Short-Seller Cohodes Sues MiMedx Over Defamation Claims (1)

A short-seller who sought to expose accounting fraud at skin-graft maker MiMedx Group Inc. claimed in a defamation lawsuit that the company waged an illegal campaign to discredit him, including hiring a private investigator to dig up bogus allegations about his activities.

Marc Cohodes filed the federal suit Wednesday in San Francisco against MiMedx, saying the snooping invaded his privacy, damaged his reputation and forced him to incur legal expenses. He’s seeking unspecified monetary damages. Also named as defendants were Daniel Guy, the chief investment officer at hedge fund Harrington Global, and Derrick Snowdy, a private investigator.

Cohodes claimed MiMedx “engaged in a far-reaching campaign to defame Cohodes, to discredit him, and to convince law enforcement that he, not MiMedx, was engaged in criminal conduct.” That included hiring Snowdy in December 2017 “to spy on Cohodes, illegally record his phone calls and obtain and disclose his private communications,” according to the lawsuit.

A MiMedx spokeswoman, Hilary Dixon, said the company doesn’t comment on pending litigation.

“MiMedx is now guided by an entirely new leadership team and Board of Directors,” Dixon said in an email. “Our full focus is on the future, and continuing to make a difference in the lives of patients and their families by addressing areas of unmet need in advanced wound care and musculoskeletal degeneration.”

Snowdy declined to comment, citing an agreement with the Justice Department not to speak about his knowledge concerning “any individuals or companies involved in their extensive ongoing criminal investigation into market manipulation.” Bloomberg reported in December that the DOJ launched an expansive criminal investigation into short selling by hedge funds and research firms and that the department is examining trading in at least several dozen stocks.

Guy, as well as a lawyer for the hedge fund manager, didn’t immediately respond to requests for comment.

Short Bet

Cohodes and others had bet the shares of Marietta, Georgia-based MiMedx would fall, and he began publicly questioning the company’s finances in the fall of 2017. They alleged the company had defrauded the federal government and inappropriately booked sales of products that hadn’t been ordered.

That sparked a backlash by former Chief Executive Officer Parker Petit and MiMedx, which attacked short-sellers on its website. In late 2017, the company hired the private investigator, who befriended Cohodes and recorded their conversations over the phone, according to the lawsuit. Cohodes said he spoke with Snowdy on the phones “scores, perhaps even hundreds, of times” without knowing he was recording their conversations or working for others.

Cohodes said Guy had hired Snowdy in 2015 to investigate whether he and other short sellers were working together to manipulate the price of Concordia Healthcare after Harrington lost about $150 million on its investment in the company. MiMedx hired the same investigator with the goal of attempting to find out information about Cohodes -- including whether he was working with former employees, according to the suit.

MiMedx’s objectives “could not be achieved, as a practical matter, without Snowdy engaging in fraud, deceit, and unlawful recording of telephone calls or other wire communications,” Cohodes said in his suit. “Moreover, MiMedx itself had a pervasive practice of improperly recording its own employees in an effort to retaliate against and discredit whistle-blower employees.”

MiMedx spent months denying the fraud allegations. But in June 2018, the company said it would restate results as far back as 2012 based on the accounting treatment of sales and distribution practices. An internal probe completed in May 2019 found Parker had ordered a secret surveillance of workers in a bid to discredit whistle-blowers.

In November 2019, Petit and former Chief Operating Officer Bill Taylor were charged with securities fraud for allegedly inflating revenue to hide weak performance. They were convicted at trial in late 2020 and both sentenced to a year in prison.

The case is Cohodes v. MiMedx Group, 22-cv-00368, U.S. District Court, Northern District of California (San Francisco).

(Updates with excerpts from complaint.)

To contact the reporters on this story:
Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net;
Robert Burnson in San Francisco at rburnson@bloomberg.net

To contact the editors responsible for this story:
Katia Porzecanski at kporzecansk1@bloomberg.net

Steve Stroth

© 2022 Bloomberg L.P. All rights reserved. Used with permission.