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January 01, 2012

Ripped from the Headlines: GyneTech Scandals Send Stock into Free Fall

Ten Lawyers Look at a Story that's Ripped from the Headlines.

Stephanie Kane

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The trial, Diana Gray thought as she stumbled out of the personnel director’s office that Friday afternoon. It had to be the drug trial. There was no other explanation for her first negative performance review after 12 years at GyneTech. “Brusque demeanor, lacking interpersonal skills for a leadership position . . . too critical of other researchers . . . pattern of unexcused absences.” Tell that to the participants in GyneTech’s Stage 4 invasive ductal breast cancer drug trial.

Or better yet, tell them about the side effect her superiors were covering up: slow-developing bone tumors, conveniently written off as a normal pathway in the aggressive late-stage cancer patients to whom her own life partner, Tracy Vitello, had devoted her career. And how could she tell Tracy that this review had cost her a promotion to head the lab responsible for the trial? What was next—losing her job? Diana had a PhD in biochemistry from Stanford, but as her mother would say, a graduate degree didn’t automatically make you stupid.

Diana punched in the security code that controlled access to her lab. Her staff had left, and the night crew had not yet arrived. She walked through the lab to her office and sank into the chair in front of her computer. Going up the chain of command had accomplished nothing but lay the groundwork for her to be fired. But maybe she hadn’t gone high enough. Thoughts racing, her fingers hesitated on the keyboard.


In his private suite in GyneTech’s executive wing 28 floors above, Michael Bass stared in disbelief at the single sheet of heavyweight cream-colored bond lying on the desk in front of him. It had arrived in a cheap manila envelope, marked Personal and Confidential, with no indication of the sender. The contents, however, were anything but coy: the letterhead bore the return address of Hillary Miller Esq., the go-to gal for every wronged woman, so long as she was wronged by a man with money and power. Jesus, wasn’t she the one who’d exposed that poor sap who tried to run for president? She’d been on the Nancy Grace Show so many times she must own stock in CNN.

The letter itself was businesslike, in bold type but with a feminine font. Bass recognized the iron fist in the velvet glove and the art in what was left unsaid. His eyes flitted across the page, picking up just two words, over and over. Dawn Pringle . . . Dawn Pringle . . . Dawn Pringle. Across his otherwise bare and gleaming desk sat a gilt-framed photo. Tearing his eyes from Sylvie’s faintly curling lip—how did she manage that insinuating expression, with a toddler at her side and a baby in her lap?— Bass told himself to get a grip. He closed his eyes and thought of Hank Kauffman, the vulture hovering in the independent directors’ abattoir, just waiting to tear him to shreds. Bass straightened his shoulders, tightened the knot of his black silk tie woven with tiny Rx’s, and punched in a number on his speed dial. Norbert Dwight never went home. Not when a 10-Q was due to be filed on Monday.

 .          .            .

Diana stared at her blank computer screen. How many times had she tried to make an appointment to see Bass, only to be put off by his secretary? Brusque demeanor and lack of social skills must have been Bass’s job description when GyneTech hired him two years earlier from MedaStar, a Big Pharma competitor, to cut costs and improve morale after his predecessor was implicated in that wiretapping mess. Bass was obviously earning his pay; in addition to taking credit for the new cancer drug, he’d already eliminated 20,000 jobs and hers was probably next. At the press conference 18 months earlier announcing the launch of the drug trial, Tracy had taken one look and said don’t turn your back on him, Di. Now time was running out, not just for her, but for the thousands of Stage 4 breast cancer patients who were receiving a drug that could turn their bones to dust. Diana’s fingers hit the keyboard.

                                     .          .            .

Norbert Dwight sat across from Bass’s desk, savoring the deer-in-the-headlights look that had evaded his boss’s internal censor. Dwight was too sophisticated to ask if there was any truth to Hillary Miller’s claims but not above twisting the knife. “Dawn Pringle?” he said. “Isn’t she the contractor you hired for those trade shows?” Well, at least she wasn’t an employee. Bass did not offer to show him the letter, and Dwight did not lower himself to ask. As chief in-house counsel, his priority was clear: the 10-Q. “No need to report an unsubstantiated claim of a purely personal matter,” he assured Bass. Nor to retain private e-mails, or for that matter any other document not otherwise required to be retained in the ordinary course of GyneTech’s business. Ignoring Bass’s sigh of relief, Dwight returned to his bunker on the 12th floor and ordered a steak.

                                     .          .            .

Diana turned off her computer, locked her office, and took the elevator to GyneTech’s all but deserted parking garage. If her ex-husband, Jared Bentz, had been furious when the photo of Diana and Tracy waving their marriage license on the courthouse steps hit the front page of the national newspapers two months ago, how would he react when this news broke? Not that there was much he could say; Jared hadn’t paid a dime of child support or tried even once to see the kids since he’d remarried three years earlier. Diana’s mother had been right again; an MD was a much more suitable match for a PhD than a grease monkey who built NASCAR engines. And Tracy had practically raised the kids. As Diana exited the parking garage in her brand new Lexus, she thought life wasn’t so bad after all. She pulled onto the turnpike, accelerating smoothly. A mile ahead traffic slowed and she tapped her brakes. Gently at first, then harder. Her last thought before she rammed into the Hummer in front of her at 75 mph was I hope Jared doesn’t get the kids.

                                     .          .            .

Hank Kauffman sank a 30-foot putt under the floodlights at the eighth hole at his exclusive club in Palm Springs. At 85, he was far too young to retire as an independent director on three Fortune 500 boards, and he still managed to show up five mornings a week at the hedge fund he’d founded 20 years back. He was beyond the demands of a Blackberry, particularly on the golf course, where he fully intended to remain until boarding his private jet Sunday night.

At the opening bell of the New York Stock Exchange on Monday, Kauffman flipped open his Blackberry, checked GyneTech’s trading price, which was at a record high of $167 a share, and skimmed his e-mails. Diana Gray? Intrigued, he opened that one first. Reading no further than to realize it was a blind copy of a detailed message with four attachments to an investigator at the FDA, he muttered Bass, you putz. Then he made three phone calls. The first was to his personal lawyer, Stephen Armstrong. The second was to his executive secretary to advise her to schedule a meeting of GyneTech’s independent directors for noon. The third call, which he made somewhat reluctantly, was to GyneTech’s chairman of the board. After that, things moved quickly.

                                         .          .            .

Under pressure from Kauffman and on Armstrong’s advice, GyneTech’s chairman convened a meeting of the full board at three o’clock that Monday afternoon. The board ordered a private investigation into the cancer drug but did not halt the trial or contact the FDA. Norbert Dwight was not informed of the meeting, but was told afterwards to file the 10-Q with no changes. On Tuesday morning, GyneTech’s stock hit $216 a share.

On Wednesday, the Wall Street Journal published a front page story, based on an unidentified source, detailing the problems with GyneTech’s drug trial and the suspicious circumstances surrounding Diana Gray’s death. At the closing bell that day, GyneTech’s stock dropped to $78 a share, and the board summarily suspended Bass with pay. Tracy Vitello contacted a lawyer about suing Toyota for product liability and GyneTech for intimidation, wrongful death, and whistleblower claims on Diana’s behalf. Jared Bentz filed a petition for custody of his biological children and to void Diana’s marriage to Tracy.

On Thursday, Hillary Miller gave a live interview to Nancy Grace about her client, Dawn Pringle, but demurred regarding details of her claims. GyneTech’s stock promptly dropped to $24 a share, and the board fired Bass. On Friday, the first class actions were filed by shareholders against GyneTech, Bass, and the board for securities fraud, and by the drug trial participants for fraud, negligence, reckless endangerment, and product liability. By the time the board’s private investigator got around to examining Diana’s hard drive on Friday, he discovered it had been purged of all personal files. Hank Kauffman flew to Palm Springs and spent the weekend playing golf.

On the following Monday, Michael Bass settled with Dawn Pringle for an undisclosed sum and a confidentiality agreement. He was immediately hired by GyneTech’s chief competitor, MedaStar, and filed suit against GyneTech for breach of his employment contract. GyneTech promptly counterclaimed for fraud, breach of fiduciary relationship, breach of contract, and theft of trade secrets, and joined MedaStar as a counterclaim defendant. Three days later, the FDA contacted the Justice Department, which instructed the U.S. Attorney to launch a probe into GyneTech for witness intimidation, medical fraud, securities fraud, spoliation, and the circumstances surrounding the failure of Diana’s brakes. Undeterred by the criminal probe and the class action suits, Hank Kauffman’s hedge fund and MedaStar, which owned a minority stake in GyneTech through shell corporations, launched competing proxy bids for control of GyneTech on Friday. That weekend Hank scored a hole in one.


Stephanie Kane

The author, an associate editor of Litigation, is a lawyer and novelist based in Denver.