MiMedx Sued by Hedge Fund Sparrow Over Short-Selling Claims

(Bloomberg) -- Hedge fund Sparrow Fund Management LP said in a lawsuit it was falsely accused by MiMedx Group Inc. of trying to illegally manipulate the biotech firm’s stock price.

MiMedx accused Sparrow of being part of a conspiracy of short sellers and publishing disparaging statements under the pseudonym Aurelius Value, despite knowing the claims had no merit, according to Sparrow’s defamation suit filed Monday in Manhattan federal court.

In October, MiMedx sued several firms, including New York-based Sparrow, accusing them of being part of a “short and distort” campaign to “fraudulently manipulate” the allograft-maker’s stock price to reap profits. MiMedx said a Sept. 20 report from Aurelius Value that accused it of engaging in channel stuffing was in fact produced by Sparrow.

In Monday’s suit, Sparrow said it contacted MiMedx to explain the firm hadn’t published the report and provided sworn affidavits attesting that none of its employees were associated with Aurelius Value. “Yet, MiMedx continued its public campaign against Sparrow” to deflect attention from its own “self-inflicted misfortunes,” according to the complaint.

Sparrow also sued MiMedx Chief Executive Officer Parker H. Petit and people it identified as "John Doe," who are alleged to have used anonymous Twitter accounts to attack MiMedx critics. Those individuals worked under the direction of MiMedx, according to the complaint.

A MiMedx representative didn’t immediately respond to requests for comment.

Marietta, Georgia-based MiMedx, a maker of products used to heal soft-tissue wounds, has been battered by short sellers over allegations that it has improperly shipped products and recorded them as revenue, and used distributors controlled by friendly parties to boost sales. Around late 2016, several former MiMedx employees filed lawsuits saying the firm used illegal measures to grow revenue.

MiMedx has denied these allegations.

The Justice Department and the Securities and Exchange Commission are reviewing matters relating to the allegations from former employees, MiMedx has said. The company said it’s cooperating with authorities and has terminated a number of employees who violated company policies.

Last month, prosecutors indicted three former health-care workers at the Department of Veterans Affairs for allegedly taking bribes from MiMedx representatives.

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