Embattled biotech company MiMedx has agreed to pay $1.5 million to settle federal charges that it and three former top executives allegedly defrauded investors, the Securities and Exchange Commission said today.
The SEC alleges 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 claims that they prematurely recognized revenue from sales to MiMedx’s distributors and exaggerated the company’s revenue growth.
According to the SEC complaint, MiMedx improperly recognized revenue because its former CEO, Parker H. “Pete” Petit, and former COO, William C. Taylor, entered 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, Taylor, and former CFO Michael J. Senken allegedly covered up their scheme for years, even after MiMedx’s former controller raised concerns about the company’s accounting for specific distributor transactions. The SEC also alleges that Petit, Taylor, and Senken all misled MiMedx’s outside auditors, members of the company’s audit committee, and outside lawyers who inquired about these transactions.
MiMedx, which makes regenerative and therapeutic biologics using human placental tissue allografts, ousted Petit and Taylor for cause came 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 late May, MiMedx released a new “comprehensive plan” to refresh the board, in cooperation with major shareholder Prescience Point Capital Management, to include recently appointed 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.
“As alleged in our complaint, MiMedx’s former executives misled investors about the growth of MiMedx’s revenues and then repeatedly concealed their fraud,” Kurt Gottschall, director of the SEC’s Denver regional office, said in today’s news release. “This action reflects our commitment to holding issuers and their senior officers accountable for failing to provide accurate financial statements to the investing public, while the settlement with MiMedx gives appropriate credit for the company’s later remediation and cooperation.”
The SEC’s complaint, filed today in the Southern District of New York, charges all defendants with violating the antifraud, reporting, books and records, and internal control provisions of the federal securities laws. The SEC also charged Petit, Taylor, and Senken with lying to MiMedx’s outside auditors.
Without admitting or denying the allegations, MiMedx has agreed to a settlement and to pay a $1.5 million penalty. The settlement is subject to court approval. The complaint seeks permanent injunctions, disgorgement plus interest, penalties, and officer-and-director bars against Petit, Taylor and Senken, and clawback of bonuses and other incentive-related compensation paid to Petit and Senken during the alleged fraud.
MiMedx did not immediately respond to a request for comment.