Cover Story: Sex, lies and lawsuits

Mike Smith's charm is irrefutable. He's got an easygoing, self-effacing attitude, a goofy grin pasted beneath burning blue eyes and a velvety Alabama drawl that can lay a doubt to rest. For any entrepreneur, salesman or CEO — all of which Smith is — these are qualities to covet.
Unfortunately, those qualities alone can't keep Smith's company from wasting away.

Sales of BioMedical Disposal Inc.'s sole product — a device that incinerates used needles, rendering them harmless — are practically non-existent. Half its employees have been laid off. And as it turns out, the very charm that has helped Mike Smith cultivate BioMed may trigger its demise.

In a lawsuit filed in March in federal court, three former employees accuse Smith of being, essentially, the boss from hell. According to the 29-page sexual harassment complaint, Smith coerced women who worked for him into sleeping with him, too.

The allegations go beyond the garden-variety office dalliances, and they describe a charm that deteriorated into tyranny. The three employees — two of whom are sisters — claim Smith referred to them as his "sex slaves," that he considered their having sex with him to be part of their jobs, that he hit them during sex, that he liked to be called "Mike Daddy," that he videotaped his office trysts, and that, at one point, he said, "Everyone fucks. You should be using your body to do your job."

Norcross-based BioMed is a privately held dwarf of a company compared to the corporate giants spotlighted nationally for very different allegations of accounting irregularities and extravagant CEO spending. Nobody at BioMed is accused of anything like that. But, in two respects, Smith's story sounds a bit like the now-familiar tales of selfish corporate executives who squandered employees' retirement plans: His company is in deep trouble, and he's accused of wielding his power to exploit people entrusted to his care.

In court papers, Smith denies the employees' charges. And he claims in a separate lawsuit that the allegations were circulated expressly to hurt him. Just last month, Smith filed suit against the company's former president, Richard Vogel. It was Vogel who first brought the women's allegations to the board of directors and wanted to investigate them — a move that Smith claims, in his lawsuit, defamed him.

In an interview, Smith declined comment on specific issues raised in either the women's or his lawsuit. "We can't be as candid with those issues relating to the litigation," says Joe Chancey, one of the attorneys representing Smith. "But I would just say to you, when the proof comes out in the case, it's going to be dramatically different than what you read in the complaint. And it's going to be interesting."

Based on the lawsuits that have sprung up from the women's allegations — along with interviews with the CEO himself and some of his past employees and business associates — there are two very different Mike Smiths. One is a devoted CEO, driven to overcome his company's many obstacles. The other is a boss more obsessed with sex than business, about to face his biggest obstacle yet. Either way, each side paints a picture of a CEO, and a company, on the edge.

In a Dec. 28, 2001, e-mail to the board of directors, BioMed president Vogel wrote about a phone call he received a few days earlier from an employee named Melanie Rost. Rost, like Vogel, was spending Christmas with family in San Antonio, and she had asked if Vogel would meet with her the day after Christmas.
"At the meeting, Melanie presented a variety of claims against Mike Smith," the e-mail states, "including rape, prostitution/ pimping, illegal drug use, fraud, misrepresentation, sexual harassment and abuse."

Rost, who was Smith's executive assistant, told Vogel that six female employees formed Smith's sex ring, according to the e-mail, which prompted Smith's lawsuit against Vogel. Rost's sister Laura, who also worked for Smith, confirmed the allegations, the e-mail states.

"The illegal activities were conducted primarily on BioMed's premises, specifically, Mike Smith's office suite," Vogel wrote. He let the board know in the e-mail that he had already hired an attorney to investigate the matter and had arranged for the company to interview five female employees that day.

"I am at the service of the Board for any discussions or actions that the Board deems necessary," the e-mail concluded. It would later be attached to the defamation lawsuit Smith filed against Vogel.

Within eight months of the e-mail, Vogel and Laura Rost were fired. Melanie Rost (along with half of BioMed's staff) was laid off. And three lawsuits were served, one to BioMed's president and two to its CEO, threatening the end of a once-promising company.

BioMed was supposed to be the culmination of 20 years of Mike Smith's bright businesses ideas. Over his professional life, he had started numerous companies. He says he liked being his own boss, in part because it allowed him time off to pay hospital visits to his daughter, who was born with cerebral palsy and a brain defect. (Now 20, she still lives with her parents.) The Georgia Secretary of State's website lists Smith as CEO in nine businesses formed from 1980 to 1993, prior to BioMed.

Smith says most of the companies he ran were small, with a few million dollars in annual sales. They ranged from computer service and software writing to fiber optics and robotics.

"What I really do," says Smith, sitting at the head of BioMed's conference table, "is I manage companies that manufacture things."

When he heard about needle destruction devices, Smith was almost ready for a new challenge.

In February 1992, Richard Yelvington, an inventor-for-hire, was admitted to a Jacksonville, Fla., hospital because of complications from knee surgery. After one of countless injections, Yelvington watched as the nurse set the syringe on a tray. She carried the tray away, and the needle rolled off the tray and pricked her hand.
"She was extremely upset," Yelvington recalls. "And I asked her what the problem was, and she said, 'Look, do you have any diseases I need to worry about?'"

He answered no. "It didn't assuage her any," he adds. She told him it was her third needle stick in four years.

Yelvington was under contract to construct the blueprint for a device that would microwave large amounts of medical waste. He decided he would pitch to his employer a similar concept for a smaller device, one that would incinerate contagious needles.

Yelvington's employer turned him down, telling him that inventors had attempted such machines and had failed to make them small enough to be handy. But Yelvington, with the aid of a private investor, succeeded in building one of the first viable needle destruction units. Three years after his conversation with the nurse, he traveled to Atlanta with the hopes of finding someone to buy the patent for his needle destruction unit.

"In the right hands," Yelvington says in an interview, "it could do a lot of good."

He called machine manufacturers listed in the phonebook, which ultimately led him to Mike Smith.

In talking with Smith, it's clear how passionate he is about business and the art of the deal. His eyes glitter and get all squinty; as he smiles, his eyebrows arch and his tanned face crinkles kindly under his shock of salt-and-pepper hair.

"The possibility of making anything work," he says, "and believing that technology in America could be developed beyond any other country ... was just pounded into me for my whole youth."

When Yelvington first approached him, the technology Smith had developed at his latest company, Carisys, was about to be sold and the business dissolved. Carisys had developed a meticulously designed "carrier tape" to be fed into computers, allowing the computers to work at a super-fast rate — faster than any other tape would then allow, according to Smith.

Looking at Yelvington's invention, Smith saw a new opportunity. With a few hundred thousand dollars from investors, he bought the patent from Yelvington. In 1996, BioMedical Disposal Inc. was born.

BioMed's first two years hummed along at a slow but steady pace. Smith, his assistant and an engineer formed the bulk of the company's staff, passing hours in a two-room office in Norcross, researching the ins and outs of the machine's design, figuring out the best way to build it en masse and poring over U.S. Food and Drug Administration paperwork for pre-market approval.
Smith says he attracted at least one heavyweight investor, who would fund most of the company's $17 million operating costs over the next six years. Up front, Smith says, he was able to raise $3 million from other investors. And he recruited an impressive board of directors, including attorney Marvin Rosen, with the firm Greenberg, Traurig, LLC; and Dr. Michael M.E. Johns, chairman and CEO of Emory Healthcare. (Rosen, who recently left the board and whose secretary said he is out of the country, did not return phone calls; Johns declined comment.)

Passing the FDA's muster was the first hurdle before Smith's needle destruction device, which he named SharpX. "You have to spend millions of dollars before you can get FDA to say, 'OK, you can go ahead and make it now,'" Smith says.

In August 1998, SharpX earned FDA approval. By the start of 1999, BioMed was printing SharpX brochures.

A page of BioMed's website, which has since been removed from the Internet and which CL obtained through a Web-archive site, describes how in late 1998 and 1999, BioMed landed several contracts for SharpX units, which could net an estimated $60 million in sales or leases.

But Smith says little of the $60 million materialized.

BioMed's current website describes another 1999 lease contract with a distribution company, Remel, that forecasted three-year revenues of $21 million. A statement attributed to Smith, posted on the website, reads: "BioMed's contract with Remel marks a significant milestone in the commercialization of our products and services."

SharpX, however, didn't really fit in Remel's product line, according to a Remel clinical market manager in Lenexa, Kan., who said the contract with BioMed fizzled after only a few sales.

Smith told CL there's a good reason — and an unanticipated one — why SharpX didn't catch on the way he hoped. In 1999, he says, he became "painfully aware" of legislation brewing in several states that proposed different ways to handle needles — ways that did not include needle destruction units but focused on safety needles, which retract into a sheath immediately after injections.

"Once we had tackled the technical barriers of the product, and the financial barriers of the product and the market barriers of the product, suddenly we're facing this legislative barrier," Smith says. The push for safety needles "would, of course, threaten the survival of a company like ours that is tackling the same problem from a different angle."

David Perry, who joined BioMed in late 1998 as vice president of administration and services, says that as with every small company trying to make it big, there were inherent challenges BioMed faced. At the time, the biggest would be lobbying.

"We were against the giants, with huge amounts of money," says Perry, who left the company over a year ago. "In other words, if we were trying to show regulators how we could accomplish what they were after, somebody else with a lot bigger checkbook was trying to do the same thing."

Still, Smith fought. He shifted some of his existing staff to new positions for manning the lobbying effort, and he hired state Rep. Michele Henson, D-Stone Mountain, as a public affairs manager to work outside Georgia.

"There was a leaning toward safety needles as the only solution," says Henson, who worked at BioMed from 1998 to 2000. "And I believed that there should be alternatives. Once we explained and demonstrated the units, people were more receptive to the SharpX product."

Smith says lobbying efforts paid off in 14 states — even though the company came late to the lobbying race. BioMed would even fare well through the passage of the federal Needlestick Safety and Prevention Act, which then-President Bill Clinton signed in late 2000 and which permits needle destruction units as a way to stop the spread of disease.

But in the scramble to win favor in state legislatures and Congress, BioMed's staff didn't have time to devote to marketing and, besides, Smith notes, the market couldn't accept SharpX without first getting legislative approval.

Sales and production of SharpX entered a state of limbo.

An official at Moll Industries, the North Carolina manufacturer that built SharpX units, says BioMed never paid for all the machines that Moll was supposed to construct. Partway through the order, debt mounted and construction came to a halt — and Moll settled the deal by handing unassembled SharpX parts to BioMed in exchange for partial payment, the official said. The official could not give the dollar amount of the settlement.

The toll of the legislative battle is also apparent in a lawsuit filed against BioMed by a New Jersey lobbyist, who alleged that the company was $28,000 behind in payments to his firm. Gwinnett County State Court documents show the case was settled for $15,000.

More illustrative of BioMed's financial woes, however, is a copy of an e-mail attached to the lobbyist's lawsuit. The September 2000 e-mail, from BioMed's then-CFO Eric Karl to lobbyist Joseph Ackourey, reads: "Our current financial situation precludes paying the amounts due. In fact, we are more passed sic due with others. ... I can give no guarantee that our financial situation will improve."

To make matters worse, a year later the U.S. Occupational Safety and Health Administration, which had to rewrite its regulations to comply with Congress' needlestick act, did not favor SharpX as much as it did safety needles, at least in Smith's eyes.

A May letter from Smith's Washington attorney George Salem to OSHA's deputy assistant secretary of labor says: "BioMedical Disposal was surprised to learn that Ms. Amber Hogan, of the OSHA Office of Compliance Assistance, has been advising employers that needle destruction devices such as ... SharpX Needle Destruction Unit are 'noncompliant.'"

Yet Hogan, a compliance inspector with OSHA, says she never gave anyone the idea SharpX was compliant or not compliant. She says OSHA doesn't endorse products and typically leaves the decision up to the hospital or clinic. She also says she gets inquiries about SharpX every day and that "people either love it or hate it."

Smith is nearing the end of his company's battle with bureaucracy. Hogan says OSHA is readying a formal reply to BioMed's attorneys explaining the agency's stance.

But BioMed's challenges are far from over. More difficult to weather than any legislative battle or any apparent slight by OSHA are the allegations of a different problem at BioMed — one arising from within Smith's office suite.

BioMed's two-story brick building is painfully ordinary, another facade of tinted windows in the repetition of office parks and strip malls that cut across the northern suburbs.
But a federal lawsuit's description of what's going on inside is anything but ordinary. The allegations cast Smith as a relentless sexual harasser, hiring women on the promise of bettering their careers and then advancing them — or merely giving them their paychecks — in exchange for sex.

The three plaintiffs, who worked as Smith's executive assistants and secretary during 2000 and 2001, declined comment due to the pending litigation. (Smith's and BioMed's attorneys claim the secretary was never an actual employee of the company but worked as an independent contractor for a sports promotion company of Smith's, housed in BioMed's building.)

"Our clients attempted to resolve this matter both internally and informally and were rebuffed," the women's attorneys, Jay Rollins and Julie Northup, wrote in a statement to CL. Northup explained that minus a thorough internal investigation by BioMed — and because of the company's unwillingness to discuss what happened — the women felt the courts had to take over. "To ensure that other women are not forced to endure what our clients went through, their only remaining option was to proceed with litigation."

CL was able to contact another woman who used to work at BioMed; she said she quit last year, after just two months of employment. But after speaking with the plaintiffs' attorneys, the woman, Kimberly Butler, said she was not comfortable with CL printing her comments because she may become a fourth plaintiff in the case.

The earliest of the lawsuit's allegations supposedly took place in 1999, at about the time SharpX sales stalled because of emerging legislation and before the plaintiffs were hired. The lawsuit states that two women complained to BioMed's management that year about Smith's behavior, and that a temp agency began refusing to send women to BioMed due to a similar complaint it had received.

In court papers, Smith's attorneys acknowledge that the agency, TRC Staffing, won't contract with BioMed but deny that it was because of Smith's actions. The agency declined comment.

The lawsuit's description of Smith's sordid affairs in the following years, with Lori Brewer and the two Rost sisters, paints a graphic, even lurid, picture of Smith's alleged harassment.

With all three women, Smith quickly turned on the charm, according to the lawsuit, telling them they would be invited into his "inner circle," that they would be his "proteges" and that they would receive "special treatment not available to others." It goes on to say how Smith promoted Brewer within the first six months of her May 2000 hire, moving the recent University of Georgia graduate into an office adjacent to his.

With the Rost sisters, who came to work for Smith about five months after Brewer's departure in December 2000, the lure was that he'd help them set up their own chiropractic clinic, the lawsuit claims.

The lawsuit says Smith quickly switched gears from calculated manipulation to outright threats. At first, he was the doting boss, promising to take care of his proteges. Later, he turned into a hostile dictator, the lawsuit states, telling the women "once you're in, there's no out," "you like to be scared," "no one says no to me," and "you'd better be really nice to me if you want to keep working."

Again, in the legal response to the lawsuit, Smith denies the threats and sexual demands — but does suggest that at least some of the affairs occurred, and that the women willingly got involved with him.

"Some or all of Plaintiffs' claims," the document states, "are barred by the doctrine of consent."

Consent — which is only one of Smith's defenses — may not help him, says Margaret Nichols, an Atlanta psychologist who has treated victims of sexual harassment. The argument that consent ameliorates harassment is especially weak, Nichols argues, when it's an employer who relies on it. The boss has an advantage over his employees, she says, namely power, and the employee might have a hard time turning him down.

"When you look at it from the cold light of day, of course you can say no," Nichols says. But when a woman fears losing her job, consent may not really count, says Nichols.

"I think there is a subliminal message in society that a woman's bill of commerce is sex," she says. "And a lot of women don't believe that, but a lot of women do — that when push comes to shove, the primary thing they have to offer a more powerful man is sex. The message is beginning to change, but it's still there."

Parts of the lawsuit also raise questions as to whether the relationships were always consensual.

When the women appeared reluctant to act on Smith's desires, the lawsuit states, he pushed them, grabbed their hair or gave them Xanax, an anti-anxiety medication, to subdue them.

And when the time came that the women wanted to quit, the lawsuit alleges, Smith tried to stop them.

In December 2000, Brewer told Smith she could no longer endure the work environment at BioMed, according to the lawsuit. Smith didn't want to let her go, threatening to give her a bad recommendation and withhold pay — unless she signed a waiver stating she wouldn't sue him or the company, the lawsuit claims. In exchange for signing the waiver, Brewer would receive 5,000 shares of company stock. The stock, according to BioMed's website, was worth $3 per share in 1998.

The lawsuit states Brewer signed the waiver. (It also alleges that the waiver can't legally stop Brewer from suing.)

In court papers, Smith's attorneys claim that waiver should prevent Brewer from successfully suing Smith and the company. Smith's and BioMed's attorneys also allege that Brewer drew up the waiver herself. Beth Reeves, an attorney for BioMed, said the waiver was a formality, applying only to Brewer because stock was part of her severance package.

"It's typical, in general, that whenever an employee is given some kind of severance package, the employee signs a release of claims against the employer," says Chancey, Smith's attorney. "I'm not aware that either Melanie Rost or Laura Rost was presented with any kind of release, and they did not receive a severance package."

Yet the lawsuit says Melanie and Laura Rost did receive a similar waiver when they left BioMed and that neither of them signed. Both Rost sisters instead filed a complaint with the Equal Employment Opportunity Commission, and the EEOC granted them right-to-sue notices in March, according to their lawsuit. Although the notices are not mandatory for filing a federal sexual harassment suit, they do "represent a 'reasonable cause' to believe discrimination has occurred," the EEOC's website states.

The lawsuit also alleges that Smith had told Melanie Rost to mull over her decision to quit while she spent the Christmas holidays in Texas. Rather than do that, however, Rost called BioMed's president, Vogel, the lawsuit states, and she told him her story.

Vogel could not comment on the e-mail he sent to the board outlining Rost's claims, his termination a month-and-a-half later, or the breach of contract lawsuit he subsequently filed, according to his attorney in Texas, Mark Greenwald. Vogel's complaint, filed in U.S. District Court in Texas, where he lives, alleges Smith fired him for no reason and refused to pay him $875,000 in severance — the equivalence of three years' pay.

According to a copy of Vogel's October 2000 employment contract, which is attached to his lawsuit, BioMed can deny his severance only on the following grounds: felony conviction, death, physical disability, embezzlement, willful dishonesty or gross negligence.

Neither Smith nor any of his attorneys would comment on the Vogel case — or the defamation suit Smith then filed against Vogel in Fulton County Superior Court.

Smith is suing Vogel for spreading via e-mail the "false and malicious claims" — but he's not suing the women who originated them.

Smith's lawsuit asks for $5 million in damages. It alleges that Vogel orchestrated the women's allegations because he wanted the board to oust Smith and name him CEO.

The board and the outside company that handles BioMed's human resources, Inovis, investigated the women's claims, says Reeves, the attorney defending BioMed in the women's lawsuit, and found they were "unsubstantiated."

According to the women's lawsuit, however, someone at BioMed first told Melanie Rost that "her statement and others like it would result in ... Smith's dismissal." But, as it turned out, Smith gained the board's support, the women's lawsuit states.

Laura Rost was fired Jan. 2, five days after Vogel e-mailed the board. The reason: "unexplained absences" during her vacation in Texas, according to the women's lawsuit. (The lawsuit claims BioMed had, in fact, approved her vacation days in advance).

Melanie Rost was laid off two weeks after her sister "due to a financial crisis that had resulted in a significant reduction in force," the women's lawsuit states. Smith told CL that a potential investment fell through in January, forcing him to lay off half his 28 employees. His defamation lawsuit mentions how the company lost a potential $15 million investment from an unnamed source in New York.

Vogel was fired about a month after Melanie Rost. Like the breach of contract suit Vogel filed against BioMed, Smith's subsequent defamation suit against Vogel doesn't say why the president was fired. But Smith's suit does blame Vogel's e-mail for the company's "loss of earning capacity."

And it says, "The defamatory statements made by Mr. Vogel concerning Mr. Smith continue to follow Mr. Smith to this day."

At the point in Smith's interview when there is mention of the women's lawsuit, Smith frowns. It is the only time he does so during the two-hour conversation.
As the corners of his mouth turn down, and the slack of his skin loosens, you can see some of his 51 years in the puffiness under the eyes and in the jowls hanging lightly off his cheeks. The eyes grow round and big and the face long, distraught and untrusting.

"I am concerned about sensationalisms that are not true, and are simply allegations that could hurt this company and could hurt me," Smith says as the interview winds down. "Things that I know, in the end, are going to be very different than what you see today. When there are massive layoffs in companies, things happen. People are angry."

Even with its empty desks and SharpX's so-far empty promise of multimillion-dollar sales, BioMed can still make it, Smith believes. He says he recently donated a few hundred SharpXs to the Red Cross, which found them to be useful and sent him a letter stating the organization endorses SharpX's use. He says he's signed contracts for the distribution of SharpX with two companies, Physicians Sales and Supplies, and Allegiance. And he says his Washington lawyer is working with OSHA on clarifying the merits of SharpX.

"They've got a very nice product," says Ron Stoker, founder of International Sharps Injury Preventions Society. "Needle incineration is one of the methods OSHA has approved. Some of the OSHA inspectors have been putting down that particular product. I think it's just a specific interpretation by a group of inspectors."

Once he hears something from OSHA, Smith plans to continue what he says he's been doing all along: trying to make a sound business succeed despite the legislation and ongoing litigation that threatens his and BioMed's future.

"We do face a crisis at the company," Smith says. "A lot of companies today face crisis. They don't need to face additional crisis."

mara.shalhoup@creativeloafing.com