MiMedx cannot recoup $40.2 million from two former executives convicted in a scheme to defraud the company, a federal judge has ruled.
“MiMedx is not a “victim” under federal law and is therefore not entitled to recover restitution from either man, Manhttan U.S. District Court Judge Jed Rakoff wrote in a ruling issued on Sunday.
In November 2020, a Manhattan jury found that former CEO Parker Petit, 81, and former COO Taylor, 52, had entered into undisclosed side arrangements with five distributors. These arrangements allowed distributors to return product to Marietta, Ga.-based MiMedx or conditioned distributors’ payment obligations on sales to end-users, the government charged. Petit was convicted of securities fraud and Taylor was convicted of conspiracy to commit securities fraud, to make false statements in SEC filings and to mislead the conduct of audits.
Petit and William Taylor were each sentenced in February to one year in prison for their involvement in the scheme to fraudulently inflate the company’s reported revenue in 2015 and 2016. Petit was also fined $1 million and Taylor $250,000.
“Although they were undoubtedly also motivated by personal financial gain, “the defendants’ criminal actions were within the scope of their employment and designed to benefit MiMedx” by inflation its stock price, Rakoff added. “Thus, MiMedx could have been — but ultimately was not — criminally charged as a result of the defendants’ conduct. Accordingly, the Court holds that MiMedx is a not victim under the restitution statutes.”
However, MiMedx can still recover some of the losses it incurred, the judge noted. The company is suing both ex-execs in federal court in Florida to, among other things, recoup the fees paid to the defendants’ counsel to defend them in this case, he wrote.
This federal court case in Manhattan “remains an open legal matter and next steps are still being determined,” the company said in an email to MassDevice.