Securities Suit Filed Against MiMedx in the Wake of Federal Investigation

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A shareholder has filed suit against MiMedx Group, Inc. and two top executives over claims that the defendants hid from investors the company’s supposedly flawed business practices that would later affect its financial reporting and cause stock prices to fall. From the complaint:

“Specifically, Defendants failed to disclose: (1) MiMedx was engaged in a ‘channel-stuffing’ scheme designed to inappropriately recognize revenue that had not yet been realized; (2) that the Company failed to employ proper compliance measures to ensure appropriate accounting practices; (3) that, as a result, the Company’s internal controls over financial reporting were materially weak; (4) that, as a result, the Company’s financial statements were inaccurate and misleading; and, (5) that, as a result of the foregoing, Defendants’ statements about MiMedx’s business, operations, and prospects, were false and misleading and/or lacked a reasonable basis.”

The suit alleges that on October 23, 2017, an analyst suspended his price target for the defendant, claiming the company refused to respond to analysts’ questions. He supposedly raised suspicions about MiMedx’s stock prices, believing they were driven more by “regulatory and compliance factors” than “fundamentals.” This news, according to the suit, caused stock prices to fall almost 20 percent.

In February 2018, the complaint continues, the company announced it would be postponing the release of its year-end financial results, prompting stock prices to fall another 40 percent. Two days later, the price of securities continued to decline following an article published by Bloomberg.com that reportedly revealed “a litany of federal investigations into MiMedx’s business practices,” including an investigation being conducted by the U.S. Department of Justice into allegations that the company was recognizing the sale of products that “had not been ordered.”

The plaintiff claims investors relied on the company’s false representations about its business practices and purchased securities at an inflated price, only to be damaged when the truth was eventually uncovered.