SAN FRANCISCO (CN) – Bio-Rad CEO Norman Schwartz testified Monday in a whistleblower retaliation trial that despite urging from his board of directors and other top executives, he was reluctant to fire his longtime general counsel Sanford Wadler.
Schwartz testified he “wanted to give [Wadler] a second chance,” although the board recommended firing Wadler for failing to advise the biotech company on how it might better comply with the Foreign Corrupt Practices Act, a law that prohibits companies from bribing foreign officials.
Wadler sued the company and Schwartz in May 2015, claiming he was suddenly fired only months after raising concerns about possible corporate bribery of Chinese public officials and other misconduct with the company’s audit committee.
But Schwartz said that there had been unrest within the company’s highest echelons for quite some time over Wadler’s performance.
“The general sense was that they had lost confidence in Sandy and felt he should be replaced,” Schwartz said of the board’s recommendation to ax Wadler after 26 years with the company.
Though Wadler was eventually fired in June 2013, Schwartz said that at the time he did not agree with the board and decided to keep Wadler on.
“I had worked directly with Sandy for many years. He had obviously been at the company a long time and had been a productive member of the team. At the end of the day I wanted to give him a second chance,” he said.
Schwartz said he’d asked Wadler about the Foreign Corrupt Practices Act and whether the company should implement a compliance program back in 2010. He said Wadler’s response was something like “this law had been on the books for many years and it wasn’t something we should worry about.”
The act had been a major concern for Bio-Rad since 2009, when violations in Russia, Thailand and Vietnam led to the company agreeing to a $55 million settlement with the Justice Department in 2014.
Bio-Rad had hired Patrick Norton from the outside law firm Steptoe and Johnson to investigate Foreign Corrupt Practices Act issues around the world. Noonan had also recommended that Wadler be fired over his handling of the issue.
Schwartz said the violations were “a tremendous embarrassment” and thought the fine could have been avoided “with a little proactivity,” writing in Wadler’s 2009-10 performance review: “The FCPA mess gave the company a real black eye and with the breadth of our international operations, legal should have been more assertive or inquisitive, making sure we were in compliance.”
Schwartz was scheduled to meet with government officials in Washington in late February 2013 to explain what Bio-Rad had been doing to fully comply with the act since 2009, and Schwartz said he thought Wadler had been acting odd.
“Wadler seemed to be fairly nervous about going to this meeting,” he said.
There were other concerns about Wadler’s behavior, too, Schwartz said, pointing to his unwillingness to file Bio-Rad’s annual report with the Securities & Exchange Commission, known as Form 10-K.
According to Schwartz, the holdup was due to Wadler’s “paranoia” about an audit by Life Tech over the amount of royalties Bio-Rad owed them for licensing their intellectual property. For two years, Bio-Rad had been unable to account for prices charged by third parties to end users in China.
The threat of a lawsuit from Life Tech resulted in Bio-Rad needing to reveal to shareholders how much it held in reserve in the event of litigation.
This figure, which Wadler felt was too low, kept him from filing the 10-K, his attorney James Wagstaffe pointed out when questioning Schwartz.
By November 2012, Wagstaffe noted, the company only had $3.5 million in reserve, though it knew the exposure would be much greater.
Wagstaffe said Wadler had been concerned about the lack of documents for the audit for two years.
“Mr. Wadler was the voice in the wilderness saying we keep trying to get documents and in the absence of documents we face tens of millions in exposure,” Wagstaffe said.
“Wasn’t it his job to not sign off so the shareholders weren’t misled?” he asked, to which
Schwartz replied, “Yes.”
“And he was just doing his job,” Wagstaffe said.
But Schwartz said the delay in filing the 10-K caused an even bigger headache for Bio-Rad, which had to file an extension with the government.
“It was a very embarrassing situation. We had never had a situation where we did not file on time,” Schwartz said.
He ordered Wadler to meet regularly with himself and Christine Tsingos, Bio-Rad’s chief financial officer. He said Wadler only attended two or three of the meetings, and that he and Tsingos were starting to butt heads.
Wadler’s supposed confrontational attitude has formed a large part of Bio-Rad’s defense. While Wadler asserts that he was a whistleblower on ongoing corruption in China, Bio-Rad claims he was merely setting himself up for a retaliation lawsuit, after he was fired for incompetence and failing to get along with his colleagues.
“He seemed to have a hard time doing his job. He became withdrawn and abusive toward certain people in the company and no longer a really effective part of the management team,” Schwartz said of Wadler’s behavior ahead of the firing.
He said he met with Wadler in March 2013 to try to clear the air. Under questioning from Bio-Rad attorney John Potter, Schwartz said Wadler just ended up ranting about a conspiracy against him, though he couldn’t articulate what the conspiracy was about or who was involved.
“It seemed to be a big change for Sandy. All of a sudden everybody was against him somehow,” he said.
Schwartz said he later met with Wadler and Tsingos, where Wadler’s animosity toward her came to a head.
“Sandy became very animated and aggressive toward Christine, pounding on the table and screaming, ‘I need docs, I need docs, nobody is providing me with any documents!’ It was very out of character for Sandy and not in keeping with decorum we have around the company,” Schwartz said.
A few days later, Tsingos told Schwartz she was worried for her personal safety and was considering getting an alarm installed at her home.
“I told Christine that I didn’t feel Sandy was a physical threat. I worked with Sandy for 10 years or more and I just didn’t think that was his nature,” Schwartz said. Nonetheless, he ordered human resources to perform a threat assessment.
Though human resources only found him to be a mid-level threat, Schwartz said HR director Colleen Corey also recommended his firing – because of the incident with Tsingos and because he had screamed at Corey regarding the size of his salary.
Also on Monday, Bio-Rad executive Ann Madden testified that in a March 2013 meeting with Wadler, he had become so angry about an issue related to the reorganization of Bio-Rad’s foreign legal team that Madden thought he might harm her.
“He yelled on several occasions, he pounded on the table, he got very red in the face. He didn’t, but I thought he could have jumped out of his chair and grabbed somebody. That was how angry he was,” Madden said.
Schwartz said Corey had been in the meeting and reported the incident to him as another reason to fire Wadler. Schwartz said he decided to hold out.
“I was still hoping that we could figure out what was wrong with Sandy and somehow get back on track,” he said.
Schwartz concluded his testimony on Monday. On Friday, Schwartz admitted to backdating a performance review for Wadler one month after firing him.
Wagstaffe noted the negative review was “a complete 180” from the review Wadler had in person in December 2012, the most glowing one he’d ever received.