An auditor for MiMedx quit last week because the firm didn’t feel that the Marietta-based biopharma company was being forthcoming, according to a federal filing made public Monday.
Ernst & Young determined that, even under MiMedx’s new leadership, internal controls needed to produce accurate financial statements “do not exist,” partly because of managers still on staff tied to past problems. To answer auditors’ questions, the interim CEO and CFO have to rely on “representations from certain legacy management personnel still in positions that could affect what is reflected in the Company’s books and records,” according to an 8-K form filed with U.S. Securities and Exchange Commission.
“This is bad news for the company,” said Georgia State University law school professor Jessica Cino, a former white collar criminal defense attorney who reviewed the 8-K for the AJC. “It’s sort of like the Titanic hitting the iceberg. The problems are far worse underneath the surface and (Ernst & Young) wasn’t going to put its name on the line for this”
MiMedx has been rocked by allegations of inflated earnings and improper sales practices. Last month, MiMedx was de-listed by Nasdaq. Last week, the company announced it would cut nearly a quarter of its workforce, about 240 jobs, and realign its business around its wound care unit.
The move followed months of turmoil, including internal and federal investigations and the resignations of former CEO Parker H. “Pete” Petit and other senior officials. In June, MiMedx said it would restate more than five years of earnings reports, and the company has not issued any quarterly earnings reports this year.
The Ernst & Young audit was needed to satisfy both investors and the SEC.
Public companies must file reports known as Form 8-Ks with the SEC about major events that may be important to shareholders. The departure of an auditor is one such event.
Ernst & Young declined to comment, but a letter attached to the 8-K said the firm agrees with the statement.
“To me,” Cino said, “it says that (Ernst & Young) wanted full disclosure and they didn’t get it, so they fired their client.”
