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Open Mouth, Insert Foot: Sequenom Sued by CFO for Defamation

How's this for chutzpah: the Sequenom (SQNM) CFO who resigned over a data corruption scandal last year has sued the company for defamation even though Sequenom said little more about the executive other than he had quit. The move adds one more distraction for Sequenom CEO Harry Hixson Jr., who is a named defendant in the case. Hixson is also dealing with a Department of Justice investigation, several lawsuits and a probe by the SEC. His former R&D chief, Elizabeth Dragon, is now cooperating with the SEC in its inquiries.

Oddly, the former CFO -- Paul Hawran -- may have a case even though his hara-kiri act last September suggested he accepted responsibility for his role in the scandal. Sequenom was forced to go back to the drawing board in research for its Down Syndrome test when an internal investigation revealed that its data had been corrupted and that investors had been given wrong information on Sequenom's clinical results.

This is what Sequenom said on the day Hawran quit:

The company has terminated the employment of its president and chief executive officer, Harry Stylli, Ph.D., and its senior vice president of research and development, Elizabeth Dragon, Ph.D., effective immediately. In connection with the termination of Dr. Stylli's employment, the company's board of directors has requested that he resign as a director, which he is obligated to do under the terms of his employment agreement.
The company has obtained the resignation of its chief financial officer, Paul Hawran, and one other officer. The company also terminated the employment of three other employees. While each of these officers and employees has denied wrongdoing, the special committee's investigation has raised serious concerns, resulting in a loss of confidence by the independent members of the company's board of directors in the personnel involved.
The added emphasis is mine: Sequenom may have defamed Hawran by giving vague reasons for requesting his resignation. Sequenom has still not detailed exactly what went wrong inside its labs, although a legal settlement offered some clues.

Crucially, it failed to release the internal special committee report that led to the resignation demand. Even if Hawran was responsible for the failure at Sequenom, all the company has actually done is publish that it asked him to leave after a "loss of confidence." It hasn't offered a shred of evidence about Hawran to back that up -- and that's pretty much a textbook legal definition of defamation. (Of course, one assumes Sequenom is prepared to put on a robust defense.)

Ironically, had Sequenom been fully transparent -- and released details of how the data corruption occurred and why R&D chief Dragon misled investors -- it may have insulated itself from a claim. Or, it could have said nothing at all (although saying nothing about the departure of your CFO would have been difficult).