Former MiMedx execs are convicted in fraud case
Report: Jury convicts ex-MiMedx execs in fraud case (MassDevice)
Two former executives of MiMedx were convicted today on charges in an alleged fraud scheme involving distributors, according to a report by Law360.
A Manhattan jury rendered the verdicts against former CEO Parker H. “Pete” Petit and former COO William C. Taylor, whom federal prosecutors had charged with entering into undisclosed side arrangements with five distributors. These side arrangements allowed distributors to return product to MiMedx or conditioned distributors’ payment obligations on sales to end-users, the government charged.
Petit was convicted on one count of securities fraud and acquitted on one count of conspiracy, while Taylor was convicted on one conspiracy count and acquitted of one fraud count, according to the legal news site.
The U.S. Attorney’s office in Manhattan claimed that Petit’s and Taylor’s alleged manipulation of MiMedx’s revenue caused MiMedx to report 2015 annual revenue that was fraudulently inflated by approximately $9.5 million, or about 5%.
Nearly one year ago, MiMedx agreed to pay $1.5 million to settle federal charges that it and three former top executives allegedly defrauded investors.
The SEC alleged that from 2013 to 2017, Marietta, Ga.-based MiMedx and those executives misstated the company’s revenue and attempted to cover up their misconduct. Specifically, the SEC claimed that they prematurely recognized revenue from sales to MiMedx’s distributors and exaggerated the company’s revenue growth.
According to the SEC complaint, Petit and Taylor allegedly covered up the scheme for years, even after MiMedx’s former controller raised concerns about the company’s accounting for specific distributor transactions. The SEC also alleged that Petit and Taylor misled MiMedx’s outside auditors, members of the company’s audit committee, and outside lawyers who inquired about these transactions.
Petit and Taylor have denied the federal allegations, according to Law360, which said the defendants’ attorneys will likely appeal.
MiMedx, which makes regenerative and therapeutic biologics using human placental tissue allografts, ousted Petit and Taylor for cause after an independent probe into its revenue recognition forced MiMedx to restate its earnings going back to 2012. The investigation found that Petit and his management team enacted a scheme to cook the books, retaliating against anyone who questioned their accounting practices and secretly filming their offices.
In May 2019, MiMedx released a new “comprehensive plan” to refresh the board, in cooperation with major shareholder Prescience Point Capital Management, to include CEO Timothy Wright, Kew Group co-founder, president & CEO Kathleen Behrens Wilsey and Apollo Endosurgery (NSDQ:APEN) CEO Todd Newton. Petit then launched a proxy war, nominating himself, former Pulte Home tax director David Furstenburger and George & Lorenson partner Shawn George for board seats. The company claimed victory in that effort in June 2019.