys stampeded the
Dyadic board of directors to take drastic, unnecessary actions.
Ultimately, the news sent the company’s net value in free fall,
plaintiff witnesses previously said.
Katzman downplayed the
Puridet problems by showing emails from Moor that indicated the
alleged kickbacks and accounting improprieties did not change the
overall accuracy of Dyadic’s financial statements.
the American Stock Exchange CEO from 2005 to 2008, testified that
Greenberg attorneys’ recommendation to publicly disclose the
Puridet financial problems was reasonable and that federal securities
regulations required immediate disclosure of material financial
information involving whistle-blowing.
Wolkoff said he was aware
that an independent investigation of the Puridet allegations had
concluded Emalfarb had breached his fiduciary duties by not
disclosing previous whistleblower emails about Puridet operations in
2003 and 2004.
Amex would have halted trading based on the Puridet
disclosures even if the company had not asked for a voluntary halt,
Greenberg defense attorneys also played a videotaped
deposition by the former Dyadic science officer, Glenn Nedwin, who
said Emalfarb was aware of the financial fraud allegations at Puridet
in 2003 and 2004 and failed to inform Dyadic board members about it
when the company began trading publicly.
“He was aware of what
went on before, and he did nothing about it,” Nedwin said.
about potential financial fraud, combined with evidence showing that
Emalfarb solicited sex during business hours and while on business
trips, led him to view the Dyadic CEO’s behavior as reckless,
Nedwin testified on video.
“Mr. Emalfarb, you know, is not the
kind of character of a person that should be CEO of a public
company,” he said.
The case had webcast coverage provided
by Courtroom View Network.