A financial scandal at biotech company Dyadic International offers a telling lesson about how whistleblower memos can come back to haunt the executives who ignore them.
Dyadic’s internal dirty laundry first came to light at the company last April, when then-CFO Wayne Moor went to the company’s Asian subsidiary to pick up the pieces after the unexpected death of an executive. While there, he learned of accusations about tax fraud and kickbacks that had been made against other executives — allegations that a whistleblower had first presented in late 2003 and 2004 to founder and CEO Mark Emalfarb.
By the end of the month, Emalfarb took a leave of absence after the company realized that he had not shared with others at the company the initial emails that had been sent to him four years ago, alleging impropriety. Emalfarb was fired in September, and Moor has since taken his place as CEO.
Now, the Jupiter, Fla.-based company is coming forward with more information about its internal problems by releasing a 554-page report from law firm Moscowitz & Moscowitz, which conducted an independent investigation for Dyadic last year. The company is ensnarled in a messy battle with Emalfarb over claims that he is owed money, over his rights as a director (a position he still holds), and over lawsuits from shareholders, some of whom want Moor to resign. Emalfarb’s attorney did not respond to CFO.com’s request for comment, and Emalfarb himself could not be reached.
Dyadic decided to release the report, dated August 2007, this week because any attorney-client privilege concerns that it had about making the document public likely have been “compromised,” the company said. Over the past several months, the company has released parts of the report to answer inquiries by various parties. The company is also releasing it to clear up any misinformation about what the report actually says.
“After due consideration, the executive committee, with the concurrence of the audit committee, concluded that it was in the best interests of stockholders to make the Moscowitz Report available for review by all the company’s stockholders,” Dyadic said in a press release.
Along with Moscowitz’s evaluation of what went wrong at Dyadic’s subsidiary, Puridet Ltd., are 2007 whistleblower e-mails sent to Emalfarb, information pulled from interviews with Emalfarb and other Dyadic employees, and other correspondence dating back to the late 1990s.
According to the report, in April 2007 Emalfarb forwarded on to Moor a number of e-mails in which an anonymous source had alleged improprieties, including the creation of a dummy company, by Puridet’s managers. Three days later, Emalfarb revealed that he had heard of similar allegations nearly two years earlier, but that he had not shared them with the board, company auditors, or outside counsel. Concerned about this new information, Moor told the company’s external attorneys and the board about the concealed emails, the report says.
Emalfarb founded Dyadic in 1979. It went public in October 2004, and wasn’t subject to the Sarbanes-Oxley Act’s whistleblower-protection provision until that time. However, the Moscowitz report notes, the company should have investigated the allegations because of their serious nature.
Moor and his successor CFO, Lisa De La Pointe, certainly have their hands full after taking over the top spots at Dyadic last year. The company was delisted from the American Stock Exchange in December, and it has not been current with its regulatory filings.