The scion of a prominent Iranian-Canadian family has resigned as chief executive officer at a Toronto Stock Exchange-listed fund after it said it’s investigating at least $7.5-million in irregularities in reimbursements for his expenses.
DRI Healthcare Trust DHT-UN-T, which invests in pharmaceutical royalties, said Monday it “demanded and received” the immediate resignation of Behzad Khosrowshahi from its board and as CEO. The news drove the price of the trust’s units down more than 30 per cent in Monday trading. They closed at $11.17, a nearly 27-per-cent decline from Friday’s closing price.
The trust said Mr. Khosrowshahi also resigned as CEO of DRI Capital Inc., the investment company that manages the trust. DRI Capital is owned by Persis Holdings Ltd., the family holding company for Mr. Khosrowshahi’s parents Hassan and Nezhat Khosrowshahi, the founders of electronics retailer Future Shop.
Persis Holdings lists Hassan Khosrowshahi and Behzad Khosrowshahi as its top two executives. Behzad Khosrowshahi was 54 at the time DRI Healthcare Trust released its annual management information circular in late March.
The trust also said Monday that Chris Anastasopoulos, the chief financial officer of both DRI Healthcare Trust and DRI Capital, has been suspended with pay, pending the outcome of the investigation.
Hassan Khosrowshahi, Behzad Khosrowshahi and Mr. Anastasopoulos could not be reached for comment Monday.
DRI Healthcare Trust says the investigation concerns “alleged consulting and other expenses presented by Behzad Khosrowshahi to DRI Healthcare and the Trust for reimbursement.” The company does not say how the issue came to light, except that it says the independent members of the board of the trust were “made aware of these alleged irregularities.”
DRI Healthcare Trust says it cannot determine the amount it’s owed, but the current estimate is about $7.5-million.
DRI Healthcare Trust says DRI Capital “is co-operating fully” with the investigation, conducted by a team of independent legal counsel and forensic accountants, and directed and overseen by the trust’s audit committee, which is made up of independent trustees. DRI Healthcare Trust says DRI Capital has committed to full restitution and has made an immediate payment to the trust of $7.5-million.
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Ali Hedayat, who has been named interim CEO of DRI Capital, said DRI Healthcare Trust and its board “have the full support” of DRI Capital and Persis Holdings. “We are working together to ensure a smooth and stable transition,” he said in Monday’s statement. Mr. Hedayat, managing director of Toronto financial firm Maryana Capital, has been serving as a non-independent director of DRI Healthcare Trust.
DRI Healthcare Trust said Gary Collins, the chair of its board, will be the interim CEO of the trust. Mr. Collins was a senior adviser at asset manager Lazard Canada Inc., and had top executive roles at Coastal Contacts Inc., Belkorp Industries Inc., and Harmony Airways, where he was CEO. He was a member of the British Columbia Legislative Assembly and was minister of finance from June, 2001, to December, 2004.
Hassan Khosrowshahi founded Future Shop shortly after his family arrived in Vancouver in 1981, having fled Iran after that country’s revolution. Khosrowshahi family companies in Iran were manufacturers and distributors of food products, pharmaceutical and cosmetics and were the exclusive distributors for Nestlé SA in Iran from 1954 until 1981.
The Khosrowshahis sold Future Shop to Best Buy in 2001 for $580-million. Hassan Khosrowshahi became a member of the Order of Canada in 2017 and was inducted into the Canadian Business Hall of Fame in 2022.
As a royalty company, DRI Healthcare Trust and DRI Capital do not engage in research and development to produce their own drugs. Instead, they acquire royalty interests in other inventors’ products, often in exchange for upfront payments. The cash is then used by pharmaceutical companies and research institutions to fund their own R&D.
DRI Healthcare Trust says DRI Capital has spent more than US$3-billion to acquire more than 70 royalties on 45-plus drugs, since its founding in 1989. The Khosrowshahi family acquired it in April, 2002, for $133-million in 2002 after a takeover battle with British drug developer Cambridge Antibody Technology Group PLC. Behzad Khosrowshahi became its CEO after the family privatized it.
DRI Healthcare Trust pays management fees to DRI Capital equal to 6.5 per cent of cash royalty receipts, plus a quarterly fee equal to 0.25 per cent of its investments. DRI Capital also receives performance fees equal to 20 per cent of the net economic profit on the royalty investments.
In 2023, DRI Healthcare Trust recorded US$22.3-million in management fees and US$24.5-million in performance fees payable to DRI Capital. Of that, more than US$32-million were performance and management fees after DRI Healthcare Trust sold its royalty interest in diabetes drug Tzield for US$210-million.
In 2023, DRI Healthcare Trust reported US$166.3-million in revenue and expenses of US$183.7-million. It swung to a profit after booking a $109.8-million gain from the sales of royalty assets.
The trust went public on the TSX in February, 2021, raising US$400-million through a public stock offering and a private placement of shares. The company’s market value peaked at more than $1-billion in April at its 52-week high of $17.43 per unit.
With Monday’s announcement, the company’s market value closed at about $625-million.