Third Lawsuit Claims Biote CEO, Chairman, Aided by Law Firm, Conspired to Direct BioTE Holdings, LLC into SPAC Transaction to Enrich Themselves

July 16, 2024 – A third lawsuit filed by Brewer, Attorneys & Counselors alleges that company executives from Irving-based Biote Corp. – aided by the Cooley LLP law firm – breached their duties to plaintiffs by channeling the hormone therapy company into a value-destructive special purpose acquisition company (“SPAC”) transaction.

The lawsuit was filed by co-trustees of The Yosaki Trust and The Mioko Trust, Russell J. Miller and Mary Miller, on July 12, 2024, in the Court of Chancery of the State of Delaware.

The suit was brought against Biote CEO Teresa “Terry” Weber, Executive Chairman Marc Beer, Mary Elizabeth Conlon, Haymaker Sponsor III LLC, Steven J. Heyer, and Cooley LLP. Haymaker was the SPAC company that acted as the sponsor of the transaction and Cooley acted as outside counsel. The complaint states that the Cooley firm acted in aiding and abetting defendants’ breaches of their fiduciary duties.

The lawsuit alleges that “The Insider Defendants conspired to close this disastrous transaction to divert approximately $70 million of merger consideration to themselves and gain control of an enterprise they did not build. Plaintiffs respectfully request that the Court order Defendants to disgorge their ill-gotten gains.”

The filing follows a recent settlement with shareholder Marci Donovitz over similar issues.

As explained in the filing, a SPAC – also known as a “blank check company”—is a shell company set up by a sponsor that goes public without an operating business to raise funds, but with a plan to find a target private company with an operating business with which it would merge within a fixed period, usually two years.

“Our clients believe this case reveals a startling fact – company insiders worked with a blank check company and a law firm to enrich themselves and dilute the ownership interest of others,” says William A. Brewer III, partner at Brewer, Attorneys & Counselors, and counsel to plaintiffs.

The lawsuit alleges that plaintiffs’ ownership was diluted and devalued by the transaction, which enriched defendants at the expense of the legacy owners – plaintiffs bring the action to recover damages caused by the “disloyal fiduciaries, and those who aided them.”

As  publicly reported, Biote was a recent defendant in a separate lawsuit filed by Biote founder and Brewer client Dr. Gary Donovitz regarding the SPAC deal. As reported, in February 2024, Biote disclosed it agreed to buy back nearly $77 million of Dr. Donovitz’s stock to settle the matter. In July 2024, it was reported that Biote reached a $60 million settlement with another shareholder Marci Donovitz, also a Brewer client.

Bloomberg Law and The Dallas Morning News Report on $60 Million Shareholder Settlement with Biote

July 8, 2024 – Bloomberg Law and The Dallas Morning News report that Biote reached a $60 million settlement with Brewer, Attorneys & Counselors client and Biote shareholder Marci Donovitz in a lawsuit over its merger with a special purpose acquisition company, also known as a “SPAC” or “blank check company.”

Bloomberg Law reported that Donovitz alleged her shares in the hormone therapy company were diluted by the deal. The article reported that the company will buy back her shares over a three-year period, with $30 million paid upfront. Bloomberg reports that the lawsuit filed in Delaware Chancery Court alleged that Biote company insiders benefited from the transaction with Haymaker Acquisition Corp. III that delivered almost no cash to the company.

“This settlement validates our client’s claim that the transaction was a scheme to enrich a few company ‘insiders’ – and reward them with financial and managerial benefits to which they were not entitled,” William A. Brewer III, a partner at the Brewer firm, said in a statement quoted in the media reports.

The Morning News report noted that as part of the settlement, Biote will be forced to repurchase all 8.3 million of Donovitz’s shares at $7.23 each.

The Morning News article observes that SPACs were once a very popular way for companies to go public but have faced scrutiny from the Securities and Exchange Commission in recent years.

Read the Bloomberg Law report here and The Dallas Morning News report here.

Biote Shareholder Achieves $60 Million Settlement of Breach of Fiduciary Duty Claims

July 3, 2024 – Brewer, Attorneys & Counselors announced today that its client, Marci Donovitz, reached a $60 million settlement with the company. The settlement resolves a lawsuit alleging that Biote executives breached their fiduciary duties by channeling the hormone therapy company into a speculative transaction with a special purpose acquisition company (“SPAC”) which provided almost no cash for the merger.

The lawsuit was filed by Ms. Donovitz on June 5, 2024, against defendants Biote CEO Teresa “Terry” Weber, Biote Executive Chairman Marc Beer, Biote General Counsel Mary Elizabeth Conlon, Haymaker Sponsor III LLC, Steven J. Heyer, and Cooley LLP. Haymaker was the SPAC sponsor for the transaction and Cooley advised those involved with the deal. Ms. Donovitz is the trustee of the Donovitz Family Irrevocable Trust and a BioTE Holdings, LLC shareholder.

The lawsuit alleged that “Defendants knew for months that astronomical redemptions would eviscerate almost all the cash raised by the SPAC and would cause the transaction to be destructive of value. Nonetheless, Defendants proceeded with their scheme to enrich themselves.” The lawsuit further alleged that as part of the transaction, defendants improperly diverted $70 million from the deal to Biote executives and $135 million in cash and stock in total to all defendants.

“This settlement validates our client’s claim that the transaction was a scheme to enrich a few company ‘insiders’ – and reward them with financial and managerial benefits to which they were not entitled,” says William A. Brewer III, partner at Brewer and counsel to Ms. Donovitz. “Our client hopes this outcome lights a path for those victimized by similar deals. This case underscores the rights of those too often viewed as pawns in these speculative pursuits.”

As explained in the underlying lawsuit, filed in The Court of Chancery of The State of Delaware, a SPAC – also known as a “blank check company” – is a shell company set up by a sponsor that goes public without an operating business to raise funds, but with a plan to find a target private company with an operating business with which it would merge within a fixed period, usually two years.

Ms. Donovitz is the ex-wife of Biote founder Dr. Gary Donovitz, who the lawsuit contends was tricked into waiving a minimum cash closing condition just days before the SPAC deal was completed on May 26, 2022.

As has been publicly reported, Biote was a defendant in a separate lawsuit filed by Dr. Donovitz regarding the SPAC deal. As reported, in February 2024, Biote disclosed it agreed to buy back nearly $77 million of Dr. Donovitz’s stock to settle the matter.

In addition to breaches of fiduciary duties, the lawsuit by Ms. Donovitz also alleged that defendant Biote executives negligently “misled Plaintiff’s trustee regarding the likely impact of this Merger on the value of her shares, failed to disclose material information regarding the risks of this SPAC transaction (including the possibility that it would provide virtually no cash), and failed to disclose that these risks had materialized.”

Under the terms of the settlement with Ms. Donovitz, Biote will repurchase all of the approximately 8.3 million shares she owns. At an average of $7.23 per share, the payout will occur over a three-year schedule:  approximately 4.1 million shares valued at $30 million immediately, followed by 1.4 million shares valued at $10 million for each of the next three years.

Bloomberg Law, Law 360 Report on Lawsuit Against Cooley LLP and Biote Insiders

June 6, 2024 – Bloomberg Law and Law360 report on a lawsuit brought by Brewer, Attorneys & Counselors on behalf of Marci Donovitz against Cooley LLP and Biote company insiders concerning a special purpose acquisition company (SPAC) merger with the hormone therapy company Biote .

The lawsuit filed in Delaware Chancery Court concerned the 2022 merger of Biote with Haymaker Acquisition Corp. III, a SPAC company.  The reporting noted that the defendants — including Cooley lawyers, SPAC founders and company insiders – failed to disclose material aspects of the deal as it deteriorated.

Bloomberg Law notes that the family trust , the Donovitz Family Irrevocable Trust, says its holdings were diluted in favor of the corporate insiders. Law360 writes that the lawsuit contends that the insider defendants conspired to close the merger for their own benefit.

In a statement, William A. Brewer III of Brewer, Attorneys & Counselors, counsel for the trust and its trustee Marci Donovitz, said: "The lawsuit reveals the inner workings of a scheme to enrich a few — at the expense of the owner who built the company. Our client believes a handful of insiders conspired to secure lucrative benefits to which they were not entitled."

Bloomberg Law noted that the SPAC market has “all but evaporated” as a growing number of deals resulted in litigation that alleged they benefitted insiders rather than helping companies grow.

Read the Bloomberg Law article here.

Read the Law360 article here.

Lawsuit Claims Biote CEO, Chairman Conspired to Direct BioTE Holdings, LLC into SPAC Transaction to Enrich Themselves

June 6, 2024 – A lawsuit filed on behalf of Brewer, Attorneys & Counselors client Marci Donovitz alleges that the chief executive officer and chairman of Irving-based Biote Corp. breached their duties to plaintiff and others by channeling the hormone therapy company into a value-destructive special purpose acquisition company (“SPAC”) transaction.

The lawsuit was filed by Ms. Donovitz, the trustee of the Donovitz Family Irrevocable Trust and a BioTE Holdings, LLC shareholder, on June 5 in the Court of Chancery of the State of Delaware.

The suit was filed against Biote CEO Teresa “Terry” Weber, Executive Chairman Marc Beer, Mary Elizabeth Conlon, Haymaker Sponsor III LLC, Steven J. Heyer, and Cooley LLP. Haymaker was the SPAC company that acted as the sponsor of the transaction.

“The lawsuit reveals the inner workings of a scheme to enrich a few – at the expense of the owner who built the company,” says William A. Brewer III, partner at Brewer, Attorneys & Counselors, and counsel to Ms. Donovitz. “Our client believes a handful of insiders conspired to secure lucrative benefits to which they were not entitled.”

As explained in the filing, a SPAC – also known as a “blank check company”—is a shell company set up by a sponsor that goes public without an operating business to raise funds, but with a plan to find a target private company with an operating business with which it would merge within a fixed period, usually two years.

Ms. Donovitz is the ex-wife of Biote founder Dr. Gary Donovitz, who the lawsuit contends was tricked into waiving a minimum cash closing condition just days before the SPAC deal was completed on May 26, 2022.

As has been publicly reported, Biote was a recent defendant in a separate lawsuit filed by Dr. Donovitz by Brewer regarding the SPAC deal. As reported, in February 2024, Biote disclosed it agreed to buy back nearly $77 million of Dr. Donovitz’s stock to settle the matter.

The lawsuit alleges that “Defendants knew for months that astronomical redemptions would eviscerate almost all the cash raised by the SPAC and would cause the transaction to be destructive of value. Nonetheless, Defendants proceeded with their scheme to enrich themselves.”

The lawsuit alleges that BioTE Holdings, LLC was channeled into the SPAC transaction that improperly diverted $70 million from the deal to Biote executives for their own enrichment and $135 million in cash and stock to the defendants. Plaintiff alleges that their actions resulted in her suffering hundreds of millions of dollars in damages and the dilution of her equity and voting power.

In addition to breaches of fiduciary duties, the lawsuit also alleges that defendant Biote executives negligently “misled Plaintiff’s trustee regarding the likely impact of this Merger on the value of her shares, failed to disclose material information regarding the risks of this SPAC transaction (including the possibility that it would provide virtually no cash), and failed to disclose that these risks had materialized.” The lawsuit also alleges that the Defendants were unjustly enriched.

Ms. Donovitz requests that the court order relief including the disgorgement of profits and forfeiture of ill-gotten gains, including the forfeiture of cash or equity obtained in the merger. The lawsuit also requests monetary damages.