The son of BioVeris Corp.'s chief executive accelerated a "spending spree to epic proportions" in "an effort to exact every last dollar that he could" from the Gaithersburg biotechnology company, BioVeris claims in its latest lawsuit against Jacob N. Wohlstadter.
This second lawsuit, filed last week in state court in Delaware, alleges that Wohlstadter spent company funds on a trip to the BMW driving school, luggage, theater tickets, a golf club membership and meals costing as much as $1,000 each. Previously, the company said he spent millions of dollars on luxury cars and real estate.
For the first time, BioVeris attributes a motive to the spending as well: The company contends that Wohlstadter, the son of BioVeris chief executive Samuel J. Wohlstadter, "purposely sabotaged" a joint venture with BioVeris called Meso Scale Diagnostics so he could purchase it for a bargain price.
Compared with earlier court papers, in which BioVeris described Jacob Wohlstadter's conduct in dry legal terms, the latest lawsuit casts him in an especially harsh light. Among the headings used in the complaint: "Wohlstadter Uses MSD Funds As His Personal Piggy Bank" and "Wohlstadter's Scheme is Revealed."
Wohlstadter, in his court papers, has said that he never held title to the cars and real estate purchased with company funds and that he reimbursed the joint venture for disputed expenditures. Phone messages left with Wohlstadter, his father and their attorneys were not returned yesterday. A BioVeris spokesman declined to comment.
BioVeris has asked the Delaware Chancery court to dissolve the joint venture and appoint a trustee to liquidate its assets. It has accused Wohlstadter of breach of contract and fiduciary duty for refusing to turn over audited financial statements for the joint venture, which BioVeris needs to file its annual 10-K report.
BioVeris also said last week that the Securities and Exchange Commission has initiated an informal inquiry into the joint venture.
The company is trying to block the younger Wohlstadter from buying BioVeris's share of the nine-year-old joint venture, which was set up to design testing technology for drug development companies. If the buyout proceeds, BioVeris said, it is unlikely to recoup much of its $115 million investment.
In return for its funding, BioVeris has received 31 percent of the joint venture's voting shares plus preferred shares that entitle it to the venture's future profits. But according to the lawsuit, MSD has never made a profit and is unlikely to do so in the future.
Wohlstadter has found no outside source to fund the joint venture, though he repeatedly promised to do so, according to the lawsuit.
"Wohlstadter's failure to diligently seek out and obtain third party financing for MSD has left the joint venture with no source of future funding, which will result in the ultimate failure of the business," according to the lawsuit.
If Wohlstadter acquires the joint venture, he will be released from his legal obligations to the company, "which will essentially pardon him for his gross misconduct" and deprive BioVeris of its ability to recoup its investment, the suit says.
In the new lawsuit, BioVeris offers details about the spending of the 34-year-old Wohlstadter, a scientist who graduated from the Massachusetts Institute of Technology at 19.
Using company credit cards, he allegedly spent $71,795 on tickets to the Kennedy Center, Wolf Trap and the Washington National Opera. He spent $65,000 for a membership to the Tournament Players Club at Avenel, a golf club in Potomac; $8,750 for a trip to the Masters Golf Tournament; and $2,689 for a trip to the BMW driving school.
BioVeris claims Wohlstadter attempted to hide his purchases from the company. In one case, according to the lawsuit, Wohlstadter tried to circumvent what he thought was a $100,000 spending cap by using $99,000 in company funds to buy a $143,000 BMW roadster. He paid the remainder on his own, according to the lawsuit, then asked the joint venture to reimburse him.
BioVeris stock closed yesterday at $7.75, down 16 cents.