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Bad medicine

A Largo company is doing medical research. So is an ex-partner. How, the owners ask, does the ex-partner always seem to know their secrets?

By KRIS HUNDLEY
Published June 21, 2004

[AlphaMed Pharmaceuticals]
The Lezdeys say an AlphaMed shareholder has offered $5,000 for information that leads to the arrest and conviction of the mysterious intruder they call "Fat Face."
[Times photo: Bill Serne]
John Lezdey and his sons, Darren and Jarett, have been working to develop alpha 1-antitrypsin from their Largo office. They've also been involved in legal wrangling over it with their former partner.

LARGO - Darren Lezdey laughed when his brother Jarett bought a mini spy camera last fall and hid it in a cardboard box in offices the two men share with their dad.

But a day later, when the motion-activated camera snapped a picture of a dark-haired stranger in AlphaMed Pharmaceuticals after hours, Darren stopped laughing. And when the camera captured the profile of yet another intruder a few nights later, the Lezdeys had an inkling something was seriously awry.

For the past five years, the family has been embroiled in a fierce patent battle with an ex-business partner, with accusations of misconduct fired by both sides. The stakes are high: At issue are rights to a substance with multimillion-dollar market potential. Their former partner's company, Arriva Pharmaceuticals in Alameda, Calif., has won backing from giant Baxter Healthcare to develop one possible use for the product, alpha 1-antitrypsin, or AAT.

The Lezdeys could never figure out how their ex-partner, Dr. Allan Wachter, knew their legal strategy and their new company's business plans. They didn't know why promising partnership talks suddenly went cold. And they couldn't imagine why an investor abruptly withdrew his support.

Then the Lezdeys say their hidden camera began snapping photos of strangers standing near AlphaMed's only computer in the middle of the night. Nothing was damaged or appeared to be missing. So why were people breaking into a floundering little startup that was barely paying its bills?

Wachter's lawyer, David Tierney of Scottsdale, Ariz., said allegations his client was involved in any burglaries or unethical behavior are based on nothing more than "rank conjecture and wildly drawn inferences."

They say such claims are last-ditch efforts by the Lezdeys to evade justice in the Arizona courts, where Jarett and Darren's father, John Lezdey, has been found guilty of contempt and perjury and his sons have been slapped with a multimillion-dollar judgment.

"Their allegations are pretty amazing," Tierney said. "And I think they'll be proven to be false."

But two months ago the Lezdeys learned Wachter, 47, had been keeping a close eye on them for years.

In connection with the Arizona case, in April the Lezdeys' lawyer deposed George Spinelli, a private investigator and former FBI agent from Scottsdale. Spinelli said he had been hired by Wachter in August 1999 to investigate the Lezdeys and AlphaMed.

Spinelli said the investigation started after Jarett Lezdey allegedly threatened Wachter's wife and children. Jarett Lezdey denies the accusation.

Spinelli said he hired former FBI colleagues in the Tampa Bay area to follow the Lezdeys at work and home and report on their actions. Local detectives sent their boss thousands of AlphaMed documents, which Spinelli said had been pulled legally from trash bins on public property in front at the AlphaMed office, then in Clearwater.

Spinelli testified that he tried, unsuccessfully, to persuade FBI agents in San Francisco and Tampa to investigate the Lezdeys on accusations ranging from violence to trade secret theft to bankruptcy fraud. He and Wachter's lawyer also met with a Phoenix FBI agent who subsequently questioned the Lezdeys' key investor and AlphaMed's chief financial officer. The investor soon ended all funding of the Lezdeys' company.

Spinelli produced four bankers' boxes of documents related to the investigation, which he said "has never ended."

The Lezdeys, whose Largo company is on life support, were stunned by the intensity of Spinelli's investigation and the accusations against them.

"I was so sick in the stomach, reading about stuff I never did," said Darren Lezdey, 40, about allegations in the Spinelli file that he and his brother had thrown acid on cars and shot out windows at Arriva's office in California, which they adamantly deny. "We had no idea this stuff existed."

Despite the cross-currents of accusations, neither Darren and Jarett Lezdey nor Wachter has been arrested or convicted of any criminal wrongdoing.

The Lezdeys claim there's no way the documents Spinelli produced came from their office trash. Among the allegedly discarded items, the Lezdeys said they found a strategic business plan stamped "confidential," detailed notes of discussions with their attorneys and a blank company check.

The Lezdeys also say they started using a shredder before disposing of important papers in October 1999. Spinelli said the trash-picking started the following month.

"When you pull stuff out of the trash, it's potluck," said Jarett Lezdey, 38. "They were targeting specific documents in our office and breaking in to get them."

Spinelli and his detectives, meanwhile, have defended their surveillance techniques, saying all of the Lezdeys' documents were salvaged from trash cans on easily accessible public property.

"I never authorized anyone to go onto private property to take trash," Spinelli said during his deposition. "As far as I know, everything was taken from the curb."

"Senile mastermind'

John Lezdey, 72, is a tall man with a commanding presence but a tendency to let his two adult sons take the floor. He speaks up only occasionally to make a slight correction of a name or a date. He laughs at being called a "senile mastermind" by his ex-business partner's lawyer.

"How can I be senile and be a mastermind?" he asks in a broad New York accent.

Lezdey was trained as a research chemist at Rutgers in New Jersey, then received his degree in patent law from Brooklyn Law School in New York, as well as a master's degree in law from Georgetown University. Over a long career with both drug companies and law firms, he continued dabbling in clinical research. By the mid 1980s, he had become intrigued by potential uses for AAT, a naturally occurring protein released into the blood stream to protect tissue cells from damage caused by enzymes produced as the result of infections or inflammations.

Lezdey, who was then living and working in Cherry Hill, N.J., wasn't alone in recognizing the potential curative powers of AAT. Bayer Pharmaceuticals produces an AAT-based drug to treat hereditary emphysema. But that drug, Prolastin, uses AAT derived from blood plasma, a very expensive process. Lezdey was looking at other possible applications for AAT, as well as possible synthetic sources.

In 1986, he teamed up with Wachter, an allergist doing his fellowship research at the University of Pennsylvania. "Nobody believes a patent attorney could come up with miracle drugs," Lezdey said of the partnership. "He gave credibility to our discoveries. He didn't have the money and I didn't have the reputation."

Together, Lezdey and Wachter received 17 patents involving uses or production of AAT, but they didn't have the resources to bring their ideas to market. In 1992 they formed a holding company that owns the patents and a licensing company to market them. Lezdey's son Darren, who has a marketing degree from Rutgers, was in charge of business development at the licensing company. Younger son Jarett, who has a Rutgers degree in management, was chief executive.

In 1997, the senior Lezdey, chairman, president and majority shareholder of the licensing company, signed a term sheet with Arriva, then known as AlphaOne. The agreement gave Arriva the right to develop certain of the AAT patents provided it met specific financial and scientific milestones. Philip Barr, a scientist in San Francisco, headed the company. Lezdey's two sons, who were living in Clearwater, were in charge of business development and marketing.

By late 1998, John Lezdey said, he was ready to end the agreement with Arriva because he said it was burning through money without showing any progress.

Wachter, meanwhile, has testified that Lezdey was determined to destroy Arriva and repeatedly alienated potential investors.

Out of Arriva

What happened next is in dispute, but the upshot is not: By March 1999, John Lezdey and his sons had been forced out of Arriva. They then discovered Wachter and Arriva's board had signed, without Lezdey's knowledge or consent, a deal to develop the AAT patents with Baxter.

Two months later Wachter and Arriva filed a slew of lawsuits in several states claiming breach of fiduciary duty against Lezdey, his wife and sons, saying they had tried to interfere with the Baxter deal. All suits but one, in Arizona, were eventually dropped.

A Baxter spokeswoman said the company has no involvement in Wachter's patent dispute with AlphaMed and declined to comment further.

The Lezdeys regrouped in Clearwater in July 1999 to form a new company, AlphaMed. Still believing in the potential of AAT, the sons remembered how, during their father's research in the early 1990s, they had successfully used AAT on themselves and the family dog for eye and ear infections. They also had an idea for mass production of AAT from a certain kind of yeast cells. Arriva, meanwhile, was experimenting with AAT from another species of yeast.

Determined to reach market first with a commercially viable AAT product, the Lezdeys began filing for patents for unique AAT uses and production methods. AlphaMed now holds 14 patents and has five pending.

They persuaded Bob Williams, a Clearwater investor, to put $1.5-million into the company. Williams' lawyer, Michael Weber, joined the company as chief financial officer. AlphaMed hired an experienced biochemist and partnered with the University of Nebraska to develop a production process. Things seemed to be moving forward while the legal battles with Wachter continued in Arizona.

In late 2000, the Lezdeys say, their company began hitting a brick wall. Promising but highly confidential conversations with two potential partners, one in the Netherlands and the other in Maryland, abruptly ended. Executives with both companies later said they had been contacted by Arriva representatives who told them AlphaMed was under a court injunction not to do business in the area of AAT. While legal action was pending against the Lezdeys, they said there was no action against their company at the time.

Williams, their sole investor, suddenly reneged on an agreement to put more money into AlphaMed and his representative, Weber, left the company. Unknown to the Lezdeys, both men said they had been intimidated into withdrawing their support after being interviewed in spring 2001 by an FBI agent, James Conner, who said he was investigating the company.

At Williams' request, Conner faxed a note on FBI letterhead from his Phoenix office, saying, "I am in the course of my official duties as i contact you and request information." The error is in the original.

Conner's questioning came six months after documents show FBI officials in Tampa told Spinelli their investigation into the Lezdeys had been closed for lack of evidence.

(Conner is no longer with the FBI in Phoenix; an FBI official declined to comment on the case.)

Short of money and desperate for partners, AlphaMed also appeared to be losing its competitive advantage. On its Web site, archrival Arriva touted potential application of AAT for ear and eye infections. This was precisely the area in which AlphaMed had received patents.

While their business was falling apart, unaccountably strange things were also happening at the office. Their alarm system was going off so often - with apparently nothing missing - that by April 2000, the city of Clearwater issued a warning.

A stranger, who turned out to be a local detective hired by Spinelli, was seen taking photos of the AlphaMed office the same day the Lezdeys found their alarm system ripped loose and office door unlocked. They later learned the same detective, a former FBI agent, had quizzed their alarm installer about details of AlphaMed's security system and had asked the property manager for access to AlphaMed's office, which was denied.

(The detective, Norman Transeth, denied breaking into AlphaMed's offices and he was never charged with any wrongdoing. Spinelli testified that he hired Transeth to question AlphaMed's creditors, including its alarm installer, in connection with possible bankruptcy fraud involving a related Lezdey company.)

Financially drained but determined to fight, in late 2001 the Lezdeys retained Miami lawyer James E. McDonald, a former federal prosecutor and FBI agent, to prepare a lawsuit against Arriva for patent infringement and false advertising.

In January 2002, John Lezdey filed for personal bankruptcy, an action that effectively stopped Wachter's lawsuit against him in Arizona.

The cases proceeded against his wife and sons, who then had no legal representation and did not even show up in court. The Arizona judge ruled against the sons in early 2002, ordering them to pay Wachter $17-million in damages.

Mired in a legal mess partly of their own making, in late 2002 the Lezdeys persuaded Los Angeles attorney Douglas Rovens to help them fight the Arizona cases on a contingency basis.

"When I first heard their story, I was skeptical," Rovens said. "But after they spent three days with me, I was convinced they had been wronged. And I couldn't let the other side get away with this."

The judgment in Arizona, which the Lezdeys say they have no ability to pay, brought an unexpected advantage. Because the award included payment of Wachter's legal fees, Tierney's firm had to submit detailed billing on the case. The bills referred to meetings with an FBI agent named Conner.

The Lezdeys' Miami lawyer successfully subpoenaed the FBI's documents. Those files led to information about Spinelli, who revealed the long-running investigation of AlphaMed and the Lezdeys.

Hearings are now under way in Arizona on the Lezdeys' motion to have Wachter's lawyers disqualified and the breach of fiduciary duty lawsuit against John - and the $17-million judgment against his sons - dismissed.

The grounds: Regardless of whether they were taken from the trash or through break-ins, the AlphaMed documents that Spinelli forwarded to Wachter and his attorneys contained Lezdeys' confidential legal information.

Pilfering documents from an opponent's trash has had serious legal consequences: A California court recently dismissed a long-running lawsuit against Walt Disney Co., known as the "Winnie the Pooh" case, for similar conduct.

Rovens, the Lezdeys' lawyer, said the material provided by Spinelli "showed the Lezdeys' legal analysis and case planning."

"And once an opposing party has received that privileged information, there's no way to undo what has been done," Rovens said.

Tierney, meanwhile, said he never saw any privileged information until he reviewed the material before recent hearings. He said the Lezdeys' motion is simply an effort to evade court-ordered justice in Arizona.

"The court has ruled against them, and their allegations now are pretty desperate attempts to undo judgment," Tierney said.

Arriva still at work

While the Lezdeys run AlphaMed from low-rent offices in Largo, Arriva says on its Web site that it and Baxter have started human clinical trials of an AAT product for hereditary emphysema.

The Lezdeys would like to believe that the tide has finally turned their way. But one piece of the puzzle eludes them.

Who, they still wonder, is the fat-faced, balding guy caught on the spy camera in their office last October? What was he looking for? And, more importantly, who hired him?

The Lezdeys say an AlphaMed shareholder has offered $5,000 for information that leads to the arrest and conviction of the mysterious intruder they call "Fat Face."

Detective Randy Chaney of the Largo Police Department said he has ruled out anyone with a legitimate reason to be in AlphaMed's offices, like the landlord, cleaning service or maintenance workers, and he welcomes any leads. The investigation into AlphaMed's break-ins, he said, is ongoing.

- Times researcher John Martin contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.

[Last modified June 18, 2004, 19:19:04]

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