MiMedx Reports Further Developments in its Civil Litigation Against Former Employees

MARIETTA, Ga., Sept. 7, 2017 /PRNewswire/ -- 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, announced today further developments since its August 17, 2017 press release in its civil litigation against several former sales employees. 

Developments in Civil Litigation Against Terminated Employees

As previously communicated, Clayton Halunen, the attorney who represented Jess Kruchoski and Luke Tornquist, two of the former employees involved in the litigation, withdrew from those cases after only a few months. Mr. Halunen has resurfaced again, this time representing former employee Mike Fox. 

Parker H. Petit, Chairman and CEO, commented, "Mr. Halunen's patterns in his representation of Mr. Fox are the same as the ones he employed in his short-lived and unsuccessful representation of Mr. Kruchoski and Mr. Tornquist.  Mr. Halunen has filed pleadings containing numerous new accusations by Mr. Fox, for which reasonable due diligence would have proven to be without merit.  Therefore, to address this and other inaccurate allegations being made by Mr. Fox, the Company is now in the process of bringing a motion requesting that such allegations be withdrawn because they lack support and were brought to harass the Company."

Petit continued, "Mr. Halunen made allegations last December on behalf of clients claiming that I stated in a meeting that I wanted to hurt these terminated individuals and their families.  I would like to state unequivocally that I never made such a statement.  What I did say took place in a meeting in which Mr. Fox and other sales managers and corporate executives were in attendance, and my statement was that I was saddened by the harmful impact these former employees' actions may have on them and their families.  Presumably, this accusation was passed on to Mr. Halunen by Mr. Fox, and if appropriate steps were not taken to verify the accuracy of the statement, this is not only disappointing, but actionable." 

In other depositions taken in the various former employee cases, one terminated employee retracted his channel stuffing allegations, and testified that all of the product at locations where he was assigned was used, none of it was returned, and future sales were not detrimentally impacted by his past sales volumes at any point.  There has been evidence that some former employees hoped to be released from their non-compete agreements and that making allegations of channel-stuffing might allow them to negotiate such releases.  A terminated employee formally withdrew his claim that he had previously filed with the National Labor Relations Board alleging he was fired for supporting the channel stuffing claims; this withdrawal ended that investigation.  Additionally, several persons have indicated that numerous former employees were in discussions together regarding their involvement with companies other than MiMedx, and that these persons knew they should hide these activities. 

Additionally, 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.  Commented Petit, "In regards to The Capital Forum report specifically, it is disappointing that they would make such innuendo even after they were informed by the Company that such was not the case."

Additional evidence disclosed in litigation has confirmed that some of the terminated individuals provided gifts and meals to employees of the VA that potentially result in violations of federal law and MiMedx policies.  This evidence has already led one former employee to plead the Fifth Amendment rather than answer questions related to dinners provided to doctors.  MiMedx policies in regard to interactions with health care providers prohibit providing any gifts at all to health care providers, and its policies in regards to interactions with federal employees place stringent limits on providing meals to federal employees per federal law.

There has not been any testimony that the Company's executives directed anyone to behave in such a manner.  All of the Company's compliance training and documentation is very clear on this issue.  These facts make it appear that any individuals who engaged in this behavior not only disregarded their contractual obligations to MiMedx, but may have also disregarded federal laws.

Petit stated, "Our litigation has progressed in an orderly fashion, and the conclusions that we originally reached are proving to be factual.  I believe these civil actions will come to relatively quick conclusions.  As previously stated, the Company is very comfortable with answering any questions related to these allegations and the misinformation association with them.  We apologize for these distractions, but MiMedx operating performance continues to speak for our superb technology and business experience and acumen."

Short Selling Theses Based on Allegations of Terminated Employees

The Company has also been made aware of various "short sell" theses that are based on the unfounded allegations of these terminated employees.  If any of these short sell theses also involve information that was improperly obtained and traded on, or if the theses involve persons acting in concert to perpetuate false information to influence trading decisions, such activity is against the law.  Recall that the SEC has recently conducted several investigations into short sellers and most recently announced a settlement with Deerfield, a New York based hedge fund, for not appropriately controlling two healthcare analysts who were alleged to have improperly obtained information and traded on it.  These two individuals are the same analysts who had followed MiMedx beginning in 2012, and during that time, these individuals had advanced various other short sale theses on the Company.

In the SEC's investigation into the Deerfield matter, their two healthcare analysts were alleged to have paid a CMS employee to provide to them inside information related to three dialysis corporations.  Therefore, the same type of inside information could have been provided relative to CMS pricing changes, FDA regulatory issues, or VA policy changes that could have affected MiMedx. 

About MiMedx

MiMedx® is a biopharmaceutical company developing and marketing regenerative biologics utilizing human placental tissue allografts with patent-protected processes for multiple sectors of healthcare. "Innovations in Regenerative Medicine" is the framework behind our mission to give physicians products and tissues to help the body heal itself.  We process the human placental tissue utilizing our proprietary PURION® Process among other processes, to produce safe and effective allografts. MiMedx proprietary processing methodology employs aseptic processing techniques in addition to terminal sterilization.  MiMedx is the leading supplier of placental tissue, having supplied over 1,000,000 allografts to date for application in the Wound Care, Burn, Surgical, Orthopedic, Spine, Sports Medicine, Ophthalmic and Dental sectors of healthcare. For additional information, please visit www.mimedx.com.

Important Cautionary Statement

This press release includes forward-looking statements. These statements also may be identified by words such as "believe," "except," "may," "plan," "potential," "will" and similar expressions, and are based on our current beliefs and expectations. Forward-looking statements are subject to significant risks and uncertainties, and we caution investors against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Among the risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements include the risks of litigation, risk that triers of fact may rule against the Company, and that additional facts may be discovered which alter prior conclusions. For more detailed information on the risks that might affect the Company, please review the Risk Factors section of our most recent annual report or quarterly report filed with the Securities and Exchange Commission. Any forward-looking statements speak only as of the date of this press release and we assume no obligation to update any forward-looking statement.

SOURCE MiMedx Group, Inc.

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