Former MiMedx CEO Parker Petit Indicted on Fraud Charges
Despite an indictment for accounting fraud from the U.S. Department of Justice, former MiMedx Chief Executive Officer Parker H. "Pete" Petit has denied any wrongdoing during his tenure at the helm and laid the blame for his and the company’s woes on an inexperienced board of directors and short sellers.
On Tuesday, the DOJ unsealed the indictment and charged Petit, who abruptly resigned from his role following a negative audit that forced the company to restate its historical financial statements for four years, with securities fraud. The government said Petit and former Chief Operating Officer William Taylor engaged in a scheme to “fraudulently inflate” the revenue of MiMedx. U.S. Attorney Geoffrey S. Berman said Taylor and Petit “allegedly conspired, through secret agreements and financial inducements with four distributors, to misstate sales revenue.”
According to the government’s announcement, in 2015 Petit and Taylor falsely recognized revenue upon the shipment of some of MiMedx products to four different stocking distributors. The two men then, according to the indictment, “fraudulently inflated revenue figures” in public announcements in order to ensure that financial reports fell within MiMedx’s publicly announced revenue guidance. Additionally, the men would then falsely tell the public that the company was accomplishing “consistent growth quarter after quarter.”
As a result of their alleged fraudulent scheme, the DOJ said MiMedx reported annual revenue that was “fraudulently inflated by approximately $9.5 million” for 2015. Without that fraud, the government said MiMedx would have missed quarterly revenue guidance in the third and fourth quarters of 2015 and annual revenue guidance for 2015, as well as analyst revenue consensus for the second through fourth quarters of 2015 and the full year 2015.
“As alleged, Parker Petit and William Taylor deceived the SEC, auditors, and the investing public by repeatedly misrepresenting the financial condition of a publicly-traded company. They allegedly conspired, through secret agreements and financial inducements with four distributors, to misstate sales revenue,” Berman said in a statement.
The company conducted an audit and last year announced that it would need to restate its financial statements for 2012 to 2016, as well as part of 2017. The 15 month-long independent investigation from the audit committee uncovered evidence of material wrongdoing on the part of the company's prior senior management team. That financial reassessment was somewhat forced due to concerns raised by short-sellers. Aurelius Value and Viceroy Research both published negative reports on MiMedx that included accusations of channel-stuffing as well make claims that the U.S. Department of Veterans Affairs is investigating the company.
Petit, 80, and Taylor, 51, were both charged with one count of conspiracy to commit securities fraud, make false filings with the SEC, and improperly influence the conduct of audits, and one count of securities fraud. The conspiracy charge carries a maximum prison term of five years. The securities fraud charge carries a maximum prison term of 20 years.
Petit denied the charges and said he will defend himself in court. He said the U.S. attorney was “significantly overreaching” in charging him. But, Petit said this will provide him a chance to defend himself, something that he was not afforded by MiMedx when the company was conducting its own investigation. He said during that investigation, there was no impartial forum through which he could respond to the accusations. He said the government’s allegations have been “twisted” into appearing as “side deals,” which he said is not accurate. He said the investigation was driven by the “false allegations” of the short-sellers.
“Under my leadership, the company collected virtually all the approximately $1 billion in booked revenues. Our accounts receivable aging remained within industry standards, and we also adequately reserved for sales returns and bad debts,” Petit said in a statement released by his attorneys.