Ex-business partner of North West surgeon accused of defrauding medical device company he started

About a decade ago, a Northwestern University surgeon and his longtime friend, working in partnership, started a company to commercialize the doctor’s potentially lucrative medical invention.

The device, called Duramesh, is used to repair muscles, tendons and ligaments. It got approval from the US Food and Drug Administration earlier this year.

But now Dr. Gregory Dumanian and Mark Alan Schwartz are now adversaries in a lawsuit. And Schwartz faces new federal charges accusing him of defrauding the companies they started together.

Schwartz and Dumanian had been friends for more than 20 years, according to court records.

Dumanian, 61, is chief of plastic surgery at the Feinberg School of Medicine at Northwestern University. He specializes in abdominal wall surgery, including tummy tucks and hernia repair. In 2001, he created a procedure that is performed worldwide for amputee pain, according to an academic profile of him.

Schwartz, 61, is a lawyer and a graduate of the University of Illinois School of Medicine, records show.

Because Dumanian is an employee of the Northwest, the school owns the patent for his Duramesh invention. In 2012, however, he and Schwartz formed Advanced Suture, Inc., and the university agreed to let the company sell the invention, with Northwestern receiving royalties from future sales.

In 2015, Dumanian and Schwartz created a new corporate structure. Mesh Suture, Inc., which would raise capital, sell the Duramesh device and pay royalties to Advance Suture, which would pass the royalties on to Northwestern. Mesh Suture has raised more than $10 million from nearly 50 investors to pay for its efforts to gain FDA approval for use of the invention.

In 2019, however, the two old friends were at odds. Dumanian filed a still-pending federal lawsuit against Schwartz that year, accusing him of attempting to steal Mesh Suture’s property.

Now, a federal grand jury in Chicago has indicted Schwartz for fraud. The indictment, filed on December 8, says he waged a “multi-year campaign” to take over Duramesh-linked companies and their assets and reward himself and his family with fraud, identity theft and a “series of opaque stock trades”.

In court on Tuesday, Schwartz pleaded not guilty and was released pending trial.

Schwartz is accused of transferring $324,000 from Mesh Suture to his personal bank accounts in March 2019 and falsely claiming the money came from a company-approved loan.

He drained the company of more than $3.9 million after Dumanian fired him as CEO of Mesh Suture in August 2019, according to the indictment. Schwartz is accused of holding the money “hostage” until Dumanian agrees to restore him as CEO and give him full control of the company.

Dumanian says the “emergency” deal is invalid because he was coerced into approving it.

In a court filing in the civil case, Schwartz denied any wrongdoing, said Dumanian was “paranoid” and that his trust was “limited only to members of his own family.”

Schwartz lives in Puerto Rico, according to Mark Flessner, his attorney. Dumanian’s records and trial show that Schwartz also owned a mountainside home in a wealthy enclave near Vail, Colorado.

In addition to its partnership with Dumanian, Schwartz’s law firm represented a company that purchased liens on properties, often for small sums, and charged owners thousands of dollars in fees to prevent foreclosure in Washington, D.C. , and elsewhere, the Washington Post reported in 2013.

In 2019, the tax lien business “ceased to exist” and Schwartz began having “cash flow issues,” according to the Chicago lawsuit.

Schwartz is licensed to practice law in Illinois. In 2000, the Illinois Attorneys’ Registration and Disciplinary Commission reprimanded him for what it said was a misleading letter he sent to doctors offering to represent them in medical malpractice cases.

Contributor: Jon Seidel