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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF FLORIDA

BRUCE CASSAMAJOR, derivatively on 

behalf of MIMEDX GROUP, INC.,

Plaintiff,

v.

PARKER H. PETIT, MICHAEL J. SENKEN, 

WILLIAM TAYLOR, CHARLES E. KOOB, 

BRUCE L. HACK, LARRY W. PAPASAN, 

JOSEPH G. BLESER, J. TERRY 

DEWBERRY, JOHN E. CRANSTON, NEIL 

S. YESTON, CHARLES R. EVANS, and

LUIS A. AGUILAR

Defendants,

and

MIMEDX GROUP, INC.,

Nominal Defendant.

Civil Action No.:_____________________

JURY TRIAL DEMANDED

VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT

Plaintiff Bruce Cassamajor (“Plaintiff”), by and through his undersigned attorneys, hereby 

submits this Verified Shareholder Derivative Complaint (the “Complaint”) for the benefit of 

nominal defendant MiMedx Group, Inc. (“MiMedx” or the “Company”) against the Individual 

Defendants (defined herein) seeking to remedy their breaches of fiduciary duties. Plaintiff makes 

these allegations upon personal knowledge as to those allegations concerning Plaintiff and, as to 

all other matters, upon information and belief based on the investigation of undersigned counsel, 

which includes, without limitation: (a) review and analysis of public filings made by MiMedx with 

the United States Securities and Exchange Commission (“SEC”); (b) review and analysis of

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press releases and other publications disseminated by MiMedx; (c) review of news articles, 

stockholder communications, and postings on MiMedx’s website concerning the Company’s 

public statements; (d) pleadings, papers, and any documents filed with and publicly available from 

a related pending securities fraud class action captioned, In Re MiMedx Group, Inc. Securities 

Litigation No. 1:18cv830 (N.D. Ga.) (the “Securities Class Action”); and (e) review of other 

publicly available information concerning MiMedx and the defendants.

NATURE OF THE ACTION

1. MiMedx is a biopharmaceutical company that develops and markets regenerative 

biologics utilizing human placental tissue allografts with patent-protected processes for various 

sectors of healthcare. It processes the human placental tissue utilizing its proprietary PURION 

Process to produce allografts. 

2. The Company utilizes several different distributors to deliver its products. Among 

those distributors is AvKARE, Inc. (“AvKARE”) – a federal contractor. Through MiMedx’s 

distribution agreement with AvKARE, the Company was able to order certain products for 

delivery to Department of Veterans Affairs (“VA”) hospitals at will. The revenues derived from 

MiMedx’s distribution agreement with AvKARE made up a significant portion of the Company’s 

total revenues. In 2013, for example, 56% of the Company’s total revenues were attributable to its 

agreement with AvKARE.

3. In December 2016, two former employees of MiMedx filed a complaint against the 

Company, alleging, among other things, retaliatory termination by MiMedx after reporting 

fraudulent revenue recognition practices (the “Whistleblower Action”). In particular, the 

Whistleblower Action alleged that MiMedx had engaged in a “channel-stuffing scheme” to 

“fraudulently recognize revenue [purportedly earned under its distribution agreement with 

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AvKARE] in its certified financial statements before the revenue had been realized or realizable 

and earned.” The Company denied those claims and, in fact, sued the employees for tortious 

interference, among other things. 

4. In connection with the Whistleblower Action, on December 27, 2016, the Company 

announced that the Audit Committee of the Board had “advised the Company’s management and 

the Board of Directors that it has found no credible evidence to indicate that any changes to 

previously issued financial statements are necessary in light of these allegations.”

5. On March 1, 2017, the Company announced that the Audit Committee had 

completed its investigation, which purportedly (i) “confirmed there is no credible evidence of any 

wrongdoing on behalf of members of MiMedx management,” and (ii) “determined that the 

Company has appropriately recognized revenue and found no credible evidence to indicate that 

any changes to the Company’s previously issued financial statements are necessary in light of the 

former employees’ allegations.”

6. However, in September 2017 several market research analysts (often called “short 

reporters”) published reports which, among other things, focused on the fraudulent revenue 

recognition practices of MiMedx alleged in the Whistleblower Action. Again, MiMedx denied 

these allegations and sued each of the research companies for, among other things, libel, slander, 

and defamation.

7. On February 20, 2018, after causing the Company to expend monies in the 

foregoing litigation and publicly denying that MiMedx was engaged in an improper revenue 

scheme, MiMedx disclosed an “internal investigation into current and prior-period matters relating 

to allegations regarding certain sales and distribution practices at the Company,” and with regard 

to “the accounting treatment of certain distributor contracts.” The Company further announced 

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that, because of this internal investigation, it would delay the release of its fourth quarter and fiscal 

year 2017 financial results.

8. On June 7, 2018, MiMedx announced that its previously issued consolidated 

financial statements relating to each of the fiscal years ended December 31, 2012, 2013, 2014, 

2015, and 2016, and each of the interim periods ended March 31, June 30 and September 30, 2017,

should be restated. The Company further announced “the determination of the need to restate was 

based on investigation results to date, which have primarily been focused on the accounting 

treatment afforded to such sales and distribution practices for two distributors for which certain 

implicit arrangements modified the explicit terms of the contracts, impacting revenue recognition 

during specified periods.”

9. In connection therewith, the Department of Justice (“DOJ”) launched an 

investigation into MiMedx’s distribution practices, including allegations of channel stuffing. This 

was already on top of the Company having admitted that it was cooperating with a SEC 

investigation into how the Company recognizes revenue.

10. From March 7, 2013 to the present (the “Relevant Period”), the Individual 

Defendants breached their fiduciary duties by knowingly or recklessly disregarding the inadequate 

lack of controls and deficiencies in the Company’s accounting and financial reporting systems and 

allowing the Company and its employees to engage in a “channel-stuffing” scheme to improperly 

recognize revenue and violations of the Physician Payments Sunshine Act (“PPSA”), as described 

herein. 

11. Additionally, the Individual Defendants caused the Company to make false and/or 

misleading statements, as well as failed to disclose material adverse facts about the Company’s 

business, operations, and prospects. Specifically, the Individual Defendants made false and/or 

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misleading statements and/or failed to disclose that (i) MiMedx was engaged in a “channelstuffing” scheme designed to inappropriately recognize revenue that had not yet been realized; (ii) 

the Company lacked adequate internal controls over financial reporting; and (iii) that as a result of 

the foregoing, MiMedx’s publicly disseminated financial statements were materially false and

misleading.

12. As a direct and proximate result of the Individual Defendants’ breaches of fiduciary 

duties and other misconduct, MiMedx has sustained damages as described below.

JURISDICTION AND VENUE

13. This Court has subject matter jurisdiction over all claims asserted herein pursuant 

to 28 U.S.C. § 1332 in that complete diversity exists between Plaintiff and each of the defendants 

and the amount in controversy exceeds $75,000, exclusive of interest and costs. This action is not 

a collusive one to confer jurisdiction on a court of the United States which it would not otherwise

have.

14. MiMedx is incorporated in the State of Florida. This Court has personal jurisdiction 

over each of the Defendants because each defendant has sufficient minimum contacts with this 

District so as to render the exercise of jurisdiction by this Court permissible under traditional 

notions of fair play and substantial justice.

15. This derivative action is not a collusive action to confer jurisdiction on a court of 

the United States that it would not otherwise have.

16. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1401 because 

nominal defendant MiMedx is incorporated in this District. In addition, the Defendants have 

conducted business in this District, and Defendants’ actions have had an effect in this District.

PARTIES

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17. Plaintiff is a current shareholder of MiMedx common stock. Plaintiff has 

continuously held MiMedx common stock at all relevant times. Plaintiff is a citizen of New Jersey.

18. Nominal defendant MiMedx is a Florida corporation, with its principal executive 

offices at 1775 West Oak Commons Ct. NE, Marietta, GA 30062. MiMedx is a biopharmaceutical 

company developing and marketing regenerative and therapeutic biologics utilizing human 

placental tissue allografts.

19. Defendant Charles R. Evans (“Evans”) is the former Chairman of the Board and 

has served as a director of the Company since September 2012. In addition, defendant Evans 

served as a member of the Audit Committee during the Relevant Period. Upon information and 

belief, defendant Evans is a citizen of Georgia.

20. Defendant Parker Petit (“Petit”) served as the Company’s CEO and Chairman of 

the Board from February 2009 until his resignation in June 2018, as the Company’s President from 

February 2009 until September 2009, and as director of the Company from February 2009 until 

September 2018. On September 20, 2018, the Company announced that the Board had changed 

Petit’s resignation to “termination for cause.” Upon information and belief, defendant Petit is a 

citizen of Georgia.

21. Defendant Michael J. Senken (“Senken”) served as the Company’s Chief Financial 

Officer (“CFO”) from January 2010 until his resignation in June 2018. Upon information and 

belief, defendant Senken is a citizen of Georgia.

22. Defendant John E. Cranston (“Cranston”) served as Treasurer, Corporate 

Controller and Vice-President of MiMedx until his resignation in June 2018. On September 20, 

2018, the Company announced that the Board had changed Cranston’s resignation to “termination 

for cause.” Upon information and belief, defendant Cranston is a citizen of Georgia.

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23. Defendant Joseph G. Bleser (“Bleser”) served as a director of the Company from 

September 2009 until June 2019. In addition, defendant Bleser served as a member of the Audit

Committee during the Relevant Period. Upon information and belief, defendant Bleser is a citizen 

of Georgia.

24. Defendant J. Terry Dewberry (“Dewberry”) served as a director of the Company 

since September 2009 until June 2019. In addition, defendant Dewberry served as the Chairman 

of the Audit Committee during the Relevant Period. Upon information and belief, defendant 

Dewberry is a citizen of Georgia.

25. Defendant Bruce L. Hack (“Hack”) served as a director of the Company from 

December 2009 to June 2019. Upon information and belief, defendant Hack is a citizen of New

York.

26. Defendant Charles E. Koob (“Koob”) has served as a director of the Company since 

March 2008. Upon information and belief, defendant Koob is a citizen of Wyoming.

27. Defendant Larry W. Papasan (“Papasan”) served as a director of the Company from 

March 2008 to June 2019. Upon information and belief, defendant Papasan is a citizen of 

Tennessee.

28. Defendant Neil S. Yeston (“Yeston”) has served as a director of the Company since 

September 2012. Upon information and belief, defendant Yeston is a citizen of Connecticut.

29. Defendant William C. Taylor (“Taylor”) served as a director of the Company from 

October 2011 until his resignation in June 2018 and as the Company’s President and Chief 

Operating Officer (“COO”) from September 2009 until his resignation in June 2018. On 

September 20, 2018, the Company announced that the Board had changed Taylor’s resignation to 

“termination for cause.” Upon information and belief, defendant Taylor is a citizen of Georgia.

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30. Defendant Luis A. Aguilar (“Aguilar”) served as a director of the Company since 

from March 2017 to September 2019. Upon information and belief, defendant Aguilar is a citizen 

of Georgia.

31. Collectively, defendants Petit, Taylor, Senken, Cranston, Bleser, Dewberry, Evans, 

Hack, Koob, Papasan, Yeston and Aguilar shall be referred to herein as the “Individual 

Defendants.”

32. Collectively, defendants Bleser, Dewberry and Evans shall be referred to as the

“Audit Committee Defendants.”

THE INDIVIUDAL DEFENDANTS’ DUTIES

33. By reason of their positions as officers, directors, and/or fiduciaries of MiMedx and 

because of their ability to control the business and corporate affairs of MiMedx, the Individual 

Defendants owed MiMedx and its shareholders fiduciary obligations of good faith, loyalty, and 

candor, and were and are required to use their utmost ability to control and manage MiMedx in a 

fair, just, honest, and equitable manner. The Individual Defendants were and are required to act in 

furtherance of the best interests of MiMedx and its shareholders so as to benefit all shareholders 

equally and not in furtherance of their personal interest or benefit. Each director and officer of the 

Company owes to MiMedx and its shareholders the fiduciary duty to exercise good faith and

diligence in the administration of the affairs of the Company and in the use and preservation of 

its property and assets, and the highest obligations of fair dealing.

34. The Individual Defendants, because of their positions of control and authority as 

directors and/or officers of MiMedx, were able to and did, directly and/or indirectly, exercise 

control over the wrongful acts complained of herein. Because of their advisory, executive, 

managerial, and directorial positions with MiMedx, each of the Individual Defendants had 

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knowledge of material non-public information regarding the Company.

35. To discharge their duties, the officers and directors of MiMedx were required to 

exercise reasonable and prudent supervision over the management, policies, practices and controls 

of the Company. By virtue of such duties, the officers and directors of MiMedx were required to, 

among other things:

a) ensure that the Company complied with its legal obligations and 

requirements, including acting only within the scope of its legal authority 

and disseminating truthful and accurate statements to the SEC and the 

investing public;

b) conduct the affairs of the Company in a lawful, efficient, business-like 

manner so as to make it possible to provide the highest quality performance 

of its business, to avoid wasting the Company’s assets, and to maximize the 

value of the Company’s stock;

c) properly and accurately guide investors and analysts as to the true financial 

condition of the Company at any given time, including making accurate 

statements about the Company’s financial results and prospects, and 

ensuring that the Company maintained an adequate system of financial 

controls such that the Company’s financial reporting would be true and 

accurate at all times;

d) remain informed as to how the Company conducted its operations, and, 

upon receipt of notice or information of imprudent or unsound conditions 

or practices, make reasonable inquiry in connection therewith, and take 

steps to correct such conditions or practices and make such disclosures as 

necessary to comply with federal and state securities laws; and

e) ensure that the Company was operated in a diligent, honest, and prudent 

manner in compliance with all applicable federal, state, and local laws, 

rules, and regulations.

36. Each Individual Defendant, as a director and/or officer, owed to the Company and 

its stockholders the fiduciary duties of loyalty, good faith and candor in the management and 

administration of the affairs of the Company, as well as in the use and preservation of its property 

and assets. The conduct of the Individual Defendants complained of herein involves a knowing 

and culpable violation of their obligations as directors and officers of the Company, the absence 

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of good faith on their part, and a conscious disregard for their duties to the Company and its 

stockholders that Individual Defendants were aware or should have been aware posed a risk of 

serious injury to the Company.

37. Additionally, under the Audit Committee Charter, defendants Bleser, Dewberry 

and Evans, as Audit Committee members during the Relevant Period were required, inter alia, to:

a) Oversee and monitor the activities of Company management with respect

to the Company’s accounting and financial reporting processes;

b) Review the proposed scope and plan of the annual audits of the financial 

statements and internal control over financial reporting;

c) Review and discuss with management the Company’s annual audited 

financial statements, quarterly financial statements and any Company 

financial statements contained in other periodic reports filed with the SEC;

d) Review with management, before release, the Company’s audited financial 

statements and Management’s Discussion and Analysis included in the 

Company’s Annual Report on Form 10-K and recommend to the Board 

whether the audited financial statements should be included in the 

Company’s Annual Report on Form 10-K;

e) Review with management the adequacy of the Company’s internal financial

controls and reporting systems;

f) Establish procedures for the receipt, retention, and treatment of complaints 

received by the Company regarding accounting, internal accounting

controls, or auditing matters;

g) Establish procedures for the confidential, anonymous submission by 

employees of the Company of concerns regarding questionable accounting 

or auditing matters;

h) Conduct an annual review of the Audit Committee’s performance, annually 

review and reassess the adequacy of this Charter and make 

recommendations to the Board with respect to any changes in this Charter;

i) Establish and review reporting procedures for accounting matters; and

j) Review compliance, information security, and risk assessment reports from 

management.

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38. MiMedx has also adopted a “Code of Business Conduct and Ethics” (the “Code”) 

which applied to the Individual Defendants. The Code states, inter alia:

1. Introduction.

1.1 The Board of Directors of MiMedx Group, Inc. (together with its 

subsidiaries, the “Company”) has adopted this Code of Business Conduct and Ethics 

(the “Code”) in order to promote:

a) honest and ethical conduct, including the ethical handling of actual 

or apparent conflicts of interest;

b) full, fair, accurate, timely and understandable disclosure in reports 

and documents that the Company files with, or submits to, the Securities 

and Exchange Commission (the “SEC”) and in other public 

communications made by the Company;

c) compliance with applicable governmental laws, rules and

regulations;

d) the prompt internal reporting to an appropriate person or persons 

identified in the Code of violations of the Code; and

e) accountability for adherence to the Code.

1.2. The Code applies to all employees, officers and directors of the 

Company (collectively referred to herein as the “Covered Persons”, and each, 

individually a “Covered Person”). This Code is intended to be supplemented by the 

Company’s more detailed compliance plans and policies, including the Company’s 

Corporate Compliance and Ethics Plan and Reporting Procedures for Accounting

Matters.

2. Honest and Ethical Conduct.

2.1 The Company’s policy is to promote high standards of integrity by 

conducting its affairs honestly and ethically.

2.2 The Company’s continued success and reputation are dependent upon 

each Covered Person adhering to the highest ethical and legal standards of business 

conduct. Each Covered Person must act with integrity and observe the highest ethical 

standards of business conduct in his or her dealings with the Company’s customers, 

suppliers, partners, service providers, competitors, employees and anyone else with 

whom he or she has contact in the course of performing his or her job.

***

4. Compliance with Laws. The Company’s policy is to operate its businesses in strict 

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compliance with all laws and regulatory requirements. Under no circumstances shall 

a Covered Person take any action on behalf of the Company that he or she knows or 

reasonably should know violates any applicable law or regulation. Every Covered 

Person is expected to be familiar with the basic legal and regulatory requirements that 

apply to his or her duties on the job. An employee who needs help to understand his 

or her legal obligations is expected to ask a manager, or higher level executive, the 

Corporate Compliance Officer, the Human Resources Department, or a Company 

attorney for instruction or advice.

5. Disclosure. The Company applies the highest ethical standards in its financial and 

non-financial public reporting and follows all applicable SEC, NASDAQ and other 

standards and rules regarding reporting. It is of critical importance that all disclosures 

and announcements made by the Company to security holders or the investment 

community be accurate and complete, fairly present, in all material respects, the 

subject matter of the disclosure, and be made on a timely basis. Covered Persons who 

prepare disclosures or review information that will be included in the Company’s 

filings with the SEC or other government agencies or otherwise disclosed to the public 

must take this responsibility very seriously. Such Covered Persons must provide 

information that is relevant, objective, accurate and complete to promote full, fair, 

accurate, timely and understandable disclosures. Each Covered Person has the

responsibility to immediately report to appropriate Company personnel or the Audit 

Committee any information that he or she becomes aware of that affects disclosures 

made by the Company. This includes any violations of law or this Code that may 

warrant disclosure to appropriate government authorities. Requests for information 

about the Company or its business should be directed to the appropriate departments 

for response. In general, such requests should be answered only by departments and 

personnel directly responsible for communicating with the groups making the 

requests, such as the Chief Financial Officer’s office or the Legal Department. Any 

inquiry about a pending or threatened legal matter or other sensitive issue should be 

referred to the Legal Department. The Company has designated corporate 

spokespersons to control the flow of information among the media. No Covered 

Person other than a designated corporate spokesperson should provide any 

information about the Company or its business to the media. If a Covered Person 

receives an inquiry from the media, he or she should ask for the inquirer’s contact 

information and pass the inquiry on to the corporate managers or executives who are 

trained in such matters.

39. The Individual Defendants failed to maintain the standards laid out by both the law 

and the Company, resulting in the following breaches of fiduciary duty. 

SUBSTANTIVE ALLEGATIONS

COMPANY BACKGROUND AND MIMEDX’S SIGNIFICANT RELATIONSHIP WITH AVKARE

40. According to its public filings, MiMedx is a developer, processor and marketer of 

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regenerative biomaterial products and bioimplants processed from human placental tissue, skin 

and bone. The Company is a global supplier of allografts processed from amniotic tissue.

41. The Individual Defendants acknowledge in the Company’s public filings that sales 

to government accounts, such as the VA, comprise a “significant portion of [MiMedx’s] revenues 

and accounts receivable.”

42. During the Relevant Period, a significant portion of the Company’s sales to 

government accounts were made through MiMedx’s distributor relationship with AvKare, which 

is a General Services Administration Federal Supply Schedule (“FSS”) contractor.

43. MiMedx and AvKare began their distributor relationship in April 2012 upon the 

execution of a Product Distribution Agreement (“PDA”). The PDA initially had a three-year term

ending in April 2015, but through two amendments was extended through June 30, 2017. In 

total, the PDA has undergone four amendments. Defendants Taylor or Petit signed the PDA and 

its amendments.

44. In 2014, MiMedx applied for and, in early 2015, received its own FSS contract with 

a term through 2020, which permitted the Company to sell directly to government accounts. The 

Individual Defendants thereafter disclosed in the Company’s public filings that they “intend[ed] 

to transition all of our Government sales to sales sold directly to Government accounts on the

FSS.”

45. Per the Company’s public filings, through the end of 2015, sales through AvKare 

have been responsible for a substantial portion of the Company’s total revenues and accounts

receivable:

Year Percentage of MiMedx total

revenue attributable to 

AvKare

Percentage of MiMedx

accounts receivable 

attributable to AvKare

2012 40% 53%

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2013 56% 55%

2014 34% 33%

2015 24% 26%

46. The Individual Defendants knew of the Company’s relationship with AvKare 

and/or the substantive terms of that relationship due to, inter alia: (1) sales through AvKare which 

constituted a substantial portion of the Company’s total revenues and accounts receivable; (2) the 

Company’s approval of the PDA and/or the amendments thereto which could not have been 

approved without the Individual Defendants; and (3) the Individual Defendants’ decision to apply 

for Company’s own FSS and transition sales to government accounts away from AvKare.

THE COMPANY’S CHANNEL-STUFFING SCHEME 

47. Per the Whistleblower Action, the Individual Defendants knowingly and/or 

recklessly allowed the Company to engage in an improper revenue recognition scheme for years. 

The Whistleblower Action and the details of the channel-stuffing scheme were revealed in a Wall 

Street Journal investigative report titled “Highflying Medical Firm, a Help to Wounded Veterans, 

Falls to Earth,” dated July 23, 2018 (the “July 23, 2018 WSJ Article”), stating in pertinent part:

Now MiMedx is nursing its own wounds. In June, the company said an internal 

investigation had shown that its reported financial results going back to 2012 were 

no longer reliable and would have to be restated.

Mr. Petit has since resigned. The stock has plunged. Authorities are investigating. 

An interim CEO who specializes in restructuring troubled businesses is running the 

company.

A Wall Street Journal review of company emails, court documents and internal 

complaints, plus interviews with current and former employees, paint a picture of 

a company seeking to grow at almost any cost.

Several former employees alleged that MiMedx sometimes shipped more skin 

grafts than had been ordered and booked them as sales, a practice known as channel 

stuffing.

One former employee said that for some tissue implants, a MiMedx sales 

representative in California recorded inaccurate dates and surgeons’ names and 

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improperly listed recipients as John or Jane Doe.

In February the Journal reported that MiMedx hadn’t reported payments made to 

doctors who use or promote its products, despite a federal law requiring most drug 

and medical-device makers to disclose payments or gifts to doctors. The company 

said its products were exempt from the rule.

MiMedx provided employees with a way to report issues that troubled them. Eight 

ex-employees said they were fired after they spoke up. The company is known to 

have sued six former employees, accusing them of violating its policies, such as by 

selling products from other companies while employed.

In response to a list of questions from the Journal about company practices and 

employees’ criticisms, MiMedx said in a written statement that its board’s audit 

committee is conducting an independent investigation into “certain sales and 

distribution practices and other matters.” It said it is cooperating fully with 

regulatory agencies. MiMedx said it “is not going to comment on allegations raised 

by former employees, which are being looked into” by the audit committee.

The Journal sent the same questions to Mr. Petit. He addressed a few specific ones 

but not most. Referring generally to employee statements, Mr. Petit said by email, 

“I have previously refuted such statements.”

The company responded to some criticisms in the past, confronting short sellers 

who have mounted an attack on its stock. In a rebuttal it once had on its website, 

MiMedx said, for instance, that the channel-stuffing allegation came from people 

who misunderstood its operations or from fired and disgruntled former employees. 

The rebuttal now is gone from the site. MiMedx said it no longer intends to post 

responses because of its investigation.

Besides that internal inquiry, MiMedx said earlier this year the Securities and 

Exchange Commission and the Justice Department were reviewing some of its 

practices. The Department of Veterans Affairs has said it is looking at MiMedx 

practices, too.

* * *

MiMedx, based in Marietta, Ga., took off in 2011 after it acquired a seller of 

placenta-based treatments meant to heal wounds more quickly. The products were 

lightly regulated and relatively inexpensive to make.

The raw materials come from placentas donated by women who have given birth 

by caesarean section. The company takes the amniotic membrane—the thin, moist 

tissue that protects the fetus—and processes it into wound patches or grinds it into 

a powder that can be applied topically or by injection. MiMedx’s amnioticmembrane products are the ones most commonly used by doctors and are generally 

considered to be safe and of good quality, said Robert Kirsner, director of the 

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University of Miami Hospital Wound Center.

Products made from human tissue didn’t need Food and Drug Administration 

approval for marketing so long as the tissue wasn’t significantly altered in 

processing and performed the same basic function it had in the donor. Last 

November, however, the FDA said some products of the type MiMedx sells do 

require agency approval. MiMedx has three years to meet the new guidelines and 

will have the expense of clinical trials.

Meantime, sales representatives have faced pressure from managers for higher 

volume, said former employees. That is hardly unique, but MiMedx sales reps told 

of texts streaming in at the end of every month or quarter.

“What else can u ship by end of month?” said one message to a former employee 

reviewed by the Journal. “Need all u can put in today up to $100k if possible,” it 

said.

“I still have PTSD from the amount of calls I’d get asking what my numbers were 

going to be for the month,” said Mary Armstrong, a former MiMedx account 

executive in Texas. She said superiors would tell her “I need you to hit this 

number.”

In one instance, MiMedx sales records show the company recorded a shipment of 

135 oversized skin grafts to a Las Vegas plastic surgeon’s office, which former 

employees said is way beyond the 10 or so smaller pieces in a typical physician 

order. The shipment was recorded at 8 p.m. on Sept. 29, 2016, just before the end 

of a quarter.

No one in the surgeon’s office had ordered the goods, according to a former 

employee of the office.

The surgeon refused to pay for the grafts, which were billed at about $270,000 and 

shipped to a FedEx Corp. office for pickup, the former office employee said.

A FedEx receipt reviewed by the Journal said the shipment was picked up the next 

day by someone representing the surgeon. The former surgeon’s-office employee 

said no one from the office collected the goods.

The former employee said that, when shown a security video from the location, he 

recognized the person who had signed for the pickup as a representative for a 

company that did business with MiMedx. The former employee said the surgeon 

chose not to pursue the matter with police.

MiMedx’s top executives were asked by the doctor’s office about this sequence of 

events and couldn’t satisfactorily explain it, the former surgeon’s-office employee 

said.

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The allegation was among those MiMedx told the Journal it wouldn’t address 

because of its internal investigation.

Ms. Armstrong, the former MiMedx account executive, said in 2016 she 

complained to executives, including Mr. Petit, about what she considered 

improprieties, such as third-party distributors appearing to overcharge hospitals for 

MiMedx products.

Mr. Petit told her he would fix the problem, but the activities continued, she said. 

She said she soon was fired for what the company called performance reasons.

A Journal question about Ms. Armstrong was among those Mr. Petit addressed. He 

said Ms. Armstrong “never told me anything that I recall.”

MiMedx said in its written statement it “has taken a number of actions to promote 

accountability and strengthen oversight, including management’s development and 

implementation of measures to improve MiMedx’s accounting, corporate 

compliance and internal control practices.” Last week it named a new chief 

compliance officer from outside the company.

VA hospitals and clinics were crucial to the company’s revenue growth, said former 

employees. The U.S. government accounted for more than a fifth of MiMedx’s 

revenue, by one analyst’s estimate. A spokesman for the VA’s Office of the 

Inspector General declined to comment on MiMedx, citing an investigation by the 

IG.

Many VA hospitals do business with MiMedx on a consignment basis, meaning the 

company sends them products and is paid only when the VA uses some of them. 

Storing voluminous merchandise on VA shelves became a challenge, former 

MiMedx employees said. “We would find ways to hide it,” said one.

An August 2017 email received by regional sales directors said consignment 

inventory outstanding just in the Southwest region was worth some $34 million. 

For perspective, that was equal to more than 10% of reported sales companywide 

in the previous year.

Several former employees said that at times, near the end of a quarter, the company 

would book as sales some of the goods sent to hospitals on consignment but not yet 

used.

The FDA requires that details of medical use of human tissue—the donor and the 

recipient—be recorded. MiMedx documents reviewed by the Journal show that in 

one hospital, tissue recipients were repeatedly recorded by a sales rep as Jane Doe 

or John Doe. Also, MiMedx records didn’t match the hospital’s own records in 

various ways, such as listing a different doctor and incorrect implant date.

Jennifer R. Scott, a former MiMedx regional sales director, said she saw 

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mislabeling of surgical implants as wound-care uses, which are more highly 

reimbursed.

She said she was fired after identifying the improprieties to her superiors. Ms. Scott, 

who is known as Robyn, recently sued MiMedx alleging accounting irregularities 

under the Sarbanes-Oxley law, seeking damages for lost wages and earning 

capacity. The company declined to comment on the suit, filed in federal court in 

Dallas, and didn’t answer a question from the Journal about the labeling.

MiMedx says it encourages employees to speak up if they see problems at the 

company. “Management MiMedx Style,” posted on the company website, said Mr. 

Petit personally oversaw what was called a “Dear Pete” program for lodging 

complaints, and “no employee will be reprimanded or harassed in any way for using 

this system.”

Some former employees described a different “Dear Pete” experience. In a detailed 

letter to Mr. Petit and the board in January, Tom Tierney, a former regional sales 

director for surgical products, cited what he called “a mind-boggling level of sales 

and accounting irregularities,” which he called part of a “win at all cost” company 

culture.

Just over a week later, he was fired, Mr. Tierney said. He said he was accused of 

giving company information to outsiders, which he denied.

48. The Whistleblower Action provided even more detail regarding the channelstuffing scheme and the cover-up by the Individual Defendants. According to the Whistleblower 

Action, the former employees submitted a joint report notifying defendants Petit, Taylor, and as 

well as other “MiMedx upper management,” that the Company was perpetrating a channel-stuffing 

scheme in violation of, among other things, the Sarbanes-Oxley Act (“SOX”). Supplemental 

reports were submitted on November 4 and 7, 2016.

49. However, the Individual Defendants not only denied the allegations, but threatened

the former employees during a December 12, 2016 meeting at MiMedx headquarters. Defendant 

Petit stated to them that they would be “financially hit,” that “their families and futures will feel 

it,” and that they would be “hurt professionally and with every possible resource available.” The 

Whistleblower Action also alleges that Petit said that “any other [employees] who did similarly 

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would be dealt with quickly and harshly.” 

50. That same day, the former employees were fired from MiMedx. 

51. On December 15, 2016, the Company issued a press release, which quoted Petit 

stating that the allegations in the Whistleblower Action were “not factual and fallacious” and “at 

the point of being ridiculous.” Defendant Petit also said that the Company had “submitted the 

allegations to [the] Board of Directors to thoroughly review the issues.”

52. On December 27, 2016, the Company announced that the Audit Committee, 

together with “independent counsel” and MiMedx’s external auditor Cherry Bekaert LLP (“Cherry 

Bekaert”), was conducting an investigation into the allegations contained in the Whistleblower 

Action but the Audit Committee had preliminarily advised “the Company’s management and the 

Board [] that it has found no credible evidence to indicate that any changes to previously issued 

financial statements are necessary in light of these allegations.”

53. On January 9, 2017, the SEC sent MiMedx a comment letter inquiring into the 

Company’s financial disclosures relating to its arrangement with AvKARE. Specifically, the SEC 

asked that MiMedx “tell us the significant terms of your agreement with AvKARE, including 

payment terms and rights of return,” as well as the Company’s “policies for recognizing revenues 

for sales to them.” 

54. On February 6, 2017, the Company issued a press release disclosing that the Board 

approved a $10 million increase to the Company’s Share Repurchase Program. Defendant Petit 

stated in the press release, in relevant part:

MiMedx management is just as frustrated with the volatility of our shares as are our 

shareholders. We know there are ongoing issues associated with naked short selling 

in our stock. These naked short selling practices are illegal, and we are continuing 

to be diligent in bringing to light the perpetrators of these illegal activities. We 

believe the ‘fake allegations and fake news’ should be discredited when the 

Company publishes the key findings of the Report from the Audit Committee and 

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the 2016 audited financial results on February 22nd.

55. On March 1, 2017, the Company announced that the Audit Committee had 

completed its investigation and concluded that there was “no merit regarding the allegations of 

wrongdoing that were made by two former employees against the Company.” It was further 

announced that “[t]he Audit Committee’s investigation determined that the Company has 

appropriately recognized revenue” and there was “no credible evidence to indicate that any 

changes to the Company’s previously issued financial statements are necessary in light of the 

former employees’ allegations.” The announcement concluded by stating that “[t]he Audit 

Committee’s findings have been submitted to and approved by the Company’s Board [].”

56. On March 20, 2017, the SEC sent MiMedx another comment letter with over ten 

questions regarding the Company’s financial disclosures relating to its arrangement with 

AvKARE, as well MiMedx’s revenue recognition practices. MiMedx sent a response to that letter, 

which confidentially attached an Executive Summary of the Audit Committee’s findings.

57. On July 5, 2017, the Company announced that its PDA with AvKARE had expired 

“as planned,” effective June 30, 2017. Defendant Petit stated that “[f]or strategic and financial 

reasons, we elected to obtain our own FSS contract in 2014.” Defendant Taylor stated that the 

“wind-down” of the AvKARE arrangement was “an extremely tedious process involving the 

development of detailed project plans.”

58. On August 10, 2017, the Company disclosed that the Company had replaced its

accounting firm, Cherry Bekaert, with Ernst & Young LLP (“EY”).

59. In early September, an investigative news company, The Capital Forum, issued a 

report stating that it had confirmed that “[t]he VA Office of Inspector General (OIG) is conducting 

an investigation that involves documents related to MiMedx.” On September 7, 2017, in response 

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MiMedx issued a press release refuting this allegation stating in relevant part:

MiMedx has been aware for some time of an ongoing investigation by the 

Department of Veterans Affairs (“VA”) Office of Inspector General, but the 

Company is not a target of that investigation. The Company is assisting with the 

investigation as requested by the government. To the extent there has been any 

innuendo by The Capitol Forum or others that somehow MiMedx is a target, that is 

simply incorrect based on available information.

(Emphasis in original).

60. On September 20, 2017, two research firms - Aurelius Value and Viceroy Research 

– published separate reports detailing a number of red flags demonstrating fraudulent activity

occurring at the Company. The Aurelius Value report entitled “MiMedx: Flying Too Close To The 

Sun” summarized its findings as follows:

We see large undiscounted channel stuffing and kickback risks lurking beneath the 

surface at MiMedx (NASDAQ: MDXG). This report specifically exposes:

Undisclosed related party transactions and entanglements with distributors, 

including a key MiMedx distributor that has been controlled by an insider. These 

relationships are especially problematic because secret ties to distributors have 

featured prominently in historical channel stuffing schemes.

Detailed allegations that MiMedx’s channel stuffing scheme relies on at least three 

more distributors who have undisclosed special agreements involving millions in 

discounted product and favorable financing terms as “house accounts”. Not only 

does the alleged scheme now extend significantly beyond the VA, but MiMedx has 

allegedly manipulated its financials through multiple avenues to hit sales targets.

Documents showing that over 40 podiatrists across the country, including the 

current President of the American Podiatric Medical Association, received 

undisclosed membership interests in a MiMedx reseller linked to MiMedx 

affiliates. The HHS Office of Inspector General has declared physician owned 

distributors as “inherently suspect” in a special fraud alert.

The research mosaic at MiMedx stirs memories of ArthroCare, a medical device 

company with a similar revenue recognition policy that inflated sales by “parking” 

millions in product at distributors before period ends. ArthroCare’s fraud relied on 

a distributor secretly controlled by insiders, which metastasized alongside a scandal 

involving improper relationships with doctors.

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61. In response to these reports, the Individual Defendants caused MiMedx to sue The 

Capital Forum, Aurelius Value and Viceroy Research on the basis that these allegations by short 

sellers were false.

62. On September 21, 2017, MiMedx issued a press release “announc[ing] [their] 

interactions with the [SEC]” wherein defendant Petit disclosed that the Company has been 

“assembl[ing] summary documentation to supply to the SEC, which would include information 

from the investigation conducted by the Board of Directors and others.” Defendant Petit also noted 

that the Company had “received a subpoena from the SEC that appears to relate to the former 

employees’ allegations and is primarily related to the matters that were the subject of the 

Company’s previously disclosed internal investigation.” Defendant Petit further stated the 

Company believed “that the government’s investigation will confirm our Audit committee’s prior 

findings” and that the Company’s “Executive Management team continues to operate MiMedx in 

a very effective manner[.]”

THE COMPANY VIOLATES PPSA

63. In addition to the improper revenue scheme, the Individual Defendants caused the 

Company to engage in another improper scheme. On February 22, 2018, The Wall Street Journal

published an article titled “MiMedx, Fast-Growing Developer of Tissue Graft Products, Didn’t 

Report Payments to Doctors,” detailing MiMedx’s alleged history of failing to disclose payments 

to doctors in violation of 2013’s Physician Payments Sunshine Act. Upon reviewing disclosures 

from doctors, the Journal found over 20 doctors who had received payments from MiMedx in 

recent years. 

COMPANY IMPROPERLY LIMITED WOUND TREATMENTS AVAILABLE TO VETERANS 

ADMINISTRATION AND DEFENSE DEPARTMENT FACILITIES

64. On October 5, 2018, the Wall Street Journal printed an article entitled, “MiMedx 

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Kept Cheaper Products Out of Its Offerings to VA Hospitals.” The article discusses how the 

Company improperly limited wound treatments available to Veterans Administration and Defense 

Department facilities, forcing increased spending by the government. More specifically, the article 

states: 

[A]n examination of the embattled company’s dealings with Veterans Affairs 

hospitals and those run by the Defense Department shows that MiMedx’s sales to 

these entities came at a high cost to taxpayers. According to former employees and 

company product lists, MiMedx limited the range of products it offered to federal 

buyers, forcing the government to buy more expensive products than it needed for 

some very common treatments. 

* * *

Former employees say the company’s questionable practices toward federal 

hospitals were more extensive than previously known.

For example, MiMedx had one set of product offerings for federal customers and 

others for private hospitals and doctors’ offices, internal documents show. At 

Veterans Affairs and Department of Defense hospitals, for example, MiMedx 

didn’t offer the small sizes of two popular products it offered elsewhere; as a result, 

these accounts had to buy bigger, more expensive offerings for smaller treatments, 

former employees said.

To treat the smallest wounds, MiMedx offered government hospitals nothing 

smaller than a 16-millimeter disk-shaped EpiFix graft costing $895. Private 

hospitals, however, were offered a 14-millimeter disk for $313. 

MiMedx marketing materials say the 14-millimeter graft fits more than half of all 

diabetic foot ulcers, a common wound. Not offering the 14-millimeter graft to 

federal hospitals increased product waste and raised taxpayers’ costs, former 

employees said.

Federal contractors are supposed to offer government buyers more advantageous 

pricing than commercial customers receive.

A similar dynamic governs the sales of another MiMedx product, 

a dehydrated EpiFix injectable. The smallest size offered to federal hospitals is 40 

milligrams, costing $725. Private doctors, meanwhile, were offered a 20-milligram 

unit of EpiFix for $225, internal documents show.

MiMedx declined to comment on these examples. Former employees say 

government-run hospitals were unaware of the company’s pricing practices.

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THE INDIVIDUAL DEFENDANTS’ FALSE AND MISLEADING STATEMENTS DURING THE RELEVANT 

PERIOD 

65. On March 7, 2013, the Individual Defendants issued a press release and filed the 

same on a Form 8-K with the SEC, entitled “MIMEDX ANNOUNCES 2012 RESULTS,” 

summarizing the financial and operating results for the period ended December 31, 2012. Among 

other things, the Company’s March 7, 2013 press release provided:

Highlights of 2012 Results include:

Tripling of Revenue over 2011

First full year of positive Adjusted EBITDA

Adjusted EBITDA increased by nearly $9 million

Gross Margins at record level of 81%

Full Year and Fourth Quarter 2012 Results

The Company recorded record revenue for the year ended December 31, 2012, with

revenue of $27.1 million, more than three times 2011 full year revenue of $7.8 

million. Earnings before interest, taxes, depreciation, amortization, impairment of 

intangibles, earn-out liability and share based compensation (Adjusted EBITDA*) 

for the year ended December 31, 2012, were $2.4 million, a

$8.7 million improvement as compared to the Adjusted EBITDA loss of $6.3 

million for the year ended December 31, 2011.

The fourth quarter of 2012 marked the 8th consecutive quarter in which the 

Company reported improved gross margins. The Company’s 2012 gross margins 

of 81% are nearly a forty-two percentage point improvement over full year 2011 

gross margins of 57%.

The Company recorded record revenue for the quarter ended December 31, 2012, 

with revenue of $10.5 million, an increase of 299% or $7.9 million over fourth 

quarter of 2011 revenue of $2.6 million, and a 32% increase over the third quarter 

of 2012. Adjusted EBITDA* for the quarter ended December 31, 2012, were

$411,000, a $2.1 million improvement as compared to the Adjusted EBITDA loss 

of $1.64 million for the quarter ended December 31, 2011.

66. On March 15, 2013, the Individual Defendants caused the Company to file on Form 

10-K with the SEC (the “2012 Form 10-K”), its annual financial results for the period ended 

December 31, 2012, signed by defendants Petit, Senken, Bleser, Dewberry, Evans, Hack, Koob, 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 24 of 63
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Papasan, Taylor and Yeston, providing the Company’s consolidated financial results for that 

period (which were previously summarized in the Company’s March 7, 2013 pressrelease).

67. The 2012 Form 10-K also assured investors of the effectiveness of the Company’s 

internal control over financial reporting:

Item 9A. Controls and Procedures Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” within the meaning of Rule 13a15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 

Our disclosure controls and procedures are designed to provide reasonable 

assurance that information required to be disclosed by the Company in the reports 

filed under the Exchange Act, such as this Annual Report on Form 10K, is recorded, 

processed, summarized and reported within the time periods specified in the U.S. 

Securities and Exchange Commission’s rules and forms. Our disclosure controls 

and procedures include controls and procedures designed to provide reasonable 

assurance that such information is accumulated and communicated to our 

management, including our Chief Executive Officer and Chief Financial Officer, 

as appropriate, to allow for timely decisions regarding required disclosure. In 

designing and evaluating our disclosure controls and procedures, management 

recognizes that any controls and procedures, no matter how well designed and 

operated, can provide only reasonable assurance of achieving the desired control 

objectives, and no evaluation of controls and procedures can provide absolute 

assurance that all control issues and instances of fraud, if any, within a company 

have been detected. Management is required to apply its judgment in evaluating the 

cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, prior to filing this Annual 

Report on Form 10-K, we carried out an evaluation, under the supervision and with 

the participation of our management, including our Chief Executive Officer and 

Chief Financial Officer, of the effectiveness of the design and operation of our 

disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) 

of the Exchange Act) as of the end of the period covered by this Annual Report on 

Form 10-K. Based on their evaluation, our Chief Executive Officer and Chief 

Financial Officer concluded that our disclosure controls and procedures were 

effective as of the end of the period covered by this Annual Report on Form 10-K.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal 

control over financial reporting (as defined in Rule 13a-15(f) under the Securities 

Exchange Act of 1934, as amended). Our management assessed the effectiveness 

of our internal control over financial reporting as of December 31, 2012. In making 

this assessment, our management used the criteria set forth by the Committee of 

Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal 

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Control-Integrated Framework. Our management has concluded that, as of 

December 31, 2012, our internal control over financial reporting is effective based 

on these criteria.

Because of its inherent limitations, internal control over financial reporting may not 

prevent or detect misstatements. Therefore, even those systems determined to be 

effective can provide only reasonable assurance with respect to financial statement 

preparation and presentation. Also, projections of any evaluation of the 

effectiveness of internal controls over financial reporting to future periods are 

subject to the risk that the controls may become inadequate.

An evaluation was also performed under the supervision and with the participation 

of our management, including our Chief Executive Officer and Chief Financial 

Officer, of any changes in our internal control over financial reporting that occurred 

during our last fiscal quarter and that has materially affected, or is reasonably likely 

to materially affect, our internal control over financial reporting. That evaluation 

did not identify any change in our internal control over financial reporting that 

occurred during our latest fiscal quarter that has materially affected, or is reasonably 

likely to materially affect, our internal control over financial reporting.

Cherry, Bekaert & Holland, L.L.P., an independent registered accounting firm, as 

auditors of our financial statements have issued an attestation report on the 

effectiveness of the Company’s and its subsidiaries’ internal control over financial 

reporting as of December 31, 2012. Cherry, Bekaert & Hollard, L.L.P.’s report is 

included in this report.

68. In addition, pursuant to the SOX, the 2012 Form 10-K contained signed 

certifications (“SOX Certifications”) by defendants Senken and Petit, stating that the financial 

information contained in the Form 10-K was accurate, and that any material changes to the 

Company’s internal control over financial reporting were disclosed. SOX Certifications set forth:

I, [Parker H. Petit/ Michael J. Senken], certify that:

1) I have reviewed this annual report on Form 10-K of MiMedx Group, Inc.;

2) Based on my knowledge, this annual report does not contain any untrue 

statement of a material fact or omit to state a material fact necessary to make 

the statements made, in light of the circumstances under which such 

statements were made, not misleading with respect to the period covered by 

this annual report;

3) Based on my knowledge, the financial statements, and other financial 

information included in this annual report, fairly present in all material

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respects the financial condition, results of operations and cash flows of the 

registrant as of, and for, the periods presented in this annual report;

4) The registrant’s other certifying officer and I are responsible for 

establishing and maintaining disclosure controls and procedures (as defined 

in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 

financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 

15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such 

disclosure controls and procedures to be designed under our 

supervision, to ensure that material information relating to the 

registrant, including its consolidated subsidiaries, is made known to us 

by others within those entities, particularly during the period in which 

this annual report is being prepared,

b) designed such internal control over financial reporting, or caused such 

internal control over financial reporting to be designed under our 

supervision, to provide reasonable assurance regarding the reliability of 

financial reporting and the preparation of financial statements for 

external purposes in accordance with generally accepted accounting

principles,

c) evaluated the effectiveness of the registrant’s disclosure controls and

procedures and presented in this report our conclusions about the 

effectiveness of the disclosure controls and procedures, as of the end of 

the period covered by this annual report based on such evaluation, and

d) disclosed in this annual report any change in the registrant’s internal 

control over financial reporting that occurred during the registrant’s 

most recent fiscal quarter (the registrant’s fourth quarter in the case of 

an annual report) that has materially affected, or is reasonably likely to 

materially affect, the registrant’s internal control over financial 

reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our 

most recent evaluation of internal control over financial reporting, to the 

registrant’s auditors and the audit committee of the registrant’s board of 

directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or 

operation of internal control over financial reporting which are 

reasonably likely to adversely affect the registrant’s ability to record, 

process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other 

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employees who have a significant role in the registrant’s internal control 

over financial reporting.

***

The undersigned [Parker H. Petit, the Chief Executive Officer/Michael J. Senken, 

the Chief Financial Officer] of MiMedx Group, Inc. (the “Company”), has executed 

this certification in connection with the filing with the Securities and Exchange 

Commission of the Company’s Annual Report on Form 10-K for the year ending 

December 31, 2011 (the “Report”). The undersigned hereby certifies, to the best of 

his knowledge, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the 

Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, 

the financial condition and results of operations of the Company.

69. On May 10, 2013, the Individual Defendants caused the Company to file with the 

SEC its quarterly report on Form 10-Q for the three month period ended March 31, 2013 (the 

“1Q2013 Form 10-Q”), signed by defendant Senken, providing, among other things, the 

Company’s consolidated financial results for that period.

70. The 1Q2013 Form 10-Q also assured investors of the effectiveness of the 

Company’s internal control over financial reporting:

Item 4. Controls and Procedures Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as 

amended (the "Exchange Act"), we have carried out an evaluation of the 

effectiveness of the design and operation of our disclosure controls and procedures 

as of the end of the period covered by this report. This evaluation was carried out 

under the supervision and with the participation of our management, including our 

Chief Executive Officer and Principal Financial Officer. Based upon that 

evaluation, our Chief Executive Officer and Principal Financial Officer concluded 

that our controls and procedures were effective as of the end of the period covered 

by this report.

Disclosure controls and procedures are controls and other procedures that are 

designed to ensure that information required to be disclosed in our reports filed or 

submitted under the Exchange Act is recorded, processed, summarized, and

reported within the time periods specified in the SEC’s rules and forms. Disclosure 

controls and procedures include controls and procedures designed to ensure that 

information required to be disclosed in our reports filed under the Exchange Act is 

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accumulated and communicated to management, including our Chief Executive 

Officer and Principal Financial Officer, as appropriate, to allow timely decisions 

regarding disclosures.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred 

during the three months ended March 31, 2013, that has materially affected, or is 

reasonably likely to materially affect, our internal control over financial reporting.

71. In addition, the 1Q2013 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

72. On August 8, 2013, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended June 30, 2013 (the “2Q2013 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

73. The 2Q2013 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

74. In addition, the 2Q2013 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

75. On November 8, 2013, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended September 30, 2013 (the “3Q2013 

Form 10- Q”), signed by defendant Senken, providing, among other things, the Company’s 

consolidated financial results for that period.

76. The 3Q2013 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures

substantially similar to those set forth above.

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77. In addition, the 3Q2013 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

78. On March 4, 2014, the Individual Defendants caused the Company to file on Form 

10-K with the SEC its full year and quarterly financial results for the periods ended December 31, 

2013 (the “2013 Form 10-K”), that was signed by defendants Petit, Senken, Bleser, Dewberry, 

Evans, Hack, Koob, Papasan, Taylor and Yeston, and provided, among other things, the 

Company’s consolidated financial results for those periods.

79. The 2013 Form 10-K further reported that distribution through its distribution 

agreement with AvKARE accounted for 56% of the Company’s total revenues. Specifically, the 

2013 Form 10-K provided, in relevant part:

Customer Concentration

We provide products to Government accounts, including the Veteran’s 

Administration, through a distributor relationship with AvKARE, Inc., which is a 

veteran-owned General Services Administration Federal Supply Schedule 

Contractor. In 2013, sales to this distributor represented 56% of our revenues. The 

distribution agreement has a term of three years ending in April 2015, and has the 

potential to be extended for three additional one year terms. This distribution 

relationship is different than our other distribution relationships in that our direct 

sales force calls on Government accounts to generate orders for our products, 

which are placed directly with the distributor. Thus, if our agreement with this 

distributor was terminated for any reason, including because this distributor was 

no longer a Federal Supply Schedule Contractor, we believe we could retain or 

regain that business by contracting with another distributor to service these 

government accounts or becoming a General Services Administration Federal 

Supply Schedule Contractor ourselves. Nevertheless, any disruption in the 

inclusion of our products on the Federal Supply Schedule for any reason could 

materially and adversely affect our business, revenues and results of operations.

Another of our distributors represented an additional 10% of our total revenues in 

2013. Our current distribution agreement with this distributor has a three year 

term, expiring in November 2015.

80. The 2013 Form 10-K also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

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substantially similar to those set forth above.

81. In addition, the 2013 Form 10-K contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

82. On May 12, 2014, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended March 31, 2014 (the “1Q2014 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

83. The 1Q2014 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

84. In addition, the 1Q2014 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

85. On August 11, 2014, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended June 30, 2014 (the “2Q2014 Form 

10-Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

86. The 2Q2014 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

87. In addition, the 2Q2014 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

88. On November 10, 2014, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended September 30, 2014 (the “3Q2014 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 31 of 63
32

Form 10- Q”), signed by defendant Senken, providing, among other things, the Company’s 

consolidated financial results for that period.

89. The 3Q2014 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

90. In addition, the 3Q2014 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

91. On March 13, 2015, the Individual Defendants caused the Company to file on Form 

10-K with the SEC its full year and quarterly financial results for the periods ended December 31, 

2014 (the “2014 Form 10-K”), signed by Petit, Senken, Bleser, Dewberry, Evans, Hack, Koob, 

Papasan, Taylor and Yeston, and provided, among other things, the Company’s consolidated 

financial results for those periods.

92. The 2014 Form 10-K further reported that distribution through its distribution 

agreement with AvKARE accounted for 34% of the Company’s total revenues. Specifically, the 

2014 Form 10-K provided, in relevant part:

Customer Concentration

In 2014, we provided products to Government accounts, including the Department 

of Veteran’s Affairs, through a distributor relationship with AvKARE, Inc., which 

is a veteran-owned General Services Administration Federal Supply Schedule 

(FSS) Contractor. In 2014, sales to this distributor represented 34% of our revenues. 

The distribution agreement has a term of three years ending in April 2015, but 

provides a renewal clause for up to two successive terms of one year each following 

expiration of the initial term. In 2014, we applied for, and in early 2015 received, 

our own FSS contract with a term through 2020, which will allow us to sell directly 

to governmental accounts.

93. The 2014 Form 10-K also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 32 of 63
33

substantially similar to those set forth above.

94. In addition, the 2014 Form 10-K contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

95. On May 1, 2015, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended March 31, 2015 (the “1Q2015 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

96. The 1Q2015 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

97. In addition, the 1Q2015 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

98. On August 7, 2015, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended June 30, 2015 (the “2Q2015 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

99. The 2Q2015 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

100. In addition, the 2Q2015 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

101. On November 6, 2015, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended March 31, 2015 (the “3Q2015 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 33 of 63
34

Form 10-Q”), signed by defendant Senken, providing, among other things, the Company’s 

consolidated financial results for that period.

102. The 3Q2015 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

103. In addition, the 3Q2015 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

104. On February 29, 2016, the Individual Defendants caused the Company to file on 

Form 10-K with the SEC its full year and quarterly financial results for the periods ended 

December 31, 2015 (the “2015 Form 10-K”), signed by Petit, Senken, Bleser, Dewberry, Evans, 

Hack, Koob, Papasan, Taylor and Yeston, and provided, among other things, the Company’s 

consolidated financial results for those periods.

105. The 2015 Form 10-K further reported that distribution through its distribution 

agreement with AvKare accounted for 24% of the Company’s total revenues. Specifically, the 

2015 Form 10-K provided, in relevant part:

Customer Concentration

The Company provides products to Government accounts, including the 

Department of Veteran’s Affairs, through a distributor relationship with AvKARE, 

Inc. (“AvKARE”), which is a veteran-owned General Services Administration 

Federal Supply Schedule (FSS) Contractor. In addition, in 2014, the Company 

applied for, and in early 2015 received, its own FSS contract with a term through 

2020, which allows the Company to sell directly to Government accounts. The 

initial term of the distribution agreement with AvKARE was due to expire in April 

2015 but it has been extended via amendment through June 30, 2017, with the 

ability to further extend under certain circumstances. The agreement with 

AvKARE, as amended, allows the Company to sell its products directly on the FSS. 

Ultimately, the Company intends to transition all of its Government sales to sales 

sold directly to Government accounts on the FSS. In 2015, sales to AvKARE 

represented approximately 24% of total revenue.

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106. The 2015 Form 10-K also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

107. In addition, the 2015 Form 10-K contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

108. On May 10, 2016, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended March 31, 2016 (the “1Q2016 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

109. The 1Q2016 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

110. In addition, the 1Q2016 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

111. On August 2, 2016, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended June 30, 2016 (the “2Q2016 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

112. The 2Q2016 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

113. In addition, the 2Q2016 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

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114. On November 8, 2016, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended September 30, 2016 (the “3Q2016 

Form 10- Q”), signed by defendant Senken, providing, among other things, the Company’s 

consolidated financial results for that period.

115. The 3Q2016 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting by incorporating “Controls and Procedures” disclosures 

substantially similar to those set forth above.

116. In addition, the 3Q2016 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

117. On March 1, 2017, the Individual Defendants caused the Company to file on Form 

10-K with the SEC its full year and quarterly financial results for the periods ended December 31, 

2016 (the “2016 Form 10-K”), signed by Petit, Senken, Bleser, Dewberry, Evans, Hack, Koob, 

Papasan, Taylor and Yeston, and provided, among other things, the Company’s consolidated 

financial results for those periods.

118. According to the 2016 Form 10-K, MiMedx recognizes revenue on sales of its 

products as follows:

Revenue Recognition

The Company sells its products through a combination of a direct sales force,

independent stocking distributors and third - party representatives in the U.S. and 

independent distributors in international markets. The Company recognizes 

revenue when title to the goods and risk of loss transfers to customers, provided 

there are no material remaining performance obligations required of the Company 

or any matters of customer acceptance. The Company records revenues from sales 

to our independent stocking distributors at the time the product is shipped to the 

distributor. Our stocking distributors, who sell the products to their customers or

sub-distributors, contractually take title to the products and assume all risks of 

ownership at the time of shipment. Our stocking distributors are obligated to pay 

us the contractually agreed upon invoice price within specified terms regardless of 

when, if ever, they sell the products. Our stocking distributors do not have any 

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37

contractual rights of return or exchange other than for defective product or shipping 

error; however, in limited situations, we do accept returns or exchanges at our 

discretion.

Some of the Company’s sales to Government accounts, including the Department 

of Veterans Affairs, are made through a distributor relationship with AvKARE, 

which is a veteran-owned General Services Administration Federal Supply 

Schedule (FSS) contractor. The Company’s agreement with AvKARE expires, 

subject to certain for-cause termination rights, on June 30, 2017. The Company may 

also elect to terminate the agreement without cause and pay a termination fee to 

AvKARE as specified in the agreement. Upon termination of the agreement, the 

parties may mutually agree to extend the agreement or the Company has an 

obligation to repurchase AvKARE’s remaining inventory, if any, within ninety (90) 

days in accordance with the terms of the Agreement. At the end of the term, the 

parties expect AvKARE’s inventory to be minimal, based upon AvKARE’s 

obligation to use commercially reasonable efforts to achieve target sales levels over 

the remaining term of the agreement.

We continually evaluate new and current customers, including our stocking 

distributors, for collectability based on various factors including past history with 

the customer, evaluation of their credit worthiness, and current economic 

conditions. We only record revenue when collectability is reasonably assured. A 

portion of the Company’s revenue is generated from inventory maintained at 

hospitals or physician’s offices.

We make estimates of potential future sales returns, discounts and allowances 

related to current period product revenue and these are reflected as a reduction of 

revenue in the same period revenue is recognized. We base our estimate for sales 

returns, discounts and allowances on historical sales and product return 

information, including historical experience and actual and projected trend 

information as well as projected sales returns based on estimated usage and 

contractual arrangements with AvKARE. These estimates have historically been 

consistent with actualresults.

119. The 2016 Form 10-K also assured investors of the effectiveness of the Company’s 

internal control over financial reporting with regard to its accounting for revenue. Specifically, the 

Company’s Form 10-K provided:

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” within the meaning of Rule 13a15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. 

Our disclosure controls and procedures are designed to provide reasonable 

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38

assurance that information required to be disclosed by the Company in the reports 

filed under the Exchange Act, such as this Annual Report on Form 10K, is recorded, 

processed, summarized and reported within the time periods specified in the U.S. 

Securities and Exchange Commission’s rules and forms. Our disclosure controls 

and procedures include controls and procedures designed to provide reasonable 

assurance that such information is accumulated and communicated to our 

management, including our Chief Executive Officer and Chief Financial Officer, 

as appropriate, to allow for timely decisions regarding required disclosure. In 

designing and evaluating our disclosure controls and procedures, management 

recognizes that any controls and procedures, no matter how well designed and 

operated, can provide only reasonable assurance of achieving the desired control 

objectives, and no evaluation of controls and procedures can provide absolute 

assurance that all control issues and instances of fraud, if any, within a company 

have been detected. Management is required to apply its judgment in evaluating the 

cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, prior to filing this Annual 

Report on Form 10-K, we carried out an evaluation, under the supervision and with 

the participation of our management, including our Chief Executive Officer and 

Chief Financial Officer, of the effectiveness of the design and operation of our 

disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) 

of the Exchange Act) as of the end of the period covered by this Annual Report on 

Form 10-K. Based on their evaluation, our Chief Executive Officer and Chief 

Financial Officer concluded that our reporting and disclosure controls and 

procedures were not effective as a result of the material weakness in our internal 

control over financial reporting discussed below.

Changes in internal controls: There were no changes in our internal control over 

financial reporting as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f) that 

occurred during our most recently completed fiscal quarter that have materially 

affected, or are reasonably likely to materially affect, our internal control over 

financial reporting.

Material weakness: In reviewing the Company’s tax accounting in preparation for 

filing this Form 10-K, our management identified a deficiency in our internal 

control over financial reporting that is described below in Management’s Annual 

Report on Internal Control Over Financial Reporting. Our management has 

concluded that this deficiency constitutes a material weakness in our internal 

control over financial reporting related to our accounting for income taxes. This 

material weakness did not result in a material misstatement of the Company’s 

annual financial statements for the year ended December 31, 2016. However, 

management concluded that this material weakness, if un-remediated, could have 

resulted in a material misstatement of the Company’s annual or interim

consolidated financial statements that would not have been prevented or detected 

by our internal controls. Accordingly, management determined that this control 

deficiency constituted a material weakness. We have developed a remediation plan 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 38 of 63
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for this material weakness, which is described below.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, including our principal executive officer and principal financial 

officer, is responsible for establishing and maintaining adequate internal control 

over financial reporting. Our management conducted an evaluation of the 

effectiveness of our internal control over financial reporting based on the 

framework and criteria established in Internal Control - Integrated Framework 

(2013) issued by the Committee of Sponsoring Organizations of the Treadway 

Commission. Based on its evaluation, our management has concluded that our 

internal control over financial reporting was not effective as of December 31, 2016, 

due to the material weakness in our internal control over financial reporting related 

to our accounting for income taxes. A material weakness is a deficiency, or 

combination of deficiencies, in internal control over financial reporting such that 

there is a reasonable possibility that a material misstatement of our annual or interim 

financial statements will not be prevented or detected on a timely basis. In 

reviewing the Company’s tax accounting in preparation for filing this Form 10-K, 

management concluded the Company had a material weakness in the design of our 

internal control over the tax accounting related to an overstatement of an excess tax 

benefit which, if undetected could have resulted in an understatement of income 

taxes payable. Specifically, management did not have adequate supervision and 

review of certain technical tax accounting performed by a third party tax specialist 

in 2016. This was identified during the audit process prior to preparation of the 

Company’s financial statements and, therefore did not result in a material 

misstatement of the Company’s annual financial statements for the year ended 

December 31, 2016 or any of our previously issued annual or interim consolidated 

financial statements. This material weakness, if undetected, could have resulted in 

an understatement of income taxes payable, resulting in a material misstatement of 

the Company’s annual consolidated financial statements that would not have been 

prevented or detected by its internal controls.

The effectiveness of our internal control over financial reporting as of December 

31, 2016 has been audited by Cherry Bekaert LLP, an independent registered public 

accounting firm, as stated in their report which appears in Item 8 of this Annual 

Report on Form 10-K.

Remediation Plan: Management has begun implementing a remediation plan to 

address the control deficiency that led to the material weakness. The remediation 

plan includes the following:

• Implementing specific review procedures, including the increased 

involvement of our CFO and Controller as well as the hiring of an internal 

tax specialist to oversee the work performed by the third - party tax

specialists.

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• Strengthening our income tax control with improved documentation 

standards, technical oversight, and training.

When fully implemented and operational, we believe the measures described above 

will remediate the material weakness we have identified and generally strengthen 

our internal control over financial reporting. We currently plan to have our 

enhanced review procedures and documentation standards in place and operating 

in the first quarter of 2017. Our goal is to remediate this material weakness by the 

end of the first quarter of 2017, subject to there being sufficient opportunities to 

conclude, through testing, that the enhanced control is operating effectively.

Cherry Bekaert LLP, an independent registered accounting firm, as auditors of our 

financial statements have issued an attestation report on the effectiveness of the 

Company’s and its subsidiaries’ internal control over financial reporting as of 

December 31, 2016. Cherry Bekaert LLP’s report is included in this report.

120. In addition, the 2016 Form 10-K contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

121. On May 1, 2017, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended March 31, 2017 (the “1Q2017 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

122. The 1Q2017 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting with regard to its accounting for revenue and stated, in 

relevant part:

Item 4. Controls and Procedures Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” within the meaning of Rule 13a15(e) of the Securities Exchange Act of 1934, as amended, or the "Exchange Act". 

Our disclosure controls and procedures are designed to provide reasonable 

assurance that information required to be disclosed by the Company in the reports 

filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is

recorded, processed, summarized and reported within the time periods specified in 

the U.S. Securities and Exchange Commission’s rules and forms. Our disclosure 

controls and procedures include controls and procedures designed to provide

reasonable assurance that such information is accumulated and communicated to 

our management, including our Chief Executive Officer and Chief Financial 

Officer, as appropriate, to allow for timely decisions regarding required disclosure. 

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41

In designing and evaluating our disclosure controls and procedures, management 

recognizes that any controls and procedures, no matter how well designed and 

operated, can provide only reasonable assurance of achieving the desired control 

objectives, and no evaluation of controls and procedures can provide absolute 

assurance that all control issues and instances of fraud, if any, within a company 

have been detected. Management is required to apply its judgment in evaluating the 

cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) of the Exchange Act, prior to filing this Quarterly 

Report on Form 10-Q, we carried out an evaluation, under the supervision and with 

the participation of our management, including our Chief Executive Officer and 

Chief Financial Officer, of the effectiveness of the design and operation of our 

disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) 

of the Exchange Act) as of the end of the period covered by this Quarterly Report 

on Form 10-Q. Based upon that evaluation, the Company’s Chief Executive Officer 

and Chief Financial Officer have concluded that the Company’s disclosure controls 

and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 

1934, as amended, were not effective because of the material weakness in our 

internal control over financial reporting, as described in Management’s Report On 

Internal Control Over Financial Reporting in Item 9A of our Annual Report on 

Form 10-K for the year ended December 31, 2016 (the “2016 10-K”), which 

continues to exist as of March 31, 2017.

Remediation of Material Weakness in Internal Control over Financial 

Reporting

The Company took steps during the first quarter of 2017 to remediate its material 

weakness in internal control over financial reporting related to our accounting for 

income taxes. In reviewing the Company's tax accounting in preparation for filing 

the 2016 10-K, management concluded the Company had a material weakness in 

the design of our internal control over the tax accounting related to an overstatement 

of an excess tax benefit which, if undetected could have resulted in an 

understatement of income taxes payable. Specifically, management did not have 

adequate supervision and review of certain technical tax accounting performed by 

a third party tax specialist in 2016.

The Company has made progress implementing activities and improvements to 

address the control deficiency that led to the material weakness during the first 

quarter of 2017 which include:

• Implementing specific review procedures, including the increased 

involvement of our CFO and Controller.

• Beginning the process of hiring of an internal tax specialist to oversee the 

work performed by the third - party tax specialists.

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• Strengthening our income tax control with improved documentation 

standards, technical oversight, and training.

When fully implemented and operational, we believe the measures described above 

will remediate the material weakness we have identified and generally strengthen 

our internal control over financial reporting. The material weakness will not be 

considered remediated until the applicable remedial controls operate for a sufficient 

period of time and management has concluded, through testing, that these controls 

are operating effectively. The Company expects to make additional improvements

in internal control during the remainder of 2017. Our goal is to remediate this 

material weakness by the end of the 2017 fiscal year, subject to there being 

sufficient opportunities to conclude, through testing, that the enhanced control is 

operating effectively.

Changes in Internal Control over Financial Reporting

Other than the efforts discussed immediately above in Remediation of the Material 

Weakness in Internal Control over Financial Reporting, there was no change in the 

Company's internal control over financial reporting that occurred during the quarter 

ended March 31, 2017, that has materially affected, or is reasonably likely to 

materially affect, the Company's internal control over financial reporting.

123. In addition, the 1Q2017 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

124. The 1Q2017 Form 10-Q also described the ongoing litigation in the Whistleblower 

Action as follows:

Former Employee Litigation

On December 13, 2016, the Company filed lawsuits against former employees Jess 

Kruchoski (in the lawsuit styled MiMedx Group, Inc. v. Academy Medical, LLC, et. 

al. in the County Court of the Fifteenth Judicial Circuit in and for Palm Beach 

County, Florida (the “Florida Action”)) and Luke Tornquist (in the lawsuit styled 

MiMedx Group, Inc., v. Luke Tornquist in the Superior Court for Cobb County, 

Georgia, which was removed to the United States District Court for the Northern 

District of Georgia (the “Georgia Action”)). Both the Florida and Georgia Actions 

assert claims against Messrs. Kruchoski and Tornquist that each of them violated 

their restrictive covenants entered into with the Company, that each of them 

misappropriated trade secrets of the Company, that each of them tortiously 

interfered with contracts between the Company and its customers and employees 

and that each of them breached his duty of loyalty owed to the Company, among 

other claims.

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On December 15, 2016, Messrs. Kruchoski and Tornquist filed a lawsuit in the 

United States District Court of Minnesota (the “Minnesota Action”) against the 

Company and the Company’s Chairman and Chief Executive Officer, Parker Petit. 

The plaintiffs in this lawsuit each claimed that their employment with the Company 

was terminated in retaliation for their complaints about the Company’s alleged 

business practices in violation of the Dodd-Frank Act, 15 U.S.C. § 78u- 6(h); and 

was an unlawful discharge in violation of Minnesota Statutes Section 181.931 

subdivision 1. Mr. Kruchoski also claimed that the termination of his employment 

with the Company constituted marital status discrimination and familial status 

discrimination in violation of the Minnesota Human Rights Act. Messrs. Kruchoski 

and Tornquist also claimed that Mr. Petit tortiously interfered with their 

employment relationships with the Company.

On January 26, 2017, the Company and Mr. Petit filed motions to dismiss the 

Minnesota Action. In response, Messrs. Kruchoski and Tornquist voluntarily 

dismissed the Minnesota Action without prejudice on February 7, 2017. On 

February 7, 2017, Mr. Tornquist filed his Answer and Counterclaims in the Georgia 

Action wherein he asserted claims similar to those he had asserted in the Minnesota 

Action, with the exception that he did not include a claim of tortious interference 

against Mr. Petit. On February 13, 2017, the Judge in the Georgia Action entered a 

Consent Order enforcing the restrictive covenants against Mr. Tornquist. On 

February 27, 2017, the Judge in the Florida Action entered a Consent Order 

enforcing the restrictive covenants against Mr. Kruchoski.

On February 15, 2017, Mr. Kruchoski filed a new lawsuit in Georgia against 

MiMedx and Mr. Petit, making many of the same allegations in that suit as were 

made in the Minnesota suit, with the addition of claims against the Company and 

Mr. Petit for defamation. In March, MiMedx and Mr. Petit both filed motions to 

dismiss Mr. Kruchoski’s claims, which motions are currently pending, arguing, 

among other things, that the claims should be brought in the Florida Action.

On December 29, 2016, MiMedx also initiated an action against former employee 

Mike Fox in the United States District Court for the Northern District of Illinois 

alleging breach of contract with respect to his restrictive covenants, breach of his 

duty of loyalty, breach of his fiduciary duty and for the return of certain MiMedx 

property.

On December 30, 2016, MiMedx initiated a lawsuit against former employee 

Harold Purdy and his company, Recon Medical Devices, LLC in the Texas state 

district court for Dallas County alleging breach of Mr. Purdy’s restrictive 

covenants, breach of Mr. Purdy’s duty of loyalty, conspiracy to breach other 

employees’ duties to MiMedx, tortious interference, and misappropriation of trade 

secrets. Mr. Purdy has a pending counterclaim against MiMedx alleging breach of 

contract.

The Company continues to vigorously pursue its claims asserted in all of these 

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actions and also to vigorously defend against the lawsuits and counterclaims 

asserted against it.

125. Notably, the 1Q2017 Form 10-Q did not inform investors that the Whistleblower 

Action had alleged that the former employees had “discovered a fraudulent revenue recognition 

scheme orchestrated by MiMedx’s executive leadership, including MiMedx’s CEO, Parker Petit. 

MiMedx employed this fraudulently revenue recognition scheme to artificially inflate quarterly 

revenue and deceive investors.”

126. On July 31, 2017, the Individual Defendants caused the Company to file on Form 

10-Q its quarterly report for the three month period ended June 30, 2017 (the “2Q2017 Form 10-

Q”), signed by defendant Senken, providing, among other things, the Company’s consolidated 

financial results for that period.

127. The 2Q2017 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting with regard to its accounting for revenue by incorporating 

“Controls and Procedures” disclosures substantially similar to those above.

128. In addition, the 2Q2017 Form 10-Q contained SOX Certifications, signed by 

defendants Petit and Senken, which were substantially similar to those set forth above.

129. On October 31, 2017, the Individual Defendants caused the Company to file on 

Form 10-Q its quarterly report for the three month period ended September 30, 2017 (the “3Q2017 

Form 10- Q”), signed by defendant Senken, providing, among other things, the Company’s 

consolidated financial results for that period.

130. The 3Q2017 Form 10-Q also assured investors of the effectiveness of MiMedx’s 

internal control over financial reporting with regard to its accounting for revenue by incorporating 

“Controls and Procedures” disclosures substantially similar to those above.

131. In addition, the 3Q2017 Form 10-Q contained SOX Certifications, signed by

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 44 of 63
45

defendants Petit and Senken, which were substantially similar to those set forth above.

132. On January 8, 2018, the Individual Defendants issued a press release entitled 

“MiMedx Releases Preliminary 2017 Revenue of $324.5 Million representing a 32% increase over 

2016,” and filed the same on Form 8-K with the SEC disclosing, among other things, the 

Company’s preliminary fourth quarter and full year 2017 financial results. The Company’s January 

8, 2018 press release provided, in relevant part:

Fourth Quarter 2017 Preliminary Revenue of $90.9 Million Surpasses upper 

Range of Q4 guidance by Nearly $3 million

Marietta, Georgia, January 7, 2018, (PR Newswire) -- MiMedx Group, Inc. 

(NASDAQ: MDXG), the leading biopharmaceutical company developing and 

marketing regenerative and therapeutic biologics utilizing human placental tissue 

allografts with patent-protected processes for multiple sectors of healthcare, today 

announced preliminary record revenue results for the fourth quarter and full-year 

2017 and revenue expectations for the first quarter of 2018.

Fourth Quarter 2017 Revenue Highlights

• Q4 2017 revenue of $90.9 Million grew 30% over Q4 2016 revenue and 

exceeded upper end of guidance by nearly $3 million

• Excluding divested subsidiary, Stability Biologics, Q4 2017 revenue 

grew by 34% over Q4 2016

• Q4 2017 Wound Care revenue grew 27% over Q4 2016

• Surgical, Sports Medicine and Orthopedics (SSO) revenue for Q4 2017 

grew 40% over Q4 2016

Full-Year 2017 Revenue Highlights

• Full-year 2017 revenue of $324.5 million increased 32% over full year 

2016 and exceeded upper end of guidance

• Excluding divested subsidiary, Stability Biologics, full-year 2017 

revenue grew by 36% over 2016

• Full-year 2017 Wound Care revenue of $238.3 million increased by 

30% over 2016

• Full-year 2017 SSO revenue of $86.2 million grew 41% over 2016

The Company recorded preliminary record revenue for the year ended December 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 45 of 63
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31, 2017 of $324.5 million, a $79.5 million or 32% increase over 2016 revenue of

$245.0 million. The Company recorded record revenue for the 2017 fourth quarter 

of $90.9 million, a $21.0 million or 30% increase over 2016 fourth quarter revenue 

of $69.9 million.

Management Commentary

Parker H. “Pete” Petit, Chairman and CEO stated, “The fourth quarter of 2017 

makes 28 consecutive quarters of sequential revenue growth and 27 of 28 quarters 

of meeting or exceeding our revenue guidance. At the end of November, we 

expected we would exceed our revenue forecast for the quarter, as we indicated in 

our press release on November 30, 2017. We forecasted December to be a solid 

growth month, and our sales force more than lived up to our expectations with a 

robust month to close out the year. We are entering 2018 with strong momentum 

that should produce an exciting 2018.”

Bill Taylor, President and COO, noted, “Contributing to our accelerating sales 

momentum is the market growth we have achieved with our refined territory 

analytics for the larger markets and our effective secondary market strategy. The 

significant prospects for Venous Leg Ulcer (VLU) reimbursement coverage being 

added during 2018 as a result of the publication of the compelling results 

confirming the clinical efficacy of EpiFix® in the treatment of VLUs, will further 

fuel this momentum. As we stated earlier, with our current breadth of commercial 

carrier reimbursement coverage primarily for Diabetic Foot Ulcers (DFUs), we 

expect our 2018 Wound Care growth to be aided by our ability to ultimately achieve 

over 100 million additional commercial lives having EpiFix coverage for the 

treatment of VLUs.”

“Both of our sales verticals had strong performances during the fourth quarter. 

Wound Care performed extremely well in the fourth quarter with 27% growth over 

the prior year’s fourth quarter, and SSO revenue grew significantly over 2016 with 

40% quarter over quarter growth. Fourth quarter revenue from our direct sales force 

represented approximately 95% of total revenue, and revenue from distributors and 

Original Equipment Manufacturers (OEMs) accounted for less than 5% of total 

fourth quarter revenue,” Taylor added.

133. The statements above were each materially false and misleading when made 

because they failed to disclose and misrepresented adverse facts known by the Individual 

Defendants. Specifically, the Individual Defendants made false and/or misleading statements

and/or failed to disclose that (i) MiMedx was engaged in a “channel-stuffing” scheme designed to 

inappropriately recognize revenue that had not yet been realized; (ii) the Company lacked adequate 

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internal controls over financial reporting; and (iii) that as a result of the foregoing, MiMedx’s 

publicly disseminated financial statements were materially false and misleading.

THE TRUTH IS REVEALED

134. On February 20, 2018, MiMedx issued a press release entitled “MiMedx Postpones 

Release of its Fourth Quarter and Fiscal Year 2017 Financial Results” and filed the same on Form 

8-K with the SEC, in which they disclosed, among other things, that “[t]he Audit Committee of 

MiMedx’s Board of Directors has engaged independent legal and accounting advisors to conduct 

an internal investigation into current and prior-period matters relating to allegations regarding 

certain sales and distribution practices at the Company. Company executives are also reviewing, 

among other items, the accounting treatment of certain distributor contracts” stating in pertinent 

part:

MiMedx Postpones Release of its Fourth Quarter and Fiscal Year 2017 

Financial Results

Marietta, Georgia, February 20, 2018 -- MiMedx Group, Inc. (NASDAQ: 

MDXG), a leading developer and marketer of regenerative and therapeutic 

biologics, today announced that it will postpone the release of its financial results, 

as well as the filing of its Form 10-K, for the year ended December 31, 2017.

The Audit Committee of MiMedx’s Board of Directors has engaged independent 

legal and accounting advisors to conduct an internal investigation into current and 

prior-period matters relating to allegations regarding certain sales and distribution 

practices at the Company. Company executives are also reviewing, among other 

items, the accounting treatment of certain distributor contracts.

The Audit Committee is working closely with its advisors to complete this 

investigation in as timely a manner as possible. The Company will not be in a 

position to release its financial results until the Audit Committee’s internal 

investigation is completed.

The Company believes, based on information available to date, that the outcome of 

such investigation should not have a material impact on revenue guidance for 2018. 

The Company’s unaudited cash and cash equivalents as of December 31, 2017 were 

approximately $33 million, after giving effect to the use of approximately $24 

million for share repurchases in the fourth quarter of 2017 as part of the Company’s 

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Share Repurchase Program. The Company had no debt outstanding as of December 

31, 2017. The Company also does not expect this delay to affect its operational 

performance and clinical research activities.

“Our Board of Directors and executives believe it is in the best interests of our 

Company and shareholders for our Audit Committee to address these allegations in 

an internal investigation with the support of independent legal and accounting 

advisors. We look forward to releasing our 2017 financial results as soon as this 

process is complete,” said Parker H. “Pete” Petit, Chairman and CEO. “MiMedx 

has been experiencing rapid growth over the last few years as our product portfolio 

continues to meet significant, unmet needs in the marketplace. We are literally 

saving lives by saving limbs, and we expect to continue to deliver operational and 

clinical success in the months and years to come.”

135. On this news, MiMedx’s share price plunged more than 39% to close at $8.75 on 

February 8, 2018, from its previous close of $14.47.

136. On February 26, 2018, Bloomberg published an article disclosing that the DOJ was 

investigating whether the Company had over overcharged the federal government and had engaged 

in a channel-stuffing scheme, the very scheme that the Individual Defendants had repeatedly 

denied and about which they conducted a sham investigation.

137. On March 15, 2018, the Company issued a press release admitting the veracity of 

the DOJ and SEC investigations. 

138. On June 7, 2018, MiMedx issued a press release stating that the Audit Committee 

had concluded:

that the Company’s previously issued consolidated financial statements and 

financial information relating to each of the fiscal years ended December 31, 2012, 

2013, 2014, 2015 and 2016 and each of the interim periods within such years, along 

with the unaudited condensed consolidated financial statements included in the 

Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 

2017, June 30, 2017 and September 30, 2017 should be restated, and therefore, such 

consolidated financial statements and other financial information, any press 

releases, investor presentations or other communications related thereto should no 

longer be relied upon. Additionally, as a result of the foregoing, all communications 

and financial information with respect to the fourth quarter of 2017 and the first 

quarter of 2018 should no longer be relied upon, and the Company is further 

withdrawing all prior financial guidance issued for 2018.

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* * *

The determination to restate was based on investigation results to date, which have 

primarily been focused on the accounting treatment afforded to such sales and 

distribution practices for two distributors which certain implicit arrangements

modified the explicit terms of the contracts, impacting revenue recognition during 

specified periods.

139. The June 7, 2018 press release continued: “The accounting misstatements will also 

require adjustments to the periods in which such revenues were recognized so that such revenues 

for products sold are recognized in the period in which such amounts are actually collected,” and 

as a result, the Audit Committee was going to investigate again. 

140. Shockingly, the June 7, 2018 press release also stated that both defendants Senken

and Cranston were no longer with the Company, effective June 6, 2018. 

141. On this news, MiMedx’s share price fell $1.92 from previous day closing price, or 

more than 23%, to close at $6.29 on June 7, 2018.

142. On June 11, 2018, Bloomberg published an article regarding defendant Petit, 

discussing his role at previous companies he had worked with, stating, “[i]n interviews, 19 current 

and former executives and employees of his companies describe a hard-charging leader—one who 

didn’t dwell on the rules as he pursued revenue growth, according to about a dozen of them.”

143. The Bloomberg article further discussed defendant Petit in connection with the 

Company stating:

More than a half-dozen former MiMedx employees interviewed by Bloomberg, 

who requested anonymity, said they saw little upside to flagging any potential 

misconduct while working there, an understanding that flowed from what they 

called an us-vs.-them culture nurtured by Petit. Several of them noted that while 

Petit has publicly encouraged workers to write “Dear Pete” letters reporting 

wrongdoing, he created a culture internally in which workers were reluctant to 

criticize practices.

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144. On July 2, 2018, MiMedx issued a press release announcing that defendant Petit

had resigned as Chairman and CEO but that he would still serve as a member of the Board. 

Similarly, MiMedx disclosed that defendant Taylor had resigned as President, COO, and as a 

member of the Board. 

145. Approximately two weeks later, the July 23, 2018 WSJ Article was released 

discussing the Company’s channel-stuffing scheme. 

146. On July 26, 2018, MiMedx announced that it had received a letter from NASDAQ 

notifying the Company that its stock could be delisted as a consequence of its failure to file timely 

SEC filings.

147. On August 31, 2018, MiMedx announced that its failure to file timely periodic 

reports with the SEC had resulted in the termination of a longstanding credit line with Bank of

America.

148. On September 20, 2018, MiMedx announced that both the Board and the

Compensation Committee had decided to change the resignations of defendants Petit, Taylor, 

Senken, and Cranston to “terminations ‘for cause.’” The Company also disclosed that the 

Compensation Committee has taken “all required action to cause all equity and incentive awards 

outstanding under the Plans held by the Separated Employees to be forfeited. The Board and 

Compensation Committee action was based on findings that the Separated Employees engaged in, 

among other things, conduct detrimental to the business or reputation of the Company.” The 

Company further disclosed that the Compensation Committee would initiate a process to get an

undisclosed amount of compensation back from defendants. The Company finally disclosed that 

defendant Petit was no longer a member of the Board, effective immediately. 

149. On November 7, 2018, the Company filed an 8-K with the SEC announcing that its 

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stock was suspended from the NASDAQ.

150. Following this news, on November 8, 2018, the Company continued to trade on the 

“over the counter” market operated by the OTC Markets Group Inc. (the “OTC Market”). 

However, on the news of the delisting, from November 6, 2018 to November 8, 2018 MiMedx’s 

stock price fell from $6.28 to $2.95, a drop of more than 53%.

151. In a Form 8-K filed with the SEC on December 7, 2018, the Company disclosed 

that EY informed the Audit Committee on December 4, 2018, that EY was resigning from the 

engagement to audit the Company’s consolidated financial statements for the years ended 

December 31, 2017 and 2018, effective immediately, The Form 8-K stated that EY had a 

“disagreement” with certain members of the Company’s prior senior management who were 

subsequently separated from the Company “for cause” regarding “revenue recognition under 

certain distributor contracts.”

152. On May 23, 2019, the Company announced that the investigation by the Audit 

Committee investigation had finished with the following conclusions:

a) In connection with the Investigation, King & Spalding and KPMG have 

reviewed over 1.5 million documents to date, including, but not limited to, 

emails, text exchanges and other electronic and hard-copy records. In addition, 

they reviewed significant amounts of data housed in the Company’s accounting, 

customer relationship management, inventory and other systems. They also 

have reviewed over 2,750 hours of video derived from a secret video 

surveillance system installed at the direction of Parker H. “Pete” Petit, the 

Company’s former Chairman and Chief Executive Officer, as well as 

telephonic recordings captured without the consent of all conversation 

participants.

b) The Investigation found evidence that demonstrated, among other things, that

former members of senior management, including Mr. Petit, the Company’s 

former Chief Operating Officer, William C. Taylor, the Company’s former 

Chief Financial Officer, Michael J. Senken, and the Company’s former 

Controller, John Cranston, were aware of the Company’s course of dealing with 

its largest distributor and that this course of dealing was inconsistent with the 

explicit terms of the contract. Former members of senior management were also 

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aware that this course of dealing included detailed procedures, established as 

early as 2012, to determine when the distributor would pay for the Company’s 

products.

c) The Investigation uncovered other conduct that appears to have been designed 

to manipulate the timing and recognition of revenue. This conduct included:

• a distributor was given a lucrative consulting agreement simultaneous with 

a large purchase near the end of a reporting period;

• instances of intentionally shipping types and volumes of product that were 

not needed by the customer and recording revenue, typically near the end 

of a reporting period, and facilitating such sales by agreeing at the time of 

shipment to allow customers to return or exchange these products in 

subsequent accounting periods without recording specific provisions for 

such return or exchanges;

• the booking of a large end of quarter sale to a distributor that the Company 

was in the process of acquiring and for which the Company never received 

payment;

• several “side deals” with distributors and other customers, whereby the 

purchasers agreed to take product but were not required to pay for the 

product until the purchasers were successful in re-selling the product; 

however, the Company recorded revenue at the time of shipment rather than 

when the purchasers were obligated to pay, which was inconsistent with 

GAAP; and

• in at least one instance, Mr. Taylor concealed such a side deal from the 

Company’s Finance and Accounting group. In late 2015, Mr. Taylor 

forwarded to Messrs. Senken and Cranston a significant purchase order 

from an international distributor that provided for 180-day payment terms. 

Shortly after doing so, Mr. Taylor sent the distributor an email stating that 

if the distributor was unable to resell the product as expected, MiMedx 

would grant extended payment terms, assist the distributor with reselling 

the product or repurchase the product from the distributor. Mr. Taylor did

not inform Messrs. Senken or Cranston about this side deal, and as a result 

MiMedx improperly recognized $2.5 million in revenue from this sale near 

the end of the fourth quarter of 2015.

As a result of these and related activities, the Company recognized revenues in the 

wrong accounting periods, and in certain instances, improperly recognized revenue 

altogether. In certain of the situations outlined above, the timing and improper 

recognition of revenue allowed the Company to meet its published guidance. 

Absent these apparent revenue management activities, the Company’s results 

would have fallen short of guidance in these periods.

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d) The Investigation found that the evidence demonstrated that after questions 

began to be raised regarding the Company’s accounting practices, Messrs. Petit, 

Taylor, Senken and Cranston made material misstatements and omissions about 

the Company’s course of dealing with its largest distributor, as well as the 

Company’s corresponding revenue recognition practices, to a number of key

stakeholders and regulators, including the Division of Corporation Finance of 

the U.S. Securities and Exchange Commission (the “SEC”), the Board, the 

Audit Committee and the Company’s outside auditors. These included:

• After Mr. Cranston’s predecessor questioned the Company’s accounting for 

revenue from its largest distributor, Messrs. Petit, Taylor, Senken and 

Cranston did not disclose to the Audit Committee or the Company’s outside 

auditors that the Company routinely issued credits to the distributor for lost, 

damaged or missing tissues, nor did they disclose that the distributor only 

paid the Company for a tissue after it had sold that tissue to its customer.

• On multiple occasions, Messrs. Petit, Senken and Cranston signed letters to 

the Company’s outside auditors misrepresenting that the Company had no 

side deals or other arrangements that had not been disclosed to the outside 

auditors.

• In November 2016, after two former employees alleged that the Company 

had engaged in channel stuffing and improper revenue recognition 

practices, Messrs. Petit and Senken signed a letter to the Company’s outside 

auditors misrepresenting that they had no knowledge of any allegations of 

fraud affecting the Company made by current or former employees.

• In early 2017, after the Audit Committee had retained counsel to investigate 

the allegations made by these former employees, Mr. Petit forwarded to the 

Board a set of written responses in which counsel for the Company’s largest 

distributor explicitly stated that it only paid the Company for tissues after 

receiving payment from the distributor’s customer. Mr. Petit misled the 

Board about the accuracy of the information provided by the distributor’s 

counsel.

• Also in early 2017, the Company retained an outside expert to opine on the 

appropriateness of the Company’s recognition of revenue from sales to its 

largest distributor. Messrs. Petit, Senken and Cranston made 

misrepresentations to the expert concerning the actual course of dealing 

between the Company and its largest distributor.

• In early 2017, in letters signed by Mr. Senken, the Company responded to 

comment letters received from the SEC’s Division of Corporation Finance 

by misrepresenting that the Company’s largest distributor was obligated to 

pay the Company, regardless of whether the distributor resold the product. 

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As noted above, the Company routinely issued credits to the distributor for 

lost, damaged and missing tissues and received payments from the 

distributor based on the tissues purchased by the distributor’s customer.

• In early 2018, the Company’s former senior management prepared a 

misleading memorandum to the Company’s outside auditors that 

misrepresented key facts regarding the Company’s historical relationship 

with its largest distributor, which were relevant to determining the 

appropriate revenue recognition under GAAP.

• During a deposition, Mr. Petit falsely testified under oath that it was not true 

that the Company’s largest distributor only paid the Company after the 

distributor had received a purchase order from its customer.

e) Further, the Investigation determined that the evidence demonstrated that 

Messrs. Petit and Taylor engaged in a pattern of taking action against employees 

who raised concerns about the Company’s practices, without conducting a 

thorough investigation of those concerns. Instead, Messrs. Petit and Taylor 

focused on disputing the employees’ allegations and on seeking to discredit or 

find wrongdoing by the persons raising the concerns that would justify reassignment, discipline or termination. For example, after certain employees 

made allegations of improper accounting practices in late 2016, Mr. Petit 

directed and oversaw an internal investigation dubbed “Project Snow White” 

that focused on potential wrongdoing by these employees, rather than the merits 

of their allegations. As part of Project Snow White, the secret video surveillance 

system referenced above was installed at Mr. Petit’s direction to record 

interviews that he, Mr. Taylor and other former members of management 

conducted of certain employees and those employee’s discussions amongst 

themselves without those employees’ knowledge or consent. The evidence 

showed that Mr. Petit directed that certain employees, whom he and other 

former members of senior management perceived to hold loyalty to an 

employee who had raised concerns about the Company’s practices, be

terminated.

f) Finally, the Investigation found that based on former members of senior 

management’s involvement in the findings outlined above, the evidence 

demonstrated that these individuals set an inappropriate “tone at the top.” The 

evidence identified a recurrent trend in which former senior management 

emphasized short-term business goals over compliance and ethics, was not 

receptive to employee concerns and failed to respond appropriately to 

compliance issues. In particular, the Investigation’s findings on poor tone set 

by former senior management included evidence demonstrating:

• Former senior management disregarded revenue recognition rules under 

GAAP and directed others to take actions that caused the Company to take 

actions that caused the Company to improperly recognize revenue under 

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GAAP, which was a key factor in the Audit Committee concluding it was 

necessary to restate the Company’s financials, as described above.

• Former senior management was involved in conduct that appears to have 

been designed to manipulate the timing and recognition of revenue—in 

some instances where the improper recognition of revenue allowed the 

Company to meet its published guidance.

• After questions began to be raised regarding the Company’s accounting 

practices, former senior management made material misstatements and 

omissions to a number of key stakeholders and regulators, including the 

SEC’s Division of Corporation Finance, the Board, the Audit Committee 

and the Company’s outside auditors.

• Former senior management engaged in a pattern of taking action against 

employees who raised concerns about the Company’s practices.

• Former senior management overrode internal controls that otherwise might 

have mitigated certain issues identified in the Investigation. These included 

former senior management personally overseeing, outside of the 

Company’s normal control processes, the Company’s relationship with 

certain health care providers.

• Former senior management marginalized the Company’s legal and 

accounting departments and outside legal and accounting advisors, by 

dismissing or ignoring professional advice, withholding information from 

legal and accounting advisors necessary to appropriately exercise 

professional judgments and determinations and excluding senior legal and 

accounting personnel from regular senior management meetings.

153. On June 3, 2019, the Company filed proxy materials and sent letters to shareholders

which announced that defendant Petit had “nominated himself and two of his hand-picked business 

associates to be elected to the Board at the Annual Meeting. Mr. Petit has also expressed his desire 

to gain control of the Board.”

154. The Company announced that the letters sent to shareholders stated:

Electing Mr. Petit and his associates to our Board would, we believe, have dire 

consequences for the Company. Among other things, we believe electing them 

would damage MiMedx’s relationship with its customers, business partners, 

employees and regulators, and potential sources of capital.

* * *

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The unmistakable conclusion reached by the independent investigation and the 

Audit Committee was that Mr. Petit and certain members of his former 

management team engaged in serious wrongdoing, including disregarding revenue 

recognition rules under generally accepted accounting principles; engaging in 

revenue “management;” making material misstatements to regulators, the Board, 

the Audit Committee and the Company’s outside auditors; taking actions to 

investigate or silence whistleblowers; and setting an inappropriate “tone at the top.”

155. On June 6, 2019, the Company filed an 8-K with the SEC stating:

• The Board has taken decisive remedial action, including:

o Determining to recoup compensation from the Company’s former 

Chairman and CEO, Mr. Petit, as well as the Company’s former COO, CFO 

and Controller, following the completion of the restatement;

o Creating an Ethics and Compliance Committee at the Board level;

o Hiring a Chief Compliance Officer and implementing plans to ensure 

compliance and improve internal controls;

o Hiring a new CEO; and

o Selecting and engaging a new independent auditor.

• MiMedx’s Board is implementing a Board refreshment plan. In cooperation 

with Prescience Point Capital Management LLC and its affiliates (“Prescience 

Point”), one of the Company’s largest shareholders, the Board has developed a 

comprehensive plan to refresh its composition. Under the plan, following the 

2019 annual meeting, MiMedx Board’s ten-person Board would include six 

new directors. Notably, none of the incumbent directors whose terms expire at 

the 2018 annual meeting or the 2019 annual meeting of shareholders will stand 

for reelection. One of the Company’s nominees, Dr. M. Kathleen Behrens 

Wilsey, will become Chairwoman of theMiMedx Board upon her election to 

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the Board by shareholders. One of the Board’s other nominees, Mr. Newton, is 

expected to become the new Chairman of the Audit Committee following the 

2019 annual meeting.

156. On this news, from June 5, 2019 to June 6, 2019, MiMedx stock price fell from

$5.60 to $4.55, a drop of 18.75%.

157. On November 26, 2019, it was announced that the U.S. Attorney for the Southern 

District of New York had criminally charged defendants Petit and Taylor with accounting fraud. 

Defendants Petit and Taylor face securities fraud charges for allegedly engaging in a scheme to 

fraudulently inflate the Company’s revenue. “As alleged, Parker Petit and William Taylor 

deceived the SEC, auditors, and the investing public by repeatedly misrepresenting the financial 

condition of a publicly traded company,” U.S. Attorney Geoffrey Berman said in a statement. 

“They allegedly conspired, through secret agreements and financial inducements with four 

distributors, to misstate sales revenue. The alleged conduct resulted in serious criminal charges 

Petit and Taylor now face.”

158. That same day, the SEC announced that defendants Petit, Taylor, and Senken and 

the Company itself were named as defendants by the agency for allegedly defrauding investors by 

misstating the Company’s revenue and attempting to cover up their misconduct. The SEC 

announced that MiMedx had already agreed to pay a $1.5 million penalty to settle the case. The 

settlement is still subject to court approval. 

DAMAGES TO MIMEDX

159. As a result of the Individual Defendants’ improprieties, MiMedx engaged in the 

improper schemes describes herein and disseminated improper, public statements concerning 

MiMedx’s operations, prospects and internal controls. This misconduct has devastated MiMedx’s 

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credibility, and to date, the Company’s common stock has yet to recover.

160. Additionally, as a direct and proximate result of the Individual Defendants’ actions, 

MiMedx has expended, and will continue to expend, significant sums of money defending and 

paying any settlement in the Securities Class Action. 

161. The Securities Class Action, however, is not the only litigation costing the 

Company money due to the Individual Defendants’ wrongdoing. MiMedx is also bearing the costs 

and expenses incurred from (1) the Whistleblower Action; (2) initiating litigation against the short 

sellers as described herein even though their reports were merely an outgrowth of the Individual 

Defendants’ actions;1 (3) the investigations, lawsuits and/or potential settlements by the DOJ, 

SEC, VA and Defense Department; (4) the restatements of its financial statements; and (5) costs 

incurred from the internal investigations of the Audit Committee, the first of which was 

demonstrated to be a sham investigation. 

DERIVATIVE AND DEMAND ALLEGATIONS

162. Plaintiff brings this action derivatively in the right and for the benefit of MiMedx 

to redress the breaches of fiduciary duty and other violations of law by the Individual Defendants.

163. Plaintiff will adequately and fairly represent the interests of MiMedx and its 

shareholders in enforcing and prosecuting its rights.

164. Plaintiff was a shareholder of MiMedx common stock at the time of the wrongdoing 

of which Plaintiff complains, and has been continuously since.

165. In accordance with applicable Florida law, on July 12, 2018, Plaintiff’s counsel sent 

a litigation demand (the “Demand”) to MiMedx’s Board demanding that it investigate the 

1 All lawsuits brought by the Company against the short sellers have been dismissed either by 

MiMedx or by the court. 

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wrongdoing outlined above and in this complaint and bring all appropriate legal action against any 

offending officer, director, or other person who is found to have committed or participated in the 

wrongdoing described herein. A copy of the Demand is attached hereto and made part hereof as 

Exhibit A. 

166. On January 31, 2020, Plaintiff received a one-page cursory letter stating that the 

special litigation committee’s investigation is “now complete” and the committee “has determined 

that it is not in MiMedx’s best interest to proceed with any of the claims asserted in the Demand 

made by [Plaintiff] (the “Refusal”). A copy of the Refusal is attached hereto as Exhibit B. 

167. The special litigation committee did not provide a single justification or basis for 

refusing Plaintiff’s litigation demand. Thus, despite Plaintiff having asked to be updated regarding 

the investigation, in good faith giving the special litigation committee ample time to conduct a 

thorough investigation, and having waited patiently for a response to the Demand, all of which is 

in strict adherence to applicable Florida law, the special litigation committee responded with a 

scant one-page Refusal comprised of three very short paragraphs. See Exhibit B. Therefore, the 

Refusal was wrongful.

168. The Refusal cannot, in any terms, be considered in good faith. As an initial matter, 

the special litigation committee is in no way comprised of independent members. 

169. Defendant Bleser lacks independence from defendant Petit as discussed by multiple 

media sources. For instance, according to a Viceroy Report, defendant Bleser has held “previous 

positions at other Petit companies: Healthdyne Inc., Healthdyne Information Enterprises (HIE), 

Healthdyne Maternity Management (HMM) and Matria Healthcare.” Due to their longstanding 

association with one another and because defendant Bleser has received substantial compensation 

from his various roles at “Petit companies” defendant Bleser is clearly beholden to defendant Petit 

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such that he lacks independence from him. 

170. Additionally, defendant Bleser was a member of the Audit Committee during the 

Relevant Period that allowed the improper schemes and false financial statements alleged herein 

and therefore lacks disinterestedness to conduct an impartial investigation because he is implicitly 

involved in the wrongdoing alleged in the Demands. 

171. Defendant Bleser was also a member of the Audit Committee that conducted a sham 

investigation into the channel stuffing allegations raised by the former employees and defendant 

Yeston, as a Board member, approved the conclusions of the Audit Committee’s purported 

investigation. Accordingly, both defendants Bleser and Yeston have already prejudged the claims 

raised in the Demand and lack the required impartiality to investigate these claims. 

172. Moreover, the Refusal is completely void of any details regarding the investigation 

conducted by the special litigation committee such as any documents reviewed or interviews 

performed. 

173. The Refusal also makes no mention of a written report in connection with the 

special litigation committee’s purported investigation of the Demand or its determination to refuse 

the Demand. In failing to produce a report to Plaintiff, the special litigation committee has made 

it impossible for Plaintiff to review a proper record of the committee’s investigation, and to allow 

Plaintiff and the Court to assess the reasonableness of its methodology in investigating the 

Demands. 

174. That the Company failed to give Plaintiff any updates to the special litigation 

committee’s investigation and then compounded this failure by failing to give any report by the 

special litigation committee is an incurable mistake to the refusal of the Demand because there is 

no adequate record whatsoever of the investigation and recommendation and no evidentiary record 

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upon which to determine whether the Demand was refused in good faith.

175. In fact, the failure to give a report or any details of the special litigation’s 

investigation is particularly egregious and in bad faith given the Audit Committee’s prior sham 

investigation, the multiple investigations and lawsuits brought against the Company by 

government agencies as described herein, the criminal charges being brought against defendants 

Petit and Taylor, and the settlement with the SEC. 

176. Accordingly, the special litigation committee’s lack of independence and their bad 

faith refusal of the Demand falls outside the protection of the business judgment rule and this 

action should be allowed to proceed.

COUNT I

AGAINST THE INDIVIUDAL DEFENDANTS FOR BREACH OF FIDUCIARY DUTY 

177. Plaintiff incorporates by reference and realleges each and every allegation set forth 

above, as though fully set forth herein.

178. The Individual Defendants owed and owe MiMedx fiduciary obligations. By reason 

of their fiduciary relationships, the Individual Defendants owed and owe MiMedx the highest 

obligation of good faith, fair dealing, loyalty and due care.

179. The Individual Defendants, and each of them, violated and breached their fiduciary 

duties of care, loyalty, reasonable inquiry, oversight, good faith and supervision.

180. The Individual Defendants had actual or constructive knowledge regarding the 

improper schemes alleged herein and knowingly and/or recklessly allowed these improper 

schemes to occur at the Company. In connection therewith, the Individual Defendants also made 

false and misleading statements regarding the Company’s business operations, practices, and 

Case 4:20-cv-00093-AW-CAS Document 1 Filed 02/18/20 Page 61 of 63
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internal controls in connection therewith, as alleged herein. These actions could not have been a 

good faith exercise of prudent business judgment to protect and promote the Company’s corporate 

interests.

181. As a direct and proximate result of the Individual Defendants’ failure to perform 

their fiduciary obligations, MiMedx has sustained significant and actual damages. As a result of 

the misconduct alleged herein, the Individual Defendants are liable to the Company.

182. Plaintiff, on behalf of MiMedx, has no adequate remedy at law.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff demands judgment as follows:

A. Against the Individual Defendants and in favor of the Company for the amount of 

damages sustained by the Company as a result of the Individual Defendants’ breaches of fiduciary

duties;

B. Directing MiMedx to take all necessary actions to reform and improve its corporate 

governance and internal procedures to comply with applicable laws and to protect the Company 

and its shareholders from a repeat of the damaging events described herein, including, but not 

limited to, putting forward for shareholder vote resolutions for amendments to the Company’s ByLaws or Articles of Incorporation and taking such other action as may be necessary to place before 

shareholders for a vote a proposal to strengthen the Board’s supervision of operations and develop 

and implement procedures for greater shareholder input into the policies and guidelines of the

Board;

C. Awarding to Plaintiff the costs and disbursements of the action, including 

reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses; and

D. Granting such other and further relief as the Court deems just and proper.

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JURY DEMAND

Plaintiff demands a trial by jury.

Respectfully submitted,

DATED: February 18, 2020 CULLIN O’BRIEN LAW, P.A.

CULLIN A. O’BRIEN

Florida Bar No. 597341

 s/Cullin O’Brien

CULLIN O’BRIEN

6541 NE 21st Way 

Ft. Lauderdale, FL 33308 

Telephone: 561/676-6370

561/320-0285 (fax)

cullin@cullinobrienlaw.com

BRAGAR EAGEL & SQUIRE, P.C.

Melissa A. Fortunato

Garam Choe 

885 Third Avenue, Suite 3040

New York, New York 10022

Telephone: (212) 355-4648

Attorneys for Plaintiff

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