In its annual regulatory filing with the US Securities and Exchange Commission, MiMedx Group, Inc., an advanced wound care and biologics maker headquartered in Marietta, Georgia, described in detail the results of the company’s internal investigation, and the enforcement action taken by the SEC against the company and three of its former officers.
In April 2017, the company received a subpoena from the SEC requesting information relating to the company’s recognition of revenue, distributor and customer practices, internal accounting controls and employment actions. According to MiMedx, the company cooperated fully with the SEC, and initiated an internal investigation through the Audit Committee in February 2018, assisted by outside counsel and forensic accountants, which drew the following conclusions:
- the financial statements for the five years between 2012 and 2016 could not be relied upon and required restatement;
- former members of management disregarded revenue recognition rules under GAAP;
- management’s conduct appeared to be designed to manipulate the time and recognition of revenue;
- the company’s officers made material misstatements and omissions about the Mimedx’ course of dealing with its largest distributor;
- the executives engaged in a pattern of taking action against whistleblowers within the company, and;
- senior management set an inappropriate tone at the top in which short-term business goals were emphasized over compliance and ethics, and they did not respond appropriately to compliance issues.
According to the company, the internal investigation involved the review of over 1.5 million documents and 7,750 hours of video, over 80 meetings of the audit committee, and 85 witness interviews.
In November 2019, the SEC brought charges against Mimedx, Parker Petit, Michael Senken, and William Taylor, who served as the company’s Chairman and Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer, respectively. The SEC alleged that from 2013 to 2017 the company recognized distributor sales revenue prematurely and failed to recognize revenue properly because the former CEO and COO had entered into private side arrangements with certain of the company’s distributors that allowed them to return product to the company or delay payment. The SEC also alleged that the former officers misled Mimedx’ outside auditors and attorneys, and that their conduct violated the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws. The company settled with the SEC, consenting to the entry of a final judgment permanently enjoining it from further violations, and agreeing to pay a penalty of $1.5 million.
The US Department of Justice is also conducting an investigation into the issues examined by the SEC, and indictments were issued in November 2019 by the US Attorney’s Office in the Southern District of New York against Petit and Taylor for securities fraud, conspiracy to commit securities fraud and to make false filings with the SEC and improperly influence the conduct of audits. The company indicated that it is cooperating with the SEC and DOJ investigations of these individuals, which are ongoing.