BOSTON & LOS ANGELES & WASHINGTON, D.C.–(BUSINESS WIRE)–According to attorney William Weinreb, the Audit Committee of the Board
of Directors of MiMedx Group, Inc. (OTC PINK: MDXG) has disgraced itself
by issuing false, defamatory, and self-serving “findings” of misconduct
by former MiMedx Chairman and CEO, Parker H. “Pete” Petit, former MiMedx
President and COO, William Taylor, and other management.
The Audit Committee apparently does not dispute that the Company
collected virtually every dollar of the approximately $1 billion it
reported as revenue during the periods in question. Instead, most of its
adverse “findings” boil down to questions about business judgment and
accounting methods – matters of opinion on which reasonable business
people and accountants can, and frequently do, disagree. The Company’s
extraordinary success while Mr. Petit and Mr. Taylor were at the helm is
ample proof of their excellent business judgment, and a full airing of
the facts will likewise show that they engaged in no wrongdoing, said
Weinreb, a partner at Quinn Emanuel Urquhart & Sullivan, LLP.
For nine years, these executives tirelessly devoted their efforts to
growing MiMedx’s product portfolio, building solid shareholder value,
and benefiting a grateful patient community. They engaged in no
fraudulent activity at the Company and always acted in what they
believed to be the Company’s best interests. Under their leadership,
MiMedx became the fifth-fastest-growing public company in America in
2017, according to Fortune magazine.
Many of the Audit Committee’s “findings” result from a partial and
one-sided review of documents and seek to divert attention from the
Audit Committee’s own involvement in the matters under investigation by
pointing the finger at others. To name just a few examples:
-
The Audit Committee claims that “at least by early 2016,” a “course of
dealing” with the Company’s largest distributor rendered its
revenue-recognition method improper under GAAP, but it fails to note
that all revenue-recognition concerns brought to management’s
attention were promptly referred to the Audit Committee, which
thoroughly investigated them and cleared both management and the
Company of any impropriety. -
Indeed, the Audit Committee’s key “finding” – that the Company’s
largest distributor paid the Company for each tissue the distributor
purchased only after it sold that tissue to a customer – is the very
opposite of what it found (and reported to management) during an
investigation whose results were announced just two years ago in March
2017. During that investigation, the Audit Committee had unrestricted
access to all internal and external Company information and to any
officer, director, and employee of the Company. -
The Audit Committee also fails to note that management responded to
certain employees’ allegations of revenue-recognition issues by (among
other things) retaining a nationally-recognized revenue-recognition
expert in early 2017 to provide expert advice. Management invited
Terry Dewberry, the Audit Committee’s chairman, to participate in
conversations with the expert, and Mr. Dewberry declined. -
The Audit Committee misleadingly notes that in some quarters the
Company wrote off bad debt and accepted returns while failing to note
that in virtually every quarter it booked adequate reserves for bad
debt and product returns, which reduced revenue and profits for the
quarter. -
The termination of employees mentioned in the Company’s press release
were taken following consultation with both inside and outside counsel
and were fully briefed to the Audit Committee and the rest of the
Board of Directors. As noted earlier, employee allegations in 2016 of
improper Company practices were referred to the Audit Committee, which
investigated them and cleared management of any wrongdoing. -
The Audit Committee’s statement that certain conduct “appears to have
been” designed to manipulate the timing and recognition of revenue is
unsupported and has no basis in fact.
The Audit Committee’s specious and self-serving “findings” are more
notable for what they omit than for what they include, Weinreb said. The
Audit Committee could have – and should have – found that under former
management:
-
The Company collected virtually every dollar it recognized as revenue,
including from its largest distributor; -
In May 2018, Mr. Petit identified and hired a Compliance Officer (now
the Chief Compliance Officer) to start in July of 2018 (contrary to
the Audit Committee’s claim that he was hired by the Audit Committee),
and for years the Company had in place an effective compliance program
that invited employees to bring any concerns directly to the Board’s
or CEO’s attention; -
The so-called Operation Snow White was named by the Company’s General
Counsel and targeted employees who were violating their non-compete
agreements by selling competitive products to MiMedx customers while
employed by MiMedx – something many of them admitted doing during the
course of the investigation; and -
Management regularly briefed the Audit Committee and Board of
Directors on matters of significance and were not informed of concerns
relating to personnel management or “tone at the top” until just
months before they were summarily terminated.
The unfairness with which Messrs. Petit and Taylor have been treated
since the start of this investigation is fully on display in the
Company’s press release. To this day, the Company has refused to give
them a detailed account of their alleged misdeeds, an opportunity to see
the purported “evidence,” or a meaningful opportunity to respond. There
has been no due process of any kind. Instead, they have been essentially
accused, tried, and sentenced in secret.
Readers of the Company’s press release should keep in mind that the
Audit Committee that made these “findings” is a biased and
self-interested party. The Audit Committee’s charter requires it to
oversee the Company’s financial and accounting reporting processes and
gives it “unrestricted access to all internal and external Company
information and to any officer, director, and employee of the Company.”
All of the things the Audit Committee now characterizes as misconduct
occurred on its watch and, in many cases, with its full knowledge and
approval. After an investigation that has lasted nearly 15 months and
cost an estimated $70 million, the Audit Committee, unsurprisingly, has
completely exonerated itself and blamed all of the Company’s perceived
shortcomings on former management. The self-interested nature of its
“findings” is obvious.
Most importantly, the Audit Committee’s investigation had no written
schedule, budget, goals, objectives, or scope, and has been extremely
destructive. It has disrupted operations and demoralized employees. The
Company still has not restated revenues for any period; it has not
completed the 2017 audit; its stock has been delisted from NASDAQ; its
revenue growth has slowed; its auditor has resigned; and it has
terminated 24% of the workforce, including salespersons. No one can
credibly claim that this unproductive and costly investigation has been
in the shareholders’ best interests, or that the decision to scapegoat
top management for perceived misconduct has benefited anyone but certain
Board members and interim managers who are now in control.
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