by Scott Turow
“Do I believe Kiril did all this?” she asks herself, and studies the beams above them in the entry’s high ceiling. “Honestly, I have a great deal of difficulty with the fraud charges. Selling the stock? There’s no question he did that.”
“You told him to,” says Stern. He smiles faintly, to see how combative she will be about sharing the blame. She rolls her bright blue eyes.
“I was clearly being sarcastic.”
“And yet he never sold any of his own shares.”
This remark brings her up short for a second. Perhaps Stern has told her something she didn’t know? She draws back, her head tilted, before returning to the main subject.
“I would never accuse Kiril of being motivated by money. I mean, he was thrilled he was joining the superrich. We weren’t really talking, and he still mentioned that to me several times. But I’m sure he took it as another form of acclaim, which is what he’s really lived for. And control. He has to be in charge.”
“But the fraud you doubt?” says Stern. “Unblinding the dataset? And then bamboozling Wendy Hoh into altering it?”
Innis laughs a little. “‘Bamboozling’? He could compete if there were an Olympic event in bullshitting. But unblinding the dataset is a different matter. I really don’t think he had the technical acumen. Of course, he’s smart enough to figure it out, if he worked at it. But Kiril is like any other seventy-eight-year-old. He doesn’t have a native feel for technology. I suspect, if he did it, he had help.”
“From?”
“Again, this is between us?” Once he nods, she says, “Olga is a very canny girl. She reported to me directly for a long time. You will meet very few people in this life, Sandy, more nakedly ambitious than that one. Her stock options were worth a fraction of the rest of ours, but if she saw an obstacle to g-Livia’s approval, there is no way she’d allow several million dollars to slip from her grasp. At least she didn’t sell herself cheap,” Innis adds. “You’ll never hear me criticize any woman for making the most of her situation. I give her credit for that.”
It is difficult to tell if Innis means so much as a syllable of what she’s just said.
“Do you have any idea why Kiril would have e-mailed Olga a copy of the unaltered dataset, the one from September 2016 that still showed the deaths?”
Innis’s mouth parts slightly. Apparently, she’s never heard this detail either.
“Of course not. What does she say?”
To avoid any action a prosecutor might call tampering, Stern rigorously avoids passing information between potential witnesses. Unintentionally, he may already have said more than he should, so he shakes his head a bit.
“How would you react if I told you that Olga doesn’t know how to read a clinical trial dataset?”
Innis hoots and slaps her thigh.
“Is that what she claims? Of course she knows how to read a dataset. She’s been in this industry for twenty years. In all seriousness, Sandy, don’t believe a word that woman says. Not one. She’s a brazen liar. I know it sounds catty, but take a hard look at her résumé. Do some arithmetic. Consider her job history, see when she graduated college at night in New York. Not to mention giving birth to three kids. See if you can figure out how that woman can claim to be under forty.”
Stern knows better than to tell Innis that he’s a bit surprised to think Olga is even that old. Innis is pointing at him, her nail polished in crimson.
“If you ever get to the bottom of this, Sandy, I promise you one thing: Olga Fernandez will be standing there.”
She walks him out the door. Cesar, invisible in the growing darkness behind the limo’s smoked glass, turns over the engine and the headlights illuminate the glittering crushed stone in Innis’s drive.
“I had my trepidation about this, Sandy, but all in all, it’s been very pleasant to get to know you.” She extends her hand at full arm’s length, her elbow straight, as professional women sometimes do, to avoid any risks in greater proximity.
“Entirely my pleasure,” Stern answers, again feeling her strong grip. He uses the cane to go down the single step, then turns back to wave.
The halogen ground lights surrounding the doorway render her diaphanous wrap all but transparent. Does she know? Probably. She looks very good.
Returning his wave, she starts through the door then turns back.
“Come again when all of this is over, Sandy,” she says before ducking inside.
III. FRAUD
Week Two
12. Venture Capital
Having gotten in several hard blows by calling Kiril a murderer, on Monday morning Moses and Feld resume a more familiar effort for federal prosecutors: painting Pafko as a greedy crook. White-collar offenses almost always involve someone breaking the law to make a lot of money. After decades of this, Stern tends to view greed as a somewhat ham-handed label for more complex motives, a lust for power or fame, which in turn masks significant self-doubts. But most jurors live with financial anxieties, and prosecutors find it easy to sell them on the notion that the rich are not like them and, in fact, are rich simply because they will do just about anything for money.
To establish that about Kiril Pafko, the government calls into the courtroom Dr. Yan Weill, president of MedInvest, a venture fund owned by a consortium of the nation’s three largest investment banks. Dr. Weill is lean and nice-looking, midforties, in a flawless blue suit and a shirt so white it seems illuminated. He is buoyed by an almost insulting level of self-confidence, so glib and quick in his responses that there is a good chance one or two of the men in the jury box hold a secret yearning to climb over the rail and give Yan Weill a couple good smacks.
Stern spent an hour with Weill in his Wall Street office back in September and left more or less liking the man, who is clearly one of those people who believe life should involve an effort to enjoy everything. His laughter—a wall-rocking, high-pitched cackle—erupted frequently as he paused in his answers to Stern to show off items in his office he regarded as hilarious: a piece of amber that somehow fell into Weill’s boot when he was in the Amazon; various photos he has captured as a hot-air balloonist; a recent SEC filing for a MedInvest deal in which the general counsel for the company MedInvest was buying was described as “having extensive experience practicing foreign corruption.”
As a witness, he displays none of the sobriety, nervousness, or restraint of most people called into federal court. Instead, he has hiked himself forward to the front edge of his seat and provides an instant answer to every question, smiling hugely the whole time.
MedInvest provided much of the early financing for PT, in exchange for a stake in the company that increased as time went on. Once g-Livia headed to clinical testing, PT’s stock was offered for sale to the public in order to underwrite the costs. Kiril remained the largest shareholder, followed by MedInvest and Easton University. The big payoff everyone hoped for would come if g-Livia was approved. Once that occurred, the revenues generated by g-Livia sales would drive up the stock price and, in all likelihood, lead to a buyout by a major pharmaceutical manufacturer with the capital and know-how to market a vital drug around the world. The whole plan was unfolding perfectly, including the projected sale to Tolliver, until the Journal article appeared in August 2018.
Weill is examined by Dan Feld, who apparently will present the testimony of most of the witnesses for the government. Trying a case is an extraordinary burden for the United States Attorney. When Moses returns after court every evening there are probably ten critical matters—questions in an investigation, disputes that have arisen in other trials—on which he needs to make decisions. His time on US v. Pafko must be husbanded, meaning Feld has to do a larger share of the day-to-day work.
Feld is frequently described as the brainiest of Moses’s assistants (although there is often joking that the description originates with Feld). When he left his clerkship with Sonny, he became the so-called liberal clerk whom US Supreme Court Justice Antonin Scalia—always famously open to de
bate—frequently employed. By reputation, Dan can solve legal problems, digest evidence, or write briefs at twice the speed of most of his colleagues. He is a nice enough young man outside the courtroom, but at trial he is tight as a piano string. His aggressiveness has led to several mistakes already. Stern can see Moses watching Feld far more anxiously than at the start of the proceedings. Of course, Stern knows, the same can probably be said now of the way Marta is watching him.
Both Stern and Marta have agreed that the prosecutors are making an error by characterizing the case as a crime of greed. Yes, the value of Kiril’s stock in PT rocketed upward after the approval of g-Livia. And yes, pointing out that his net worth at the high point exceeded $600 million will stir the pot of jury resentments. But the prosecutors’ theory has a clear vulnerability, and when he rises for cross, Stern goes straight there.
“Now, as a member of the PT board and a key investor, Mr. Weill, do you keep track of stock sold by so-called corporate insiders—meaning officers, other board members, those kinds of people?”
“I have to,” says Weill.
“And can you explain briefly what a 10b5-1 plan is?”
“It’s a plan that those corporate insiders agree to in advance, in which each of them specifies exactly when and how much company stock they will sell in the future. The plans are made when there is no material nonpublic information about the company, and the plan covers a pre-agreed period. If you stick to the plan strictly at all times, generally speaking you can avoid liability for insider trading, even if your stock later sells when you know something significant is going on inside the company.”
“Was there a 10b5-1 plan adopted at Pafko Therapeutics after the stock went public and clinical testing began?”
“Yes.”
“And under that plan, how much of its stock did MedInvest sell?”
“About ten percent. We thought it would be a good time to start recovering some of our investment.”
“And under that plan, how many shares of PT did Kiril Pafko sell during that period?”
“None,” says Weill.
“None,” Stern repeats, and nods slowly, as if he were trying to absorb this information for the first time. “And when I speak of Kiril’s shares, were you aware that Dr. Pafko had given away some of his PT stock to trusts for his grandchildren.”
“I knew that.”
“And were those shares, the grandchildren’s shares, included in the 10b5-1 plan?”
“No, because Kiril personally no longer received the benefits from those shares.”
“Thank you,” says Stern. “And was the 10b5-1 plan amended when PT announced that it had received preliminary indications from the FDA that g-Livia was going to be approved?”
“Yes.”
“Now, under that new plan, how much of its stock in PT did MedInvest agree to sell over the next two years?”
“Half.”
“At a substantial profit?”
“Very substantial.”
“What about the number two person at PT, Dr. Innis McVie? What percentage of her stock did she plan to sell?”
“Basically all of it as soon as various SEC restrictions were lifted.”
Stern goes through several other executives and board members, including Lep and his first lieutenant, Hiro Tanakawa, all of whom carried out plans to sell a goodly portion of their holdings in PT shortly after approval. Olga Fernandez had the smallest stake, and she made close to $5 million. It was a bonanza for everyone.
“And what about Kiril Pafko? How many shares did he sell under the 10b5-1 plan that applied to the period surrounding FDA approval of g-Livia?”
“None.”
“None?” For the benefit of the jury, Stern squints at Weill, as if he cannot possibly understand. “Zero? Dr. Pafko harvested none of the hundreds of millions of dollars in appreciated value of his stock Mr. Feld asked you about?”
Feld objects that the question has been asked and answered, but Sonny allows it, because Stern has asked now about value, not shares.
“And after FDA approval, did the stock price increase again as word spread about the possibility of a buyout of PT by a much bigger pharmaceutical manufacturer?”
“Yes.”
“Did MedInvest make plans to sell the rest of its shares?”
“A tender offer—a public offer to buy all of PT’s shares—would terminate the 10b5-1 plan and eliminate any restrictions on exercise of the stock options that officers and board members of the company had. Because of market anticipation, it’s almost always better to sell when the tender offer is agreed to rather than waiting for the deal to close, since there can be complications. So yes, MedInvest sold its stake after the board accepted Tolliver’s offer.”
“And what about Kiril?”
“Nope. He still didn’t sell. He was going to hold on to his stock until the last moment.”
“And did you ever talk with Kiril about why he had not planned to sell any of his shares?”
“I did. A few times.”
“Foundation,” objects Feld, meaning Weill must say where and when the conversation took place and who was present.
“Well, the time I remember best was when Kiril picked me up at the airport. It was fall 2017. Beautiful day and the top was down on his convertible and we were driving out to PT headquarters in Greenwood County.”
“And what did you and he say at the time?”
“Objection, hearsay,” says Feld. The rule against hearsay evidence is simple enough on its face. A fact—that the sky is blue—may not be proven by offering as evidence how someone described the sky when they were outside court. To establish the color, the witness must be here to say they saw that shade and then be subject to cross-examination. But the supposed rule has about thirty recognized exceptions that make its application an opaque mess. Stern would estimate that at least a third of the judges before whom he’s tried cases don’t understand the hearsay rule thoroughly. The exception Stern invokes is, as he says, “state of mind,” meaning that Kiril’s statement is not being offered to prove the sky is blue, only that Kiril thought it was. And the judge allows it on that basis.
“Well, the substance of what he said—” says Weill.
“Objection again,” says Feld. With the relentless objections, Feld might as well light up a neon sign that says, What’s coming is bad for the government.
“Dr. Weill,” says Sonny. “Do you remember exactly what Dr. Pafko said?”
Weill, always happy, cackles again, a sound that is almost a shriek.
“I do, but it’s not for prime time.”
“We’re all grown-ups,” answers Sonny.
“Well, the stock was way up. Tolliver’s bid for the company had been announced, and Kiril was free to sell. His stake was probably worth half a billion at that moment. I said that most people would take some money off the table, but he just waved his hand at me. We were joking a lot, and Kiril said, ‘Yan, I don’t give two loose turds about money. I haven’t for years. I married rich.’”
Stern, who’s never heard the verbatim quote, finds his jaw hanging open, while the courtroom dissolves in laughter. There will be no topping that and he heads back to his seat. Kiril, whom Stern and Marta have cautioned repeatedly about not reacting to the evidence, has nonetheless dropped his face into his hands in embarrassment, while behind him, Donatella, always the master of proper social response, has joined the laughter. She places a hand briefly over her eyes beneath those black brows and continues turning her white head in a way that suggests that this is another in a long line of Kiril’s faux pas.
13. Her Plan
The rest of Monday involves a slow immersion in the FDA’s complicated multiyear approval process for new medications. The government’s witness is Dr. Maithripala Jayasundara, who says cheerfully that he is known as Dr. Mat. Agreeable as he is, Dr. Mat is also ponderous and quickly loses the attention of most of the jurors as he goes through the many phases of testing and documentation required by the
FDA. The process begins with trials on animals, then tests on a small number of humans, aimed at figuring out an effective dose of the medication. Then clinical trials begin, culminating in the double-blind trials regarded as the gold standard. Each step is guided by an intricate regulatory framework, which Dr. Mat explains in far too much detail, especially since many of those rules do not apply to the small number of medications like g-Livia that are designated as Breakthrough Therapies and reach the market early through a process known as ‘accelerated approval.’
After Dr. Mat finally leaves the stand, Kiril’s personal assistant at PT, Janelle Morris, is called next by the prosecution. Janelle has worked for Pafko since PT was founded and continues to this day, even though Kiril now appears in the office infrequently after being suspended by the company without pay as the indictment neared. Janelle has also been the point person for all document requests and subpoenas to the company, and in the opinion of both Sterns she is a wonder of efficiency.
Now Feld asks her to identify Kiril’s signature on the Investigational New Drug Application that PT submitted to the FDA late in 2013 to start the testing process. Although it’s on the monitor, Feld has Janelle read out the undertaking both Lep, as chief medical officer, and Kiril, as CEO, subscribed to: “‘I agree to conduct the investigation in accordance with all…applicable regulatory requirements.’”
When Janelle—a tall, stately woman—is excused, she makes sure to pass by the defense table and to place a hand on Kiril’s shoulder that he grabs and squeezes fondly. Kiril is described by the staff as a good boss who always asks about their families and remembers the details. Viewing him cynically, Marta might say that Pafko always loves to have someone to charm, but his employees regard his warmth and Donatella’s as genuine.
Sonny recesses. After seeing out the Pafkos, Stern returns to the office briefly to confer with Marta. Tomorrow’s pivotal cross-examination of the principal witness from the FDA will be her responsibility, and she has been doing research for months.