Greenberg defense witnesses fault CEO for firm's plight

By Michael Carroll | Feb 19, 2017

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.

The 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 & Young.

“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 jurors.

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.

“I think 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.

Neal Wolkoff, 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, Wolkoff said.

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.

Concerns 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.

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