The Bill and Melinda Gates Foundation is suing a company for misusing the $30million awarded to develop a pneumonia vaccine for children, according to a lawsuit exclusively obtained by DailyMail.com.
Canadian for-profit company PnuVax Inc was granted up to $30milion in 2017 by the couple's foundation, with the funds strictly to be used to create a low-cost pneumonia vaccine that would be distributed to children in developing countries.
But the largest philanthropic foundation in the world is now suing PnuVax for allegedly using the money to pay 'significant amounts of back rent owed to its landlord' and paying off other debts it racked up before receiving the grant.
The charity terminated the grant and now demands PnuVax pay back the remaining funds and money spent on anything other than the vaccine.
The Bill and Melinda Gates Foundation granted PnuVax up to $30million to develop a pneumonia vaccine for children in developing countries but is now suing the for-profit company for mismanaging the funds
The Bill and Melinda Gates Foundation first became involved with PnuVax in 2014 when it awarded the company $6million and then another $3million in 2015.
Then in August 2017, the company was granted $3million with a promise to award up to $29,423,549.
The lofty sum was part of a program strategy aimed at 'reducing the top killer of children under 5 years of age in developing countries: pneumonia,' according to the foundation’s Pneumonia Strategy Team.
The 2017 agreement signed by PnuVax CEO Donald Gerson stated the for-profit company may not use grant funds to 'reimburse any expenses you incurred prior to the start date' or 'for any purpose other than the Project'.
According to the lawsuit, 'Almost immediately after entering into the grant agreement and receiving $3milllion in grant funds, PnuVax Inc. diverted these funds to a trust account maintained by its attorney and used the funds to pay significant amounts of back rent owed to its landlord.'
The lawsuit states that the Bill and Melinda Gates Foundation suspected the company was mismanaging funds in November 2017 after learning from a newspaper article that PnuVax owed the Canadian government $1million in back rent.
The foundation hired an independent accounting firm to conduct an audit on the company and its subcontractor.
During the six-month audit, the suit says PnuVax refused to cooperate and were 'contentious throughout', but it did confirm the charity's suspicions of a breach of contract.
The lawsuit exclusively obtained by DailyMail.com clearly lays out the terms of the agreement and how PnuVax is suspected to have breached the contract by putting the grant money in trusts and paying off back rent
The audit found PnuVax's subcontractor, which is owned by the same people who control PnuVax, charged a 40 per cent mark-up on personnel costs and a 15 per cent mark-up on materials, which was never disclosed to the foundation
It also revealed the company had paid for materials and equipment that were either made or invoiced before the grant was awarded.
PnuVax Inc CEO Donald Gerson (pictured) signed the 2017 agreement with the foundation, which is now the center of a lawsuit claiming the company engaged in multiple breaches of contract
The suit says PnuVax failed to keep adequate financial records and did not segregate grant funds.
Multiple milestones were also in place for PnuVax to meet in the process of manufacturing the vaccine, but the lawsuit shows it failed to meet at least four of them.
The milestones included preparing clinical trial doses, submitting audited financial statements and hiring a finance director.
The agreement was intended to end at the end of 2019, but the charity terminated the grant early and asked the company to produce a final report.
According to the lawsuit, the company submitted an 'incomplete report' and then 'demanded that the Foundation pay it over US$11 million in additional funds under the grant agreement.'
The foundation is now suing for damages and demanding PnuVax pay back all funds that were not used on the vaccine.
It also seeks a declaration that it has no obligation to pay PnuVax Inc.
The Bill and Melinda Foundation, the largest philanthropic foundation in the world, terminated the agreement and is suing for damages and demanding PnuVax pay back all funds that were not used on the vaccine