Illumina: Chair Doubles Down on SEC Violations

Illumina's Boardroom Culture is Broken

I’m not sure why Illumina’s Chairman John Thompson is doing what he’s doing, but I’ve seen enough of these situations to know whatever is going on inside Illumina’s Boardroom is indicative of a broken culture.

Here, I’ll say it again:

Illumina’s Board culture is broken.

For the record, I consider myself a topical expert on Boardroom culture, and have discussed, engaged, and researched this topic in-depth with public company directors.

It’s one thing to engage and debate dissenting perspectives earnestly and in “good faith”, but that’s not what Mr. Thompson is doing. Instead, he’s doubling down on SEC violations and misleading shareholders on an extremely important question:

How much money did Illumina insiders (past and present) make from splitting-off and subsequently re-acquiring Grail?

It’s one thing to side-step the questions and issues I raised, but Mr. Thompson is misleading voters by omitting material facts. His transgression is so blatant and egregious that I wouldn’t dismiss the possibility John Thompson ends up resigning from Microsoft’s Board once this saga is all said and done.

Disclaimer: This newsletter is not investment advice. Views or opinions represented in this newsletter are personal and belong solely to the owner and do not represent those of companies that the owner may or may not be associated with in a professional capacity, unless explicitly stated. As previously disclosed, I submitted an SEC whistleblower tip regarding the Illumina situation.

Chairman Doubles Down on SEC Violations

Let’s get right into it. This response by Chairman John Thompson is an SEC violation:

On conflicts of interest, there is an important question I would like to put to bed: “Did any Illumina directors have a financial interest in GRAIL at the time of the acquisition?” This question is not a matter of interpretation or explanation. The answer is simply no. As we have said before, no director who oversaw any part of the GRAIL transaction has ever owned any equity interest in GRAIL – that includes Jay Flatley, Francis deSouza, myself, and any member of the Board now or at the time of acquisition. In addition, no executive officers of Illumina held GRAIL shares at the signing or closing of the GRAIL acquisition (including indirect ownership interests such as through trusts, LP or GP stakes in investment vehicles, or through derivative securities), other than Alex Aravanis, who Illumina had hired from GRAIL, and Mostafa Ronaghi, Illumina's former CTO, who received GRAIL shares upon joining GRAIL's Board in May 2020. The economic interests and relationships of these individuals with GRAIL were fully disclosed to, and known by, Illumina and its Board, and, consistent with good corporate governance practices, both were recused from any decisions to sign and close the GRAIL acquisition. In addition, Illumina’s Board engaged Goldman Sachs as its financial advisor in connection with the GRAIL acquisition and Goldman, acting exclusively for Illumina, delivered a customary fairness opinion to Illumina’s Board immediately prior to Illumina entering into the GRAIL acquisition agreement.

I’ve already explained why I believe Illumina’s original reply to the questions and issues I raised are:

1) misleading,

2) omitting material facts, and

3) worthy of an SEC whistleblower complaint.

This follow-up response is Mr. Thompson rehashing and doubling down on the aforementioned violations.

As we have said before, no director who oversaw any part of the GRAIL transaction has ever owned any equity interest in GRAIL – that includes Jay Flatley, Francis deSouza, myself, and any member of the Board now or at the time of acquisition.

I’m already on record stating this doesn’t address equity interests held in other investment vehicles (i.e. this statement only refers to the “person”) nor explicitly acknowledges the directors who were required to recuse themselves.

Now, Mr. Thompson’s response does add new (misleading) color that actually emphasizes my point:

In addition, no executive officers of Illumina held GRAIL shares at the signing or closing of the GRAIL acquisition (including indirect ownership interests such as through trusts, LP or GP stakes in investment vehicles, or through derivative securities)

As mentioned previously, this statement intentionally doesn’t include Illumina directors (in particular Jay Flatley) and the various investment vehicles they might have held Grail equity interests in. The key phrase here is “no executive officers”.

We factually know Jay Flatley was no longer an employee of Illumina (as of January 1, 2020), but continued to serve as Chairman when the company approached Grail regarding an acquisition. Basically, this “no executive officers” statement does not apply to Mr. Flatley, a key figure in the questions and issues I’ve raised. How convenient.

Audit Committee Quagmire

When discussing the possibility Illumina committed “fraud by omission”, I was very clear that Illumina’s lawyers have a duty - per Sarbanes-Oxley - to immediately report material violation of securities laws, a breach of fiduciary duty , or a similar violation by the company.

The problem here, though, is the violation in question is being committed by Chairman John Thompson. How exactly does a lawyer go “up-the-ladder” from a reporting perspective when the violator is 1) Chairman of the Board and 2) member of the Audit Committee that is responsible for overseeing such violation notifications?

Audit Chair Caroline Dorsa might be stuck in a quagmire.

Chairman is Isolated

I think it’s also important to note and call out that only Chairman John Thompson signed-off on this latest “doubling down” reply.

It seems very clear to me the Board collectively wants no part of this messaging after I initially called them out, and Mr. Thompson might be defending against the questions and issues I raised on his own.

When it comes to high stakes issues, Board consensus and showing a unified front matters. If the Board isn’t willing to sign-off on this SEC violating response, that’s very telling. I suspect there are individuals on the Board that recognize this “response” is not only wrong, but done in “bad faith”.

Goldman Sachs

Since Mr. Thompson voluntarily brought up Goldman Sachs, I think it’s fair game to address my concerns regarding Goldman’s involvement advising Illumina on the Grail acquisition:

In addition, Illumina’s Board engaged Goldman Sachs as its financial advisor in connection with the GRAIL acquisition and Goldman, acting exclusively for Illumina, delivered a customary fairness opinion to Illumina’s Board immediately prior to Illumina entering into the GRAIL acquisition agreement.

Goldman Sachs is one of Grail’s IPO underwriters while concurrently “acting exclusively” for Illumina on the Grail acquisition, and received compensation for Grail’s Series B round (additional filings: 1,2,4).

As far as I’m concerned, if it turns out Goldman Sachs played a key role advising and/or facilitating Grail transactions to help Illumina inside inappropriately generate an undisclosed financial windfall, they’re potentially a liable party and might be required to “disgorge profits”. In this instance, I don’t think their “customary fairness opinion” matters all that much given the potential conflicts and liability of their conduct.

Simply put, Illumina shareholders should have valid concerns and questions regarding Goldman Sachs’ involvement and role in all of this!

The Achilles’ Heel of “High Quality” Companies

I’ve said this time and time again, but corporate governance is the Achilles’ heel of “high quality” companies. Illumina’s Boardroom culture is arguably broken, and if the questions and issues I’ve raised turn out true, Mr. Thompson’s “culture killing” presence not only has no business being inside Illumina’s Boardroom, but has no business being a part of other Boards, including Microsoft.