MiMedx Internal Probe Finds Ex-CEO Secretly Videoed Workers
MiMedx Internal Probe Finds Ex-CEO Secretly Videoed Workers
(Bloomberg) -- MiMedx Group Inc. accused former managers of deception and said ex-Chief Executive Officer Parker H. Petit ordered the installation of a secret surveillance system to counter whistle-blowers.
The biotech company said Petit and three other top executives misled the board and auditors about business and accounting matters on several occasions, according to a summary of findings from a 15-month internal probe made public Thursday. MiMedx, which previously announced it will restate earnings from 2012 to 2017, also said it uncovered conduct apparently designed to manipulate how the firm accounted for some revenue.
As some employees raised concerns about MiMedx’s practices, Petit directed an internal effort dubbed “Project Snow White” to find ways to undermine them, rather than look into the merits of their complaints, the company said.
“A secret video surveillance system was installed to record interviews and employee discussions without their knowledge or consent,” MiMedx said. “All this was done in an effort to discredit whistle-blowers or find some wrongdoing to justify re-assignment, discipline or even termination.”
Petit didn’t respond to an email seeking comment. He has previously disputed the board’s assertions and allegations of wrongdoing from short sellers. Bill Taylor, who was chief operating officer, didn’t respond to a LinkedIn message. Current contact information for two other former executives faulted by the company -- Chief Financial Officer Michael Senken and Controller John Cranston -- couldn’t be found.
Shares of Marietta, Georgia-based MiMedx rose 1% to $3.20 at 3:59 p.m. in New York. The stock has plunged 82% from its peak early last year.
The board’s audit committee said the findings are based on an investigation conducted by an outside law firm and accounting firm. They examined more than 1.5 million documents, interviewed more than 85 witnesses and reviewed at least 2,750 hours of surveillance-system video -- the equivalent of 344 full-time workdays.
The four former executives were aware that dealings with the company’s largest distributor were “inconsistent with the explicit terms of the contract,” and “impacted the way in which the company was recognizing revenue from this distributor,” according to the statement. Evidence showed that the four disregarded revenue-recognition rules under Generally Accepted Accounting Principles, MiMedx said.
The company also said the four repeatedly misled or withheld information from the board’s audit committee and external auditors. Petit, for example, in a sworn deposition, provided incorrect information about payment terms with its largest distributor, the company said. Then-CFO Senken misrepresented the same terms in a 2017 letter to the Securities and Exchange Commission, MiMedx said.
As short sellers had previously alleged, the probe also found instances of products being shipped to customers, typically near the end of a reporting period, even though they weren’t needed, according to the statement.
Petit and Taylor “purposely took action to disregard revenue-recognition rules” and prioritized short-term goals over compliance and ethics, MiMedx said.
Inspector General
MiMedx, once a fast-growing maker of wound-healing skin grafts, saw its shares plummet last year after short sellers including Marc Cohodes published reports accusing it of wrongdoing. The Justice Department and SEC have been conducting inquiries into matters including its sales and accounting practices. Last month, the company said it had been subpoenaed by the Office of Inspector General at the Department of Veterans Affairs on matters including its financial relationships with VA-affiliated providers.
MiMedx said May 9 it had appointed Timothy R. Wright as CEO, succeeding David Coles. The firm previously hired several new senior executives, including a chief compliance officer and vice president of internal audit.
Petit took over MiMedx in 2009 and stepped down in July. Months after he resigned, the board categorized it as a for-cause termination and said it would claw back incentive compensation from him and the three other former executives over evidence of malfeasance found in the internal investigation.
That didn’t deter Petit, who still owns about 4% of MiMedx’s stock. In April, he nominated himself and two others to the board. The company is expected to hold an annual meeting in June.
In its filing Thursday, MiMedx said the proxy fight has impaired its effort to hire a new independent auditor. If Petit were to be elected to the board or reinstated on the management team, “there would be a very high risk that the company could not engage a new auditor or any previously engaged auditor would resign,” MiMedx said.
“I feel completely vindicated,” said Cohodes, who’s been targeting MiMedx since 2017. “Now I’m waiting for justice to be served.”
--With assistance from Steven Crabill.
To contact the reporter on this story: Anders Melin in New York at amelin3@bloomberg.net
To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, David Scheer, Peter Eichenbaum
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