CEO Falsely Accuses 5 Former Employees; Has to Pay Them $26.6 Million
Negative emotions can drive false beliefs, bad decision-making and dangerous behavior. This can be observed daily in the news and maybe, unfortunately, around us. One CEO learned the expensive error of it.
Here’s the condensed story of five former employees — scientists — who worked at a Pennsylvania pharmaceutical company, were unjustly fired and then sued for $849 million, for allegedly stealing trade secrets.
Quite the accusation. Only it wasn’t factual.
Those employees eventually, in what I imagine was a painfully slow decade later, were awarded a $26.6 million verdict by the court in a countersuit against Sigmapharm Laboratories and CEO Spiridon Spireas, reported Michael Tanenbaum at PhillyVoice.com.
The scientists had been recruited by Spireas to join his new venture when he founded the company in 2005,” Tanenbaum wrote. “One was hired as a direct report who would supervise the work of the other four, who had all previously studied under Spireas in graduate school.”
“These people are all immigrants. They really (looked) up to him,” said attorney Gavin Lentz, who represented the four junior scientists. “Spireas says to them, ‘I’m going to start my own pharmaceutical company … and if you quit your jobs and come work for me, I will give you equity (in Sigmapharm).”
That likely seemed like a no brainer, a golden ticket, once-in-a-lifetime opportunity to succeed and set themselves up for life financially if they could achieve the mission.
Pretty difficult emotionally and some may argue, logically, to say “no.”
“Spireas lured each of them with offers of between 5–10% equity in the company and told them they would ‘become millionaires’ once the business began to generate profits, the countersuit claimed,” Tanenbaum wrote.
Big, big promise. But here’s where it gets sticky and goes back to that constant advisory we hear and read from smart people.
“But the initial terms Spireas offered the scientists were all based on an oral agreement,” Tanenbaum reported.
What is that wisdom I alluded to a moment ago? “Get it in writing.”
Of course, when you have a trusted relationship with someone, you don’t see the need for a written agreement or if you do but are uneasy about asking, believing it will, figuratively speaking, “blow up — and end — the opportunity,” you refrain from being wisely assertive.
Pay close attention to what happened next and notice what was likely happening behind the scenes and in the mind and behavior of the CEO, Spireas.
“About a year into their employment, the CEO required them to sign a new employee agreement in order to retain their jobs. They were each given non-voting shares in the company of between 1–4%, which would only vest fully after 20 years of employment,” Tanenbaum reported. “If they were fired for cause before that time, they would forfeit their stakes and the company could purchase them for $1.”
Do you see it? Of course you do. This CEO had the expertise of his scientists on board and was now changing the (verbal) agreement he had with them, knowing the (scientist) employees did not have the paperwork to defend themselves. Additionally, the employees were emotionally invested and committed to the pursuit of collective gain (success and millions).
Spireas was one-sidedly changing the game on the very people he asked to take a risk and wanted to partner with to collaborate for mutual benefits.
It gave off the impression that he had been infected by greed and wanted to minimize sharing the profits. It smacked of betrayal, morally and relationship-wise. The employees’ attorney (for the four junior scientists) agreed and said it himself.
“This was about trust and greed. A graduate professor is someone you look up to with honor,” Gavin Lentz pointed out. “They trusted him and he saw how much their small percentages were going to earn them and said, ‘To hell with this,’ and took it back.”
The employees reportedly had been praised for their work and contributions to Sigmapharm and received promotions during their time there, according to the suit, Tanenbaum wrote.
The relationships took a turn for the worse in 2014 when the employees went to Spireas to renegotiate their contracts, which is reasonable behavior in this country and often what you have to do when you are creating more value than for which you are being compensated.
“The company was generating about $300 million in revenue and made a profit of about $25 million that year, according to the scientists’ lawsuit,” Tanenbaum wrote. “After efforts to strike a new deal broke down, the scientists were all fired.”
Now, comes the predictable part, the legal need for a reason. Spireas manufactured one in what critics might say is unethical and corrupt.
“Sigmapharm seized their work computers and email accounts, attempting to find evidence that they had stolen trade secrets that would help them transition to the next stages of their careers,” Tanenbaum reported.
The court clearly didn’t find any proof of it. Lentz was appalled at how Sigmapharm and Spireas treated his former de facto partners.
“They’ve been suing these people for 10 years, and when we actually tried the case, they came up with absolutely nothing to show for it,” Lentz said. “Their suit against us was for ($849 million). The jury awarded them zero and awarded us ($26.6 million).”
The scientists’ reputation, of course, greatly suffered in the marketplace after what the company did to them that was publicized.
“They have been under this cloud of alleged stealing trade secrets when they knew they didn’t do it,” Lentz said. “This complaint has been a public record and when they tried to find jobs elsewhere, people would say, ‘Well, you’re embroiled in litigation’ … you’re damaged goods.’”
The award might not fully heal the emotional, psychological, career and financial damage but it does hold to account a CEO and company that was criminally wrong, unethical and morally broken.
“By law in Pennsylvania, the $26.6 million award also includes 6% interest added for each of the 10 years since the time the scientists were fired, which Lentz said makes it worth about $28 million,” Tanenbaum writes.
“He anticipates that Spireas will appeal the verdict, but doing so requires him to put up 120% of the damages awarded. The bulk of the damages are for breach of contract, along with a smaller figure for breach of fiduciary duty.”
Will Spireas succeed to some level in his (financial mitigation) appeal? Possibly. Regardless, he legally was punished, it’s now public record and the former employees now receive validation emotionally, psychologically and financially. It’s helpful. Tremendous damage was done to those people and their families. They survived but at great mental health suffering.
Spireas and Sigmapharm Laboratories did not respond to requests for comment. If they did, we know it would be public relations spin anyway.
Lentz spoke out about Spireas, saying that the CEO didn’t have the evidence needed to back up his contention that the scientists were fired for cause.
“He was trying to crush them and bankrupt them. He just didn’t think that we would actually take this case to trial,” Lentz said. “They just wanted to create a smokescreen that they had a basis to fire (the scientists), and then figured we would not be able to withstand the years of litigation.”
The employees knew what had transpired. It wasn’t just emotion-fueled reaction. Lentz listened, did his research and knew what happened too. The resilience started quickly. The outcome took way longer than it should have, at least idealistically, yet deliverance came.
It may take that level of undesirable, overwhelming commitment to overcome the system, the other people and resistance and game playing to have a chance at “right” prevailing.
It doesn’t always happen but without the commitment to the marathon, it never will. This time, and in more than you think, a reasonable remedy was achieved.
Reputations were restored. Compensation paid. Emotional and physical health can hopefully now improve, despite the trauma and its effects.
Michael Toebe is the founder and practicing specialist for consulting, advisory and communications at Reputation Intelligence — Reputation Quality.
He serves individuals and organizations with further building — and ethically and responsibly protecting, restoring and reconstructing reputation trust. He is the writer and publisher of Reputation Intelligence here on Medium and the newsletter on Substack.