SEC Charges Biotech Company and Executives with Accounting Fraud
Litigation Release No. 24678 / November 26, 2019
Securities and Exchange Commission v. MiMedx Group, Inc., Parker H. Petit, William C. Taylor, and Michael J. Senken, No. 19-cv-10927 (S.D.N.Y. filed November 26, 2019)
The Securities and Exchange Commission today charged Georgia-based biotech company MiMedx Group Inc. and three former top executives with defrauding investors by misstating the company's revenue and attempting to cover up their misconduct.
The SEC alleges that from 2013 to 2017, MiMedx prematurely recognized revenue from sales to MiMedx's distributors and exaggerated MiMedx's revenue growth. According to the SEC's complaint, MiMedx improperly recognized revenue because its former CEO Parker H. "Pete" Petit and former COO William C. Taylor entered into undisclosed side arrangements with five distributors. These side arrangements allowed distributors to return product to MiMedx or conditioned distributors' payment obligations on sales to end users. Petit, Taylor, and former CFO Michael J. Senken allegedly covered up their scheme for years, even after MiMedx's former controller raised concerns about MiMedx's accounting for specific distributor transactions. The SEC also alleges that Petit, Taylor, and Senken all misled MiMedx's outside auditors, members of MiMedx's Audit Committee, and outside lawyers who inquired about these transactions.
The SEC's complaint, filed today in the Southern District of New York, charges all defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also alleges that MiMedx violated the reporting and recordkeeping provisions of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and that Petit, Taylor, and Senken aided and abetted MiMedx's violations of these provisions and the antifraud provisions or that Petit and Taylor acted as control persons for MiMedx's violations. Additionally, the Complaint alleges that Petit, Taylor, and Senken directly violated Exchange Act Section 13(b)(5) and Rules 13b2-1, 13b2-2, and, as to Petit and Senken, 13a-14 thereunder. The complaint seeks permanent injunctions, disgorgement plus interest, penalties, officer-and-director bars against Petit, Taylor, and Senken, and clawback of bonuses and other incentive-related compensation paid to Petit and Senken during the alleged fraud.
Without admitting or denying the allegations, MiMedx has agreed to a settlement and to pay a $1.5 million penalty. The settlement is subject to court approval. The litigation continues against the three executives.
The SEC's investigation was conducted by Kevin Comeau, Ty Cottrill, and Anne Romero with assistance from Judy Bizu of the Denver office. The case was supervised by Laura Metcalfe. The litigation will be led by Steve McKenna and Mark Williams and supervised by Gregory Kasper. The SEC appreciates the cooperation of the U.S. Attorney's Office for the Southern District of New York.