WEST PALM BEACH, Fla. — Negligent
lawyers were “driving the bus” when the board of directors of
Dyadic International made fateful decisions in 2007 that sent the
biotech company barreling toward the financial cliff, a witness told
jurors last week.
As the Greenberg Traurig legal-negligence trial
went into its fourth week, attorneys for plaintiff Dyadic continued
to put witnesses on the stand in an attempt to show that Greenberg’s
legal advice to the biotech firm a decade ago sent its net value
plummeting and upended timely opportunities to seal
Greenberg attorneys at that time
advised the firm to halt trading on the American Stock Exchange,
declare that its previous financial statements were not reliable and
put its chief executive officer, Mark Emalfarb, on leave. All this
was to precede the investigation of anonymous whistleblower
allegations of fraud and financial improprieties at Dyadic’s Hong
Kong subsidiary, Puridet.
“We were stampeded into the whole
process,” said Dyadic board of directors member Steven Warner, who
eventually voted to terminate Emalfarb, but not for cause, based on
Greenberg’s legal advice.
Warner characterized Puridet as an
irrelevant part of Dyadic’s overall business. At one point in his
testimony, he attributed the company’s problems in April 2007 to
financial-disclosure rules and auditors who were more interested in
protecting themselves rather than the company.
“It could be
washed away by a tsunami, and it wouldn’t have been material,” he
testified about the financial importance of Puridet.
he was incredulous about Greenberg’s advice about putting Emalfarb
on leave and initially thought that declaring the financials
unreliable was premature. But even so, he and other board members
relied on Greenberg’s guidance to comply with the appropriate
financial laws and rules, he said.
“Greenberg Traurig was very
insistent that this was part of the procedure of such a situation,”
Defense attorney Stuart Singer played videotaped
testimony of Warner that indicated the Dyadic board didn’t always
follow Greenberg’s advice. In the video, Warner said the board had
declined to pursue forensic accounting in the Puridet investigation,
despite Greenberg’s recommendation to carry out such a
Singer also suggested during cross examination that
allowing people to invest in the company based on inaccurate
financial statements could have been the basis for a class-action
Also testifying last weeka was Anna Kazanchyan, a medical
doctor who is also an expert on the biotech industry and an equity
research analyst. As a result of the company’s downward spiral in
April 2007 as the Puridet revelations became known, Dyadic lost out
on making deals and investments worth $813 million, Kazanchyan
She agreed that prior to the whistleblower incident, Dyadic
could be termed “The Little Engine That Could,” based on the
potential of its proprietary technology to cheaply and efficiently
produce biofuels and pharmaceuticals.
Saying that timing is
everything for biotech companies, Kazanchyan described the 2007-08
period as the golden age for biotechnology investments. The events
precipitated by the Greenberg advice meant Dyadic missed the boat on
the investment boom, she said.
Under cross-examination, however,
Kazanchyan acknowledged that only one out of 200 biotech firms are
profitable at any given time. Moreover, hundreds of millions of
dollars in biotech-deal opportunities were available in the years
before and after the 2007 events, she said.
Kazanchyan was also
unable to point to a single contract, letter of intent or term sheet
involving Dyadic during the 2007-08 period, suggesting that no deal
was on the horizon.
The case had webcast coverage provided
by Courtroom View Network.