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Related: About this forumFormer Chief Executive Officer And Chief Operating Officer Of Publicly Traded Biopharmaceutical Comp
https://www.justice.gov/usao-sdny/pr/former-chief-executive-officer-and-chief-operating-officer-publicly-tradedDepartment of Justice
U.S. Attorneys Office
Southern District of New York
FOR IMMEDIATE RELEASE
Tuesday, November 26, 2019
Former Chief Executive Officer And Chief Operating Officer Of Publicly Traded Biopharmaceutical Company Charged With Accounting Fraud
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (USPIS), announced today the unsealing of an Indictment in Manhattan federal court charging PARKER H. PETE PETIT and WILLIAM TAYLOR, the respective former chief executive officer and chief operating officer of MiMedx Group, Inc. (MiMedx), a publicly traded biopharmaceutical company, with securities fraud offenses for engaging in a scheme to fraudulently inflate MiMedxs revenue.
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MiMedx was headquartered in Marietta, Georgia, and its securities traded under the symbol MDXG on the NASDAQ. MiMedx sold regenerative biologic products, such as skin grafts and amniotic fluid, both directly to end users, such as public and private hospitals, and to various stocking distributors, which, in turn, resold the product to end users.
One of the most critical financial metrics disclosed in MiMedxs public filings with the Securities and Exchange Commission (SEC), and touted in MiMedxs accompanying press releases, was MiMedxs quarterly and annual sales revenue. Under Generally Accepted Accounting Principles (GAAP) and SEC guidance, a company like MiMedx that engages in the sale of products through a distributor may recognize revenue upon transfer of the product to a distributor if certain requirements are satisfied, including that delivery has occurred or services have been rendered, the sellers price to the buyer is fixed or determinable, and collectability of payment is reasonably assured. PETIT and TAYLOR repeatedly demonstrated and touted their understanding of these rules governing revenue recognition. They also publicly identified revenue as the principal metric reflecting MiMedxs growth, and touted MiMedxs consistent record of quarter-over-quarter revenue growth and meeting or exceeding revenue guidance in 17 consecutive quarters, from 2011 through year-end 2015. By 2015, however, it became increasingly difficult for MiMedx to reach its revenue guidance due to decreased demand from certain distributors and the increasingly aggressive revenue targets that MiMedx had publicly announced.
Confronted with the difficulties faced by MiMedx in meeting its quarterly and annual revenue guidance by legitimate means, PETIT and TAYLOR engaged in a fraudulent scheme to falsely recognize revenue upon the shipment of MiMedx product to four stocking distributors (Distributor-1 through Distributor-4) in the second through fourth quarters of 2015. PETIT and TAYLOR caused MiMedx to report fraudulently inflated revenue figures to the investing public in order to ensure that the reported figures fell within MiMedxs publicly announced revenue guidance, and to fraudulently convey to the investing public that MiMedx was accomplishing consistent growth quarter after quarter, as PETIT and TAYLOR had falsely touted to the investing public. The fraudulent scheme involved the following central features:
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PETITs and TAYLORs fraudulent manipulation of MiMedxs revenue caused MiMedx to report materially inflated revenue in the second, third, and fourth quarters of 2015, and for the full year 2015. In its 2015 10-K, MiMedx reported annual revenue that was fraudulently inflated by approximately $9.5 million, or approximately five percent. Absent this fraudulent inflation of revenue, MiMedx would have missed both (1) its quarterly revenue guidance in the third and fourth quarters of 2015 and annual revenue guidance for 2015 and (2) analyst revenue consensus for the second through fourth quarters of 2015 and the full year 2015.
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