WEST PALM BEACH — The chief executive of a Florida biotech company told jurors this week that an attorney with the Greenberg Traurig law firm pressured him to resign from his post in 2007, after which the company went into a financial tailspin that saw its net worth allegedly drop by more than $180 million.
“It’s like I had to throw myself on a sword for no reason because he wouldn’t stop,” Dyadic International CEO Mark Emalfarb testified during the legal malpractice trial. “He just kept pressuring me. … It’s insane what went on with these people.”
Emalfarb received advice from Greenberg attorney Robert Schwimmer and recommendation from his company’s former board of directors to take a leave of absence in April 2007. The action came after Emalfard disclosed that he had received anonymous whistleblower emails in 2007 describing alleged financial fraud at Dyadic’s Hong Kong subsidiary, Puridet.
As a result, the public company moved to seek Emalfarb’s resignation, temporarily halted trading on the American Stock Exchange and issued a press release that said its previous financial statements were unreliable. Dyadic is now suing Greenberg for damages of up to $700 million for providing negligent legal advice.
The trading halt sapped investor confidence, and the company found itself unable to make lucrative deals with major players in the ethanol fuels market, Emalfarb said.
“Basically, he’s telling me, you either do what I tell you or your baby’s going under the bus,” he told jurors. “And it’s going to go broke – the thing I’ve spent my life building.”
Emalfarb's work with attorneys and accountants in previous years had led him to conclude that the Asian subsidiary’s problems, which include cash dealings, keeping two sets of books and an alleged failure to pay a value-added tax, had been resolved before Dyadic became a publicly traded company in 2005.
“It was ancient history and a dead dog in the sun,”
After forming a group that controlled 52 percent of the company’s stock, Emalfarb returned as Dyadic CEO but by then the company had been “completely destroyed,” he said.
“All the business opportunities just evaporated, and we were toxic,” Emalfarb said.
He added that Dyadic’s interim management had hindered its ability to partner with large companies that wanted to use more efficient biotechnology to create ethanol for fuel.
“Everyone else is doing deals while we were sitting there in the penalty box,” he said.
Greenberg defense attorney Stuart Singer pointed out that the previous Dyadic board terminated Emalfarb with cause because he had been concealing information related to Puridet. The board concluded that the CEO knew that a “sham entity” controlled by Puridet called South Dragon had been engaging in activities that led to inaccurate financial statements, Singer said.
An investigation by the Miami firm Moscowitz & Moscowitz supported that conclusion, but Emalfarb countered.
“We didn’t feel the Moscowitz report was worth the paper it was written on,” he said.
Throughout his cross-examination, Singer played previous video clips of Emalfarb making statements at odds with his trial testimony. At one time, Emalfarb said he might have told Puridet personnel that whistleblower emails he received had no merit, while on another occasion Emalfarb said he would not have said that to Puridet personnel.
“So which is it?” Singer asked.
“Take your pick,” Emalfarb replied.
Emalfarb also acknowledged that almost all of the Dyadic senior management resigned when Emalfarb returned to head the company. In contrast to the notion that the company had been “destroyed,” it was posting similar levels of gross profits and net revenues from 2005 through 2008, documents presented by Singer said.
The defense attorney also suggested that Emalfarb could have done more to get to the bottom of events taking place at Puridet, such as hiring a private investigator or firing the subsidiary’s chairman.
“I believe I did more than what was reasonable,” Emalfarb said.