Death of a cancer lab
Once-thriving publicly funded research program driven into bankruptcy by questionable characters
FEW PLACES HAVE the resources and brain power to match Boston when it comes to biomedical research, including the search for effective ways to treat and prevent cancer. Internationally renowned hospitals, combined with some of the leading universities in the world, make the region a magnet for top researchers and the funding that fuels their quest to advance knowledge.
Lynn Hlatky and her team at the Center of Cancer Systems Biology, operating out of Steward Health Care-owned St. Elizabeth Medical Center in Brighton, were in the thick of that research mix and had an audacious goal. Hlatky’s lab team, which started up in 2006, wasn’t just trying to find a cure for cancer; their aim was to prevent it. They wanted to develop an anti-cancer vaccine and their research was showing promising results, with millions of dollars in federal and private grants flowing their way.
Hlatky, a cancer biologist and the lab director, and her colleague Philip Hahnfeldt hold at least six patents stemming from their work and have published scores of research papers in medical journals. They were sought-after speakers at conferences and seminars attended by the top cancer researchers in the world. Their work drew grants not only from the National Cancer Institute, but also from NASA and the Department of Energy, to determine how cancer cells respond in space and when subject to radiation.
The result was waste, mismanagement, and allegations of fraud involving more than $32 million in taxpayer money and, even more devastating, the destruction of thousands of laboratory vials of biological samples that were the product of eight years of cutting-edge research. Hlatky says the discarded material held important clues for not just treating, but potentially preventing, the disease.
“We were paid $30 million to do this,” she says unabashedly, “and we were worth every penny.”
But in late 2013, the lab began to dissolve as money slated for the research operation went into accounts that lab administrators no longer could access or audit. By the summer of 2015, all the years of science and research came to a screeching halt as a new board of directors terminated all the lab staff and four days later filed for bankruptcy protection, seeking to sell off the equipment and, more importantly, the intellectual property in the lab to the highest bidders.
The dismantling of the lab, operating under a non-profit called GeneSys Research Institute, and loss of all the work and effort was abetted by the misrepresentations of a smooth-talking operator named David A. Horowitz, who cajoled his way on to the board without so much as a Google search of his background. Horowitz later muscled out Steward’s own appointee to the board and gave seats to his longtime business partner, Charles J. Newman, as well as Boris Epshteyn, a lawyer and controversial Republican strategist who briefly served as a White House aide to President Trump.
Hlatky and her colleagues thought the state attorney general’s office, which oversees and regulates nonprofits operating in Massachusetts, would step in. But the office appears to have written off evidence of potential wrongdoing brought forward by lab employees and financial administrators. The AG’s office also did not seem moved by evidence about the shady histories of new board members at the center, court filings suggesting that Horowitz was withdrawing grant money for personal use, or concerns that Steward was improperly commingling funds between unrelated nonprofits.
The end came last summer when, over the objections of the Department of Justice as well as pleas from Hlatky to let her find another lab to continue her work, a federal bankruptcy judge allowed the auction for pennies on the dollar of millions of dollars of equipment paid for by the government and gave the bankruptcy trustee the go-ahead to destroy the research samples.
Nearly all of the parties involved, except the lab researchers themselves, declined to comment on the death spiral of a once-thriving research operation. But there is voluminous information in hundreds of court documents, state and corporate records, letters, emails, memos, and elsewhere to piece together a tale of deceit and misdirection that set back years of work fighting a deadly disease and cost taxpayers millions of dollars.
TOO GOOD TO BE TRUE
To Steward Health Care, the state’s only for-profit hospital network, the bottom line is the bottom line. So when the company took over the Caritas Christi hospital system from the Boston Archdiocese in 2010, it inherited nonprofit pieces it had no interest in running.
One of those pieces was the Center of Cancer Systems Biology, one of 12 national cancer systems biology labs funded by grants from the National Cancer Institute. Steward spun off the lab into a nonprofit named Steward Research and Specialty Projects Corporation, an umbrella group that not only oversaw the cancer research lab but a hodgepodge of other nonprofit and social programs, including a domestic violence center funded and operated by the Massachusetts Office of Victim Assistance, chaired by the attorney general, who at the time was Martha Coakley.
But not long after that, Steward looked to cut ties with the nonprofit by removing Steward President and CEO Ralph de la Torre and corporate counsel Joseph Maher as officers and directors. The organization was renamed GeneSys Research Institute and Dr. Peter Catalano, a Steward surgeon, was tapped to helm the organization’s board of directors. He began searching for other board members, hopefully deep-pocketed, who could come in, contribute to the research center, and perhaps draw in other donors.
Enter David A. Horowitz, who in October 2012 was referred to Catalano by a patent attorney he knew, according to a deposition Catalano gave in a suit against Steward by Hlatky, the former lab director. Horowitz and his business partner, Charles Newman, were presented as benefactors of a cancer treatment center at Tufts Medical Center called the Newman-Lakka Institute for Personalized Cancer Care. The attorney told Catalano that Horowitz would be a good fit for GeneSys, and at their first meeting in November, Horowitz brought a photo of himself and Newman presenting a check for $2 million to Tufts to seed the cancer center there.
“[The attorney] had mentioned to us that Mr. Horowitz was very interested in research and looking to expand the program [at St. Elizabeth] and this might be a great synergy if he would be able to work with us and if we’d talk to him,” Catalano said in his deposition. “So I had set up a dinner meeting with him originally, and it turned into two or three different dinner meetings to see if he was, No. 1, interested, [an] appropriate candidate, and what his thoughts were about this entity going forward.”
Horowitz was, indeed, interested, but as for being an appropriate candidate, there wasn’t much vetting to determine that beyond Catalano’s dinner meetings. Had there been, simple court and records checks and internet searches would have uncovered a trail of personal bankruptcies and corporate fiscal mismanagement by Horowitz and Newman. The record includes judgments and fines against them involving stock fraud in Michigan, Minnesota, and New York, and a finding by a Massachusetts Housing Court judge that Horowitz was indigent in an eviction case against him just three years before presenting himself to Catalano as a wealthy benefactor.
As for the $2 million gift to Tufts, it turns out the photo represented a pledged donation that was never fulfilled. The failure to receive the money resulted in the closing of the cancer center at the hospital, according to people familiar with the situation. A spokesman for Tufts declined to answer questions about the pledge, only confirming that the center has been shut down.
“All issues between Tufts Medical Center and the donor have been resolved and we no longer have a relationship with the donor,” said spokesman Jeremy Lechan.
“Issues,” it seems, trailed Horowitz at least as far back as 1992, when he first filed for personal bankruptcy. According to records, since that time he has been part of at least a dozen legal and professional actions, including suits, fines by the Securities Exchange Commission, enforcement actions by the private Financial Industry Regulatory Authority, and corporate bankruptcies involving at least seven companies connected to Horowitz and Newman.
Records indicate that one of the troubled companies, West America Securities Corp., listed Boris Epshteyn, who is married to Newman’s niece, as managing director of business and legal affairs. West America Securities had nearly a half-million dollars in judgments entered against it and its officers over a 15-year period before going out of business in 2013.
Another of Horowitz and Newman’s companies, ViuRX Pharmaceuticals, was set up in Nevada but later run out of Horowitz’s apartment at Longfellow Place in Boston. The company’s chief operating officer from 2006 to 2008 was Dr. Thomas Dahl, another Horowitz associate who would eventually land on the GeneSys board of directors and become part-time CEO of the nonprofit.
Horowitz was sued for nonpayment of rent at Longfellow Place and sought to be declared indigent in 2008 during his eviction proceedings in state Housing Court. The judge approved the request.
Despite that problem-filled past, Catalano brought Horowitz onto the board of directors of the cancer lab at the beginning of 2013. Four months later, Catalano stepped aside as head of the lab’s board and Horowitz managed to consolidate complete control over the research center.
According to court records from the ongoing GeneSys bankruptcy case, Horowitz had accused Steward of self-dealing by appointing an employee as an officer and board member of a legally independent nonprofit and of commingling funds without following proper accounting procedures.
In the bankruptcy case, Clare Lamont, a former researcher at the center, acting as her own attorney, questioned Horowitz during a June 2016 deposition. He admitted leveling accusations at Catalano before the Steward surgeon left the board.
“Did you ever accuse [Steward CEO] Dr. Ralph De La Torre or Peter Catalano of Steward Health Care, LLC, of violating state and federal non-profit laws with regard to their fiduciary responsibilities?” Lamont asked, according to a transcript.
“I believe I did to Catalano, but I never met Ralph De La Torre,” Horowitz responded before his attorney cut the questioning off.
Not long after that conversation between Horowitz and Catalano, Catalano left his position on the board and Horowitz, who became president as well as a board member, brought Newman and Epshteyn on to complete the takeover. Horowitz and Newman declined comment through their attorney. Epshteyn did not respond to an email or a request for comment left at his White House office prior to his departure in March.
Steward spokesman Jeff Hall said the change in directors on the board was not a result of threats and was done “in accordance with the entity’s bylaws.” He said Steward didn’t do background checks on Horowitz or Newman because it was no longer involved with the nonprofit.
“Steward did not play the lead role in recruiting them,” Hall wrote in an email.
“This is a big deal,” says Hlatky, who has a filed suit against Steward for breach of contract. “They were supposed to be watching. If you get a job as a janitor at Steward, you have to do a CORI check. No one checked these guys out.”
The attorney general’s office, through its Public Charities Division, has wide latitude in regulating operations of nonprofits in Massachusetts. In addition to being the repository for mandatory tax and administrative filings, the office is charged with ensuring directors and officers exercise their fiduciary responsibility to meet and guard a nonprofit’s interest. In the case of GeneSys Research Institute, however, the office showed a puzzling unwillingness to use that authority, despite considerable evidence of improper activity.
State Rep. Denise Provost of Somerville looked into the GeneSys case at the urging of Christine Briggs, one of her constituents who was a researcher at the lab and was fired in a purge by Horowitz. She says she could tell just from looking at records that the new board members were not experienced people.
“These looked like flim-flam guys who had been placed in a fiduciary capacity of what should have been a nonprofit,” Provost says. “They were not a group of people in whom I felt confidence.”
Not long after Horowitz and Newman took control of the center, researchers and administrators at the lab became wary of them, alleging among other things that the pair shielded government grant money in accounts that were not accessible to the people who audited them and signed for disbursements. The researchers and administrators alleged that millions of dollars were spent without documentation. They claimed nearly $8 million targeted for the lab was placed in a Bank of America account controlled by Steward.
According to the center’s nonprofit tax forms, Horowitz received no compensation from the research institute. But records filed in the bankruptcy case show that, on several occasions, he withdrew cashiers’ checks for tens of thousands of dollars written to himself.
Winifred Nwangwu was director of research administration and operations at the lab when Horowitz arrived and he later made her the corporate treasurer and clerk, according to records with the secretary of state’s office. But she was fired by Horowitz after raising concerns about how the bank accounts with the grant money were being handled and brought her concerns to the state officials at the end of 2013.
In testimony in 2014 in connection with a claim for unemployment, Nwangwu said she created a new account to hold and keep track of the nonprofit’s grant money, which was her responsibility under the contract with the government. The new account required Horowitz to get her signature if he wanted to make a withdrawal.
Nwangwu claimed she was fired after refusing to pay legal fees Horowitz said were owed because she did not receive a detailed invoice for the services. The hearing officer sided with Nwangwu and overturned an initial denial of her claim for unemployment benefits.
In January 2014, Hlatky and her co-investigator, Hahnfeldt, went with their lawyer to meet with First Assistant Attorney General Chris Barry-Smith, now a judge, and an assistant attorney general, Mary Beckman. They asked the office to intercede and help remove Horowitz and Newman. They brought what they said was evidence of misappropriation of funds, including the cashiers’ checks made out to Horowitz.
In May 2014, as the attorney general’s office was making inquiries, Horowitz notified Hlatky that her contract, which would expire in September of that year, would not be renewed even though the federal grants that were made to GeneSys were awarded specifically for Hlatky’s research and could not be used if she was no longer a part of the lab. In August 2014, GeneSys notified the remainder of the lab employees that they, too, would likely be terminated because of the impending loss of the grant money stemming from Hlatky’s termination.
Hlatky and Hahnfeldt were not the only ones to go to the attorney general’s office. Researchers, technicians, and administrative employees who were laid off without notice or accrued compensation also filed complaints with the AG’s office, alleging the organization’s leadership was mismanaging funds and, with the termination of Hlatky, failing its fiduciary responsibility by axing the center’s one grant recipient.
Barry-Smith and Beckman declined to intervene, insisting they saw no evidence of malfeasance. In June 2015, Beckman sent Hlatky, Hahnfeldt, and their lawyer a letter saying the office was ending its review of the case, pending any new information coming to light. Beckman said the researchers’ complaints seemed to stem from friction between management and employees.
Emily Snyder, a spokeswoman for Attorney General Maura Healey, said the office did not identify evidence to support allegations that charitable assets had been misappropriated or find evidence that would trigger a suit against the nonprofit.
Beckman, in her letter, acknowledged Steward had comingled funds for different nonprofits, a violation of accepted accounting practices. She made no mention of other alleged irregularities the researchers had brought to the office’s attention. But she did say Horowitz and Newman were not managing the nonprofit in line with best practices and said the office had urged them to bring people on the board with more experience and independence.
“The Division suggested to GRI’s [GeneSys Research Institute] directors that they should add independent board members (i.e., people who were not paid by GRI and did not have other relationships with GRI personnel or GRI competitors) who could provide additional expertise, oversight, and guidance,” she wrote.
In her letter, Beckman touted the addition of Dr. Thomas Dahl and Mark Zuroff to the board, but she failed to note—or was unaware—that both had ties to Horowitz and Newman. From 2006-2008, Dahl, according to his resume, was president and chief operating officer of ViuRX Pharmaceuticals, the defunct company Horowitz and Newman ran into bankruptcy. According to records at the Nevada secretary of state’s office, Horowitz was CEO and on the board of directors and Newman was treasurer and secretary of the company as well as a member of the board.
Zuroff, whom Beckman praised for having “financial and turnaround experience,” had indirect ties to Horowitz and Newman. He was recommended by an attorney who had done legal work for GeneSys.
The public charities office’s lack of interest in the backgrounds of Horowitz and Newman was puzzling to Provost, the Somerville state lawmaker, given the attorney general’s role in protecting charitable assets. Provost spoke with Beckman and asked her why the long trail of apparent malfeasance seemed to carry little weight in the attorney general’s investigation.
Provost summed up her conversation with Beckman by saying the assistant attorney general believed “it’s not a requirement of law to pass a CORI check to become a fiduciary of a non-profit.” The lawmaker said “it seemed like an odd defense for an assistant attorney general to make. Horowitz and his colleagues seem to not have the remotest qualification to run a research lab. They seemed utterly sketchy and not qualified for their position. I was a bit taken aback that an assistant attorney general should be so dismissive of the scientists.”
The demise of the cancer research lab is troubling in two important ways. Because it was federal grant dollars that funded most of the research, it was taxpayer money that was ultimately squandered, some of it still unaccounted for. And the promising advances Hlatky and her team were making in their research are now lost in the quest to understand how to prevent and treat cancer.
The bankruptcy is still ongoing and Horowitz continues to squeeze money out of GeneSys. In May 2015, just 60 days before the nonprofit filed for bankruptcy, Horowitz entered into an agreement signed by Dahl, his former colleague at ViuRX who shared duties as CEO of GeneSys with Horowitz, to be paid more than $28,000 retroactively for consulting services.
In a letter dated May 14, 2015, Dahl agreed to pay Horowitz’s consulting firm, DAH Advisors, $6,250 a month from January 1 of that year through May. He also agreed to pay $75 per hour for as much as 80 hours a month in services, which Horowitz, through his company, claimed as a creditor in the bankruptcy case because of the contract.
The agreement appears to violate state charity laws on self-dealing as well as federal bankruptcy laws dealing with payments within a certain period before a court filing. But Horowitz, in a motion filed in February, argues there was nothing untoward in accepting the cash.
Hlatky thought she could use the federal bankruptcy proceedings to salvage the research and the expensive equipment paid for with government contracts in order to restart the lab. The veteran cancer researcher even had the Department of Justice in her corner. Because the equipment was paid for with federal dollars and the biomaterials were the result of the research, lawyers for the Justice Department filed briefs arguing that GeneSys didn’t own the assets, the public did.
“As recognized by the First Circuit (and other circuits), property acquired by a debtor with funding through federal grant programs remains an asset of the federal government rather than becoming a part of the debtor’s estate,” lawyers wrote on behalf of the Department of Energy. “The biological samples, and the control over their disposition, do not belong to the debtor or Steward; they belong to DOE.”
The Department of Energy’s “legal interest and the public interest align to require the transfer of the equipment and the materials to facilitate Dr. Hlatky’s continuing research, rather than be sold to an unknown party or disposed as trash (as suggested by the Trustee),” argued the government lawyers.
In another brief, energy department lawyers informed the judge that Hlatky had an agreement with Tufts Medical Center to restart her lab there. Tufts later withdrew that offer.
Harold Murphy, the bankruptcy trustee in the case, insisted all of the assets of the nonprofit belonged to the company’s estate and should be used to pay off creditors. He urged that the equipment be sold and he recommended the biomaterials be destroyed because it would be too costly to maintain them.
Last June, Judge Joan Feeney, a 25-year veteran of the US Bankruptcy Court in Boston, approved Murphy’s motion. “The trustee has incurred costs and substantial professional fees in responding to the barrage of objections and motions filed by Hahnfeldt and Hlatky, who appear not to recognize that a bankruptcy trustee cannot magically produce funds for a defunct entity regardless of the valuable and ground-breaking research that it once performed through their auspices. The positions espoused by Hahnfeldt and Hlatky throughout this case have been all talk, but no action,” she said.
The lab equipment was sold for far less than it was worth. A $500,000 confocal microscope, for instance, went for a high bid of $10,000. The biomaterials were shipped to an incinerator and destroyed.
Feeney, who did not respond to a request for comment, served in the same law firm as Murphy more than 25 years ago. Murphy also declined comment.
Steward petitioned the bankruptcy judge to allow it to sever its lease agreement with GeneSys and force the destruction of the biological materials. The hospital chain was suing Genesys for more than $8 million at the time; the health care company claimed it had paid millions of dollars in bills incurred by the nonprofit but had never been reimbursed by grant money.
That suit was later settled with a confidential agreement that included Steward allowing GeneSys to remain as a tenant at St. Elizabeth’s even though there would not be an operational lab and little likelihood of grant money coming in. Steward also agreed to pay GeneSys $750,000, rather than recouping any of the $8 million it had claimed it was owed.
To Hlatky, the lost biomaterial samples were priceless, the result of years of testing and discovery. The vials included cells from livers, pancreases, brains, and other rodent organs that held vital clues to how cancer forms and spreads. It would take another $10 million and at least six years just to return to where she was in the research when the samples were destroyed, Hlatky says.
“Doctors treat and cure patients one at a time,” says Hlatky, who continues to review grants for the federal government and speak at seminars while awaiting another research opportunity. “We’re trying to cure people a million at a time. The vials are the research.”