A Gaithersburg biotechnology company said yesterday it is investigating whether the son of its chief executive used funds from a joint venture in an attempt to buy $7 million in residential real estate and luxury automobiles.
Because of the inquiry, BioVeris Corp. said, it may not be able to file its annual 10-K financial results for the fiscal year ended March 31 by its June 29 due date.
The dispute involves BioVeris's joint venture with Meso Scale Diagnostics LLC. MSD uses BioVeris technology to manufacture and sell products. BioVeris was spun off from Igen International Inc. when Igen merged with Roche Holdings Ltd. in February.
BioVeris, which develops tests for medical and other purposes, had invested $77.8 million in MSD as of the end of 2003, according to a filing with the Securities and Exchange Commission, and in exchange received a 31 percent stake in the company. The other 69 percent of MSD is owned by Jacob N. Wohlstadter, who is chief executive of MSD and the son of BioVeris chief executive Samuel J. Wohlstadter.
The nine-year-old MSD, which sells instrument systems to aid in pharmaceutical research, may have engaged in the "actual or proposed" purchase of real estate and luxury autos, according to a BioVeris news release issued yesterday evening. "The recently discovered transactions, which are believed to have a total cost of approximately $7 million, were apparently entered into by MSD upon Jacob Wohlstadter's sole approval and without BioVeris's knowledge."
BioVeris also said that it filed a lawsuit in Delaware yesterday seeking to stop MSD from taking any action outside the normal course of business without giving prior notice and alleging that Jacob Wohlstadter tried to remove Richard Massey, the president of BioVeris, from the board of managers of MSD.
BioVeris executives, including Samuel Wohlstadter, did not return phone calls last night. Lesley Bogdanow, a public relations consultant to the company, said the company would have no comment beyond the news release, which BioVeris submitted to the SEC yesterday.
Jacob Wohlstadter did not return two voice-mail messages left at his office last night, and there was no answer at a listed home number that matched his name.
While the possible transactions involving real estate and cars were not previously known, one analyst said he has questioned executives about the arrangement between MSD and BioVeris's predecessor, Igen, for several years.
Dennis Roth, an independent analyst who has tracked BioVeris for four years, said yesterday that Igen should have demanded a greater stake of equity in the subsidiary in return for its money. "It was not a fair deal for Igen's shareholders," he said.
When those concerns have been raised in the past, BioVeris officials have said the financial arrangement with Jacob Wohlstadter is fully disclosed in the company's public filings. They also have said the BioVeris board of directors has a special committee to oversee the joint venture with MSD that it describes as separate from the influence of Samuel Wohlstadter.
Jacob Wohlstadter is paid an annual salary of $250,000 by MSD to run the company under a contract that expires in November, according to BioVeris's most recent public filing. He also can receive a bonus of up to 20 percent of his salary. Recent filings that disclose his pay package do not mention any cars or real estate he is to receive but do say that he is "entitled to receive pension, welfare and fringe benefits comparable to those received by senior executives of [BioVeris] and other insurance benefits."
Roche Holdings, the world's largest diagnostics maker, bought Igen in 2003 to ensure its access to Igen's lucrative blood-testing technology. Igen had threatened to cut off Roche's access after a federal court ruled that the Swiss company had violated its license agreement. Roche promptly gave the company back to its shareholders, saying it had no need for its other businesses.