We can only imagine what work life is like these days at MiMedx.
Allegations of channel stuffing and fraudulent billing have been building against MiMedx Group, Inc. for almost two years.
Initially it was former employees who were making these allegations. Then a group of Wall Street’s short sellers piled in. But when the audit committee of MiMedx’s board of directors looked into the allegations, they issued the following announcements and fired the following senior executives:
- Six years of audited financial statements were inaccurate and needed to be restated. Literally, said the audit committee, nothing the company had stated in press releases, investor presentations or any other public utterance was to be relied upon. Here’s a link to the SEC filing which contains the Audit Committee announcement.
- The reason the company’s financial statements were wrong, they said, was because of certain sales and distribution practices at two distributors and MiMedx’s inadequate internal accounting practices and controls.
- MiMedx’s chief financial officer, Michael Senken, was fired on June 6, 2018.
- At the board’s insistence, MiMedx’s chief executive officer, Pete Petit, resigned effective June 30, 2018.
- At the board’s insistence, MiMedx’s president and chief operating officer, Bill Taylor, resigned effective June 30, 2018.
Since then MiMedx hired David Coles from Alvarez and Marsal Holdings, LLC, a firm best known for its work with troubled companies, to serve as interim chief executive officer for a $200,000 monthly retainer.
Nasdaq has also notified the company that it intends to delist the stock since it no longer meets Nasdaq’s listing qualifications.
The Fraud Allegations
A group of short selling investors, most notably Viceroy Research, Aurelias Value and Citron Research have been claiming that MiMedx is guilty of channel stuffing. The short sellers are also alleging that MiMedx is being investigated by federal law enforcement agencies and lied to shareholders to cover up these activities and the resulting regulatory investigations.
Before this past June’s financial restatements and executive firings, MiMedx’s disputatious CEO Pete Petit engaged in hand-to-hand combat with the short sellers, refuting their allegations and initiating legal action against some of the more vocal and public short sellers.
Channel stuffing, which is a major accounting and legal “no-no”, is where a company books inventory sitting at its distributors as sales—when they are not. It’s a form of fraud.
In addition to allegations of channel stuffing, the short sellers posted on various websites legal documents which purported to contain evidence of insurance billing fraud. The short sellers also claim to have turned their evidence over to the authorities.
MiMedx, under its former CEO Pete Petit, adamantly maintained that none of these allegations were true.
In February, however, the company announced that it was indeed under investigation by the U.S. Department of Justice.
Then MiMedx announced that it was unable to file either its 2017 nor its Q1 2018 financial results in a timely manner with the SEC.
MiMedx’s market value collapsed from $1.9 billion before February to $910 million before the audit committee announcement on June 6. Today the company trades at around $500 million.
What was odd was the way in which the then beleaguered (now former) CEO, Pete Petit, responded to the mounting evidence that his public statements were suspect.
