Ex-CFO, others charged in biotech accounting scheme

Dive Brief:

The U.S. Securities and Exchange Commission (SEC) last week charged former CFO Michael Senken and two other former executives of Georgia-based biotech company MiMedx Group with defrauding investors by misstating the company’s revenue and attempting to cover up their misconduct.
From 2013 to 2017, the company prematurely recognized revenue from sales to some of MiMedx’s distributors and exaggerated company revenue growth, the SEC alleges.
The company has agreed to a settlement to resolve the claims.

Dive Insight:

Former MiMedx CEO Parker Petit and former COO William Taylor allegedly entered into undisclosed side arrangements with five distributors, allowing them to return product to MiMedx and conditioning their payment obligations on sales to end users, the SEC said.

Petit, Taylor, and Senken allegedly hid the scheme for years, even after MiMedx’s former controller raised concerns about the company's accounting for these distributor transactions.

"Senken did not express surprise or concern" when the company's controller brought the distributor arrangements to his attention, the SEC said. "Senken would receive a similar report from a different controller three years later and, again, express no surprise or concern and make no further inquiry into MiMedx’s accounting" for the questionable sales.

The SEC also alleges that Petit, Taylor, and Senken misled MiMedx’s outside auditors, members of MiMedx’s audit committee, and outside lawyers who inquired about these transactions.

“MiMedx’s former executives misled investors about the growth of MiMedx’s revenues and then repeatedly concealed their fraud,” said Kurt Gottschall, director of the SEC’s Denver Regional Office. "This action reflects our commitment to holding issuers and their senior officers accountable for failing to provide accurate financial statements to the investing public."

Without admitting or denying the allegations, MiMedx agreed to pay a $1.5 million penalty, subject to court approval. The SEC will also seek permanent injunctions, disgorgement plus interest, penalties, and officer-and-director bars against Petit, Taylor and Senken, and clawback of bonuses and other incentive-related compensation paid to Petit and Senken.