The U.S. Securities and Exchange Commission (SEC) has charged three former MiMedx executives with defrauding investors. Ex-CEO Pete Petit and his former colleagues stand accused of entering into undisclosed side arrangements with distributors that misled investors about revenue growth.
According (PDF) to the SEC, MiMedx exaggerated sales growth from 2013 to 2017 by “misstating millions of dollars of revenue in its financial statements.” The SEC accusation rests on the belief that Petit and former Chief Operating Officer William Taylor, with the knowledge of ex-Chief Financial Officer Michael Senken, had a secret arrangement that allowed its largest distributor to only pay MiMedx when it resold the products.
MiMedx subsequently entered into arrangements with four more distributors. The SEC claims the concealment of these arrangements led MiMedx to improperly recognize revenue amounting to up to 14% of its reported sales each quarter.
In February 2018, MiMedx began “an internal investigation into current and prior-period matters relating to allegations regarding certain sales and distribution practices.” The notice to disclose the investigation was the first of a series of statements in 2018 that the SEC calculates wiped out more than $1 billion in shareholder value and led to the departures of Petit, Taylor and Senken.
Petit issued a statement in response to the complaint filed against him, accusing the U.S. Attorney’s Office of “significantly over-reaching” and defending his record as CEO of MiMedx.
“The primary issues appear to relate to business negotiations with some distributors in mid-2015. However, those communications have now been twisted into alleged ‘side deals,’ which is not accurate. Under my leadership, the company collected virtually all the approximately $1 billion in booked revenues. Our accounts receivable aging remained within industry standards, and we also adequately reserved for sales returns and bad debts,” Petit said.
As Petit sees it, the investigation into him stemmed from “false allegations by short-sellers” and was overseen by an “inexperienced Board made self-serving decisions with poor business judgment.”
The SEC disclosed the complaint against Petit and his former colleagues alongside news that MiMedx has agreed to pay a $1.5 million penalty to settle without admitting or denying allegations against it. MiMedx chair Kathleen Behrens called the settlement “another step toward the Company’s commitment to resolve past issues and move forward without distraction” in a statement.