This Short Seller Pressed ‘Tweet.’ Then the FBI Showed Up
(Bloomberg) -- Short-sellers aren’t known for restraint and decorum, and that goes double on Twitter, where Marc Cohodes vowed to take down a CEO he accuses of fraud. “I will bury the little fella in a shoe box,” Cohodes tweeted in October.
Weeks later, a black Ford Expedition pulled up to the short-seller’s Sonoma County ranch. Two FBI agents emerged. They showed Cohodes a printout of his tweet and a second one that mentioned loaded guns. “Stop sending threatening tweets” about the CEO, one of the agents warned, or else.
The feds’ Dec. 1 visit, which wasn’t previously reported, is documented in a sheriff’s report and described in a letter of complaint Cohodes’s lawyer sent to the U.S. Department of Justice.
It was a novel turn in what, until then, seemed like a familiar struggle between a public company, MiMedx Group, and investors betting on its fall. That kind of drama has typically played out online, in the media or in court. But it hasn’t, by the recollection of several lawyers, previously drawn this sort of intervention by the Federal Bureau of Investigation. The agents’ appearance at Cohodes’s house has touched off a dispute over whether the tweets merited intervention or whether the FBI overstepped — and how the messages came to the FBI’s attention.
The FBI’s San Francisco office told Cohodes’s lawyer that it takes threats seriously. The agents acted appropriately in light of the tweets and other postings by Cohodes, it said.
The agents’ visit came after months of sometimes personal barbs and counterbarbs between short-sellers and Marietta, Georgia-based MiMedx, which makes tissue grafts used to treat burns and other soft-tissue wounds.
The company’s CEO, Parker “Pete” Petit, is a top Republican fundraiser in Georgia. The request to dispatch agents came from the FBI’s Atlanta office, according to correspondence between the FBI’s San Francisco office and Cohodes’s lawyer, David Shapiro. Was that a coincidence, Shapiro asked in his Jan. 12 complaint letter to the Justice Department.
“As part of your investigation, you should determine how Mr. Petit was able to influence the FBI to take action designed to stifle one of his company’s critics,” Shapiro wrote. Cohodes was exercising his right to free speech, the lawyer argued. He added that the agents’ use of prior restraint — intervention to head off “imminent lawless action” — was an inappropriate response to month-old tweets that weren’t meant to be threatening.
Petit, in an interview, said he felt the tweets were “a threat to my life.” Asked whether he or his representatives flagged the posts to the FBI, Petit responded: “Mr. Cohodes and his cabal, I know, are being investigated by the authorities.”
Cohodes says he is not part of any “cabal.” He pointed to his decades-long track record as a short-seller and says the FBI visit was a violation of his rights.
“They didn’t have a warrant,” he said in a phone interview. “I asked them if I was under investigation and they said no. I asked them to leave, and they wouldn’t. I had to call the local sheriff's office to get them to leave.”
A spokesman for the FBI’s Atlanta office, Kevin Rowson, declined to say whether the bureau is investigating practices of the shorts or the company.
Some First Amendment lawyers who reviewed Cohodes’s tweets said the posts didn’t appear to be imminent threats. They called the agents’ visit puzzling.
“This is not the way the FBI would normally approach people,” said David Korzenik, a partner at Miller Korzenik Sommers Rayman LLP who isn’t involved in the matter. “They sound more like private investigators trying to get people to shut up.”
Petit, a 78-year-old former aerospace engineer who’s built and sold a variety of companies, took over MiMedx in 2009, when it had less than $1,000 in sales. By 2016, the biopharmaceutical firm’s revenues had grown to $245 million.
Along the way, the company has battled lawsuits brought by ex-employees who said it has fraudulently boosted sales. It has spent a half-decade challenging the U.S. Food and Drug Administration’s stance that some of its grafts don’t meet regulatory standards.
Short sellers began making their research public around September. Viceroy Research, Aurelius Value and Citron Research, among others, allege that some MiMedx salespeople are selling more products than get used, a practice known as channel-stuffing. In some cases, the shorts say, MiMedx has booked sales to distributors controlled by friendly parties such as current and former employees, their relatives or doctors.
Cohodes, a 57-year-old veteran short-seller, has laid out his MiMedx criticism on a web page, “petite parker the barker.” He’s also posted hundreds of tweets lambasting the company’s business in general and Petit personally. He’s called the CEO a coward and “a senile old man on a power trip” who will end up in prison.
MiMedx has denied the claims of channel-stuffing and said none of its distributors are controlled by company insiders. Petit has told investors that MiMedx’s board, management, auditor and outside lawyers looked into the issues and found no wrongdoing. The Securities and Exchange Commission is looking into the claims: MiMedx disclosed in September that it received a subpoena from the SEC and that it is cooperating.
As for the shorts, MiMedx has accused them of spreading false and defamatory information. “Another Cohodes lie” is the refrain of one MiMedx statement that addresses several criticisms. The statement and more than 40 others can be found in a section of the company’s website devoted to commentary on short-sellers, which also includes an October commentary Petit wrote about borderline personality disorder, whose sufferers he says “offset their insecurities by attacking and demeaning.”
Petit has long supported Republicans in his state, and was the Georgia finance chairman for Donald Trump’s presidential campaign. He and his family donated more than $100,000 to a political-action committee supporting Trump, according to the Center for Responsive Politics. Petit has also been a longtime donor to Johnny Isakson, the state’s senior U.S. Senator, who sits on the Health, Education, Labor and Pensions committee.
The SUV arrived at Alder Lane Farm, where Cohodes runs his investing operations with a side of chicken farming, just after lunch. A bearded, dark-haired agent did the talking. A second, with a weighlifter’s build, stood by quietly, according to Cohodes, his wife and his research analyst, who were present.
The agents showed badges but didn’t identify themselves. One agent produced printouts of two of Cohodes’s tweets, including the Oct. 14 vow to “bury the little fella in a shoe box,” which continued: “Give up Petite (sic), your game is over.” The second was a Nov. 1 post — “Guns are Loaded the Safety is off” — according to Shapiro’s letter.
Wondering if the men were in fact federal agents, Cohodes’s wife called the local authorities who came to verify.
The agent said he wouldn’t leave until Cohodes promised not to post further threatening tweets about Petit. The agent said there would be consequences if they had to return, according to Shapiro. He asked Cohodes several times: “Do you understand?”
Cohodes’s lawyer subsequently called FBI’s San Francisco office. The following day, supervisory special agent Brenda Atkinson wrote that the agency was concerned about more than the tweets: “Adding children to a threat stream only ups federal and local law enforcement concern levels.”
Shapiro says the agent was referring to a picture that Cohodes had posted of a MiMedx official and her family a month earlier and quickly removed after a complaint.
A few weeks later, Atkinson wrote: “The Special Agents complied with FBI policy and we consider this matter closed.”
Shapiro then elevated his questions to the Justice Department, arguing that either the FBI exceeded the law in policing free speech on its own initiative, or that its agents may have been part of an “unconstitutional and dangerous” effort to silence a company’s critics.
The FBI in Washington referred questions to the Justice Department’s Office of the Inspector General, which declined to comment.
Petit, in the phone interview, issued a warning to his antagonists. “There’s a day of reckoning coming. This stuff is way out of bounds.”
Most companies avoid getting into the trenches with short sellers, said Gene Grabowski, a partner a communications firm kglobal who’s advised companies on such matters.
“We’ve seen CEOs take their gloves off, but you rarely see such personal involvement,” said Grabowski. “Publicly traded companies tend to be a bit more cautious, because anything they say affects the stock price, and the stock price is everything.”
(Updates with Cohodes comment in 10th paragraph.)
©2018 Bloomberg L.P.