Three former top executives of MiMedx Group have been charged with orchestrating an accounting fraud that enabled the biotech firm to inflate sales to distributors with which it had entered into secret side arrangements.
The U.S. Securities and Exchange Commission said the “pervasive” fraud that lasted from 2013 to 2017 and resulted in MiMedx misstating millions of dollars of revenue in financial statements viewed by investors.
According to a civil complaint filed by the SEC, CEO Parker H. “Pete” Petit, Chief Operating Officer William C. Taylor entered into undisclosed side arrangements with five distributors and CFO Michael J. Senken knew or should have known of the arrangements.
Petit and Taylor have also been charged in a criminal indictment that alleges they engaged in the fraud to ensure revenue fell within Medx’s publicly announced guidance and to “fraudulently convey to the investing public that MiMedx was accomplishing consistent growth quarter after quarter.”
MiMedx has agreed to pay $1.5 million to resolve the SEC investigation.
The former executives “misled investors about the growth of MiMedx’s revenues and then repeatedly concealed their fraud,” Kurt Gottschall, director of the SEC’s Denver Regional Office, said in a news release.
The company uses placental tissue to treat everything from wounds to burns and orthopedic injuries. Petit, a well-known philanthropist and finance chairman of Donald Trump’s presidential campaign in Georgia, Taylor, and Senken all served in their C-suite positions from 2011 to 2018.
The SEC charges involve MiMedx’s revenue from five distributors. According to the commission, it recognized revenue at time of shipment when, in fact, the side arrangements allowed distributors to return product to MiMedx or conditioned distributors’ payment obligations on sales to end-users.
The concealment of side arrangements with four distributors “caused MiMedx to improperly recognize revenue representing at least 6% to 14% of its reported revenue each quarter,” the SEC said.
In June 2018, the company said it would have to restate its financial statements going back to 2012. Following disclosures of the alleged fraud, its stock price fell by approximately 73%, wiping out more than $1 billion of shareholder value.