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Press Release
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that WILLIAM TAYLOR, the former chief operating officer of MiMedx Group, Inc. (“MiMedx”), a publicly traded biopharmaceutical company, was sentenced today in Manhattan federal court to one year in prison for orchestrating a multimillion-dollar scheme to fraudulently inflate MiMedx’s revenue. TAYLOR and co-defendant Parker H. Petit were found guilty on November 19, 2020, following a four-week jury trial before U.S. District Court Judge Jed S. Rakoff, who imposed today’s sentence. Judge Rakoff sentenced Petit to one year in prison in a separate proceeding yesterday.
Manhattan U.S. Attorney Strauss said: “William Taylor and his co-defendant used secret agreements and corrupt financial inducements to materially misstate quarterly and annual sales revenue of MiMedx. They deceived the SEC, auditors, and the investing public. Now Taylor, like Parker Petit yesterday, has been sentenced to prison for his crimes.”
According to the allegations contained in the Indictment and the evidence presented at trial:
MiMedx was headquartered in Marietta, Georgia, and its securities traded under the symbol “MDXG” on the NASDAQ. MiMedx sold regenerative biologic products, such as skin grafts and amniotic fluid, both directly to end users, such as public and private hospitals, and to various stocking distributors, which, in turn, resold the product to end users.
One of the most critical financial metrics disclosed in MiMedx’s public filings with the Securities and Exchange Commission (“SEC”), and touted in MiMedx’s accompanying press releases, was MiMedx’s quarterly and annual sales revenue. Under Generally Accepted Accounting Principles (GAAP) and SEC guidance, a company like MiMedx that engages in the sale of products through a distributor may recognize revenue upon transfer of the product to a distributor if certain requirements are satisfied, including that delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability of payment is reasonably assured. TAYLOR and Petit, MiMedx’s former chief executive officer, repeatedly demonstrated and touted their understanding of these rules governing revenue recognition. They also publicly identified revenue as the principal metric reflecting MiMedx’s growth, and touted MiMedx’s consistent record of quarter-over-quarter revenue growth and meeting or exceeding revenue guidance in 17 consecutive quarters, from 2011 through year-end 2015. By 2015, however, it became increasingly difficult for MiMedx to reach its revenue guidance due to decreased demand from certain distributors and the increasingly aggressive revenue targets that MiMedx had publicly announced.
Confronted with the difficulties faced by MiMedx in meeting its quarterly and annual revenue guidance by legitimate means, TAYLOR and Petit orchestrated a fraudulent scheme to falsely recognize revenue upon the shipment of MiMedx product to four stocking distributors, CPM, SLR, Stability Biologics (“Stability”), and First Medical, in the second through fourth quarters of 2015. TAYLOR and Petit caused MiMedx to report fraudulently inflated revenue figures to the investing public in order to ensure that the reported figures fell within MiMedx’s publicly announced revenue guidance, and to fraudulently convey to the investing public that MiMedx was accomplishing consistent growth quarter after quarter, as TAYLOR and Petit had falsely touted to the investing public. The fraudulent scheme involved the following central features:
TAYLOR and Petit’s fraudulent manipulation of MiMedx’s revenue caused MiMedx to report materially inflated revenue in the second, third, and fourth quarters of 2015, and for the full year 2015. In its 2015 10-K, MiMedx reported annual revenue that was fraudulently inflated by approximately $8.2 million. Absent this fraudulent inflation of revenue, MiMedx would have missed both (1) its quarterly revenue guidance in the third and fourth quarters of 2015 and annual revenue guidance for 2015 and (2) analyst revenue consensus for the second through fourth quarters of 2015 and the full year 2015. As a result of the fraud, shareholders sustained losses of approximately $35 million.
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In addition to his prison term, TAYLOR, 52, of Marietta, Georgia, was ordered to pay a fine of $250,000.
Ms. Strauss praised the investigative work of the United States Postal Inspection Service and thanked the SEC, which brought a separate civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Edward A. Imperatore, Scott A. Hartman, and Daniel M. Tracer are in charge of the prosecution.
James Margolin, Nicholas Biase
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