| In Securities Fraud Trial of
MiMedx Bribe to Brooks Not According to GAAP
Jury Is Told
By Matthew
Russell Lee, Patreon
BBC
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UK - Honduras
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SDNY COURTHOUSE,
Nov 10 –William Taylor and
Parker H. Petit were charged
with conspiracy to commit
securities fraud with respect
to MiMedx.
On October 5 U.S.
District Court for the
Southern District of New York
Judge Jed S. Rakoff held a
pre-trial proceeding. Inner
City Press covered it, below.
On October 26, the trial
began, and Inner City Press
live tweeted it. Now here
and below.
On
November 10, an Atlanta-based
auditor of MiMedx, then and
now working for Cherry
Bekaert, under government
questions said that a $200,000
payment to Mark Brooks,
characterized as a bribe,
should have been discounted
from the reported earnings,
according to GAAP. The defense
repeatedly objected, iwth
Judge Rakoff saying
"overruled" each time. Some
said, Game over.
On November
9, after the AUSA said now the
government might close its
case on November 11, Veterans
Day, Judge Rakoff said he had
noticed - and that he had
notice that the jurors did not
appear bored by focused. He
congratulated both sides'
lawyers and told them to keep
it up. So will we as the trial
winds down.
On the
morning of November 6, Bill
Taylor's lawyer cross examined
a government witness about why
he had not complained
internally if he thought the
deal with Mark Brooks' company
was wrong. It all got reported
to Pete [Petit], he answered,
adding that MiMedx General
Counsel Lexi Hayden did
whatever Petit said.
The
government on re-direct tried
to rehabilitate him, that he
had been afraid of Petit's
retaliation and had a family
to support. But what about
Taylor?
On the
afternoon of November 6, talk
turned to an informal
application for a loan from
Capital One by Jerry Morrison,
whose business was said to be
the sale of human tissue (for
medical purposes). After a
cooperator, or witness with a
Non Prosecution Agreement, the
AUSA said the government may
rest its case by the end of
next week. Judge Rakoff said
he'll draft jury instructions
and that the charging
conference shouldn't take more
than 72 hours, "bring your
sleeping bag." We'll continue
on this.
On the
morning of November 5, cross
examination of a government
witness who worked for
previous witness Carlton
continued, focusing on his
role as an "advocate" for Mark
Brooks, and his
characterization of the
$200,000 payment to Brooks as
being a bribe.
There were
diversions into a text message
about pizza -- "I like pizza
too much, that's my problem,"
the witness said, perhaps
ingratiating him to the jury.
Judge Rakoff told the jurors
to take 11 am to 12:05
pm for lunch, as he gave
a Zoom speech to NYU; he told
the lawyers to return at
12:01.
Day
5, Oct 30: Witness:
Brooks had a lot of
complaints, so I don't
remember what was per se
settled... We got the order
afterwards. Defense: Call up
Gov Exh 1018. Take a look at
this. This is an email from Mr
Petit to Mark Brooks, right?
Witness: Right.
We're back.
Carlton still on the stand. Q:
You see Mr. Carlton this email
says Mr Brooks had to forego
the stock, for the $200,000?
Carlton: Yes. Q: And Mr. Petit
was on the email, as you were,
and said - Judge Rakoff (to
jurors) This is for state of
mind
Q: You wrote that
the $200,000 to Mr. Brooks was
for lost business? Carlton:
Not the case. It was for the
stock.
Q: So you sent
Bill [Taylor]'s email to
Bassam? Carlton: Yeah because
he missed the first one.
Q: But Mr
Taylor's email said repurchase
the product. It does not say
returned.
AUSA:
Objection! Asked and answered!
Judge Rakoff:
I'll let it go for now... Have
a good weekend.
[On the
morning of October 30, Inner
City Press formally asked for
access to the government
exhibits in this US v. Petit
case. Watch this site.]
Day
4, Oct 29: AUSA:
Government offers Exhibit
1134... Mr. Taylor wrote to
Pete Petit and you. What did
he say?
A: This will
becoming a revenue recognition
issue.
Q: You testified
that the revenue numbers were
too high, right? A:
Aggressive, I wouldn't say
unrealistic. Q: Your testimony
is that it was not
unrealistic? A: We always had
a high growth number.
Q: On the sales
side, you thought the tender
would happen? Objection.
Overruled. A: We felt
confident we would win the
tender.
Q: GX1098, you
testified about this email
from you to many at MiMedx,
including Brent Miller - he
reported to Mr. Taylor? A: Yes
Q: This is your
email to Bassam al Hajj, let's
read it - it is our
expectation the tender will be
issued in March 2016-
Objection, the relevance of
his expectation. Overruled.
A: It's what I was hoping for.
Q: But a right
for repurchase, as it's
phrased in the email, is
different from a right of
return, correct? A: In
the negotiation, we always
called it right of return. But
yes.
Q: So Bill Taylor
had a hostile relationship
with Mark Brooks, right? A:
Yes. Q: Because MiMedx was
trying to sell into Texas to
end users, around
distributors, they talked
about that, right? Objection
to hearsay! Judge Rakoff: I'll
grant it on asked and
answered.
Q: But you only
get immunity if you tell the
truth as defined by the
prosecutors, right? Witness
(with immunity) - I'm not sure
who decides on truth. Q:
Nothing further. Judge Rakoff:
Ladies and gentlemen, I think
that's it. Have a good
evening.
Addendum: After
jury leaves, Petit's lawyer
previews his cross of witness
Carleton tomorrow: They call
the $200,000 payment a bribe,
but it was a negotiated
settlement. Let me put the
Rule on the record- Judge
Rakoff: Oh, a Rule. I'm
learning so much in this trial
Petit's lawyer
cites to Judge Rakoff his
fellow judge Kaplan's decision
in US v. Stein (for some
reason using only the Westlaw
citation).
Judge Rakoff:
I've read it.... Last I heard,
when the US brings a charge,
that's not the end of the
story. We have a trial.
Petit's lawyer
says he'll file documents with
the Court and the government
overnight.
Inner City Press:
So when will those be
docketed? In any event, NOW
the trial day, Day 4, is done.
Day
3, Oct 28: Day 3 -
controller Anderson still on
the stand, now cross by
William Weinreb for Taylor
Weinreb: Mr.
Anderson, you testified that
customers were paying later
than provided for under the
purchase order, correct?
Anderson: Correct. Weinreb:
Customers whose revenue has
been recognized upon shipment?
AUSA: Objection! Judge Rakoff:
Overruled.
Judge Rakoff
returns from a sidebar and
himself asks Anderson a
question: Did this cause you
to look further into the
situation? Anderson: Yes.
Judge Rakoff: The objection is
sustained. Followed by another
objection, based on vagueness.
[This could take a while]
Weinreb: Do you
remember MiMedx general
counsel Lexi Hayden (sp) being
there, taking notes? AUSA:
Objection! Judge Rakoff:
Sustained. Weinreb: Was
someone taking notes? A: Yes
Q: Was it Lexi Hayden? A: Yes.
[Cured]
Now we're onto
the Saudi deal: First Medical,
payments conditioned on tender
by Saudi minister of health.
Weinreb asked about "right of
return" - [not what's usually
meant in Saudi by right of
return]
Still re-direct of MiMedx
controller Anderson AUSA: You
were asked by defense lawyers
about your conversation with
the audit committee? Anderson:
Yes. AUSA: ... I'm done. Judge
Rakoff: Any re-cross?
Weinreb: Who was
taking notes? Let me show your
a document Judge Rakoff to
jurors: These documents can be
used to refresh a witness'
recollection, but the notes
are not evidence. Weinreb:
Look at page 12, down to the
words 'it sounds'... no
further questions. Judge
Rakoff: Lunch break for an
hour.
[The next witness
in #MiMedx trial, who will
begin at 2 pm, has just been
given an immunity deal. And,
apparently Parker Petit's
lawyer has something she wants
to bring up to Judge Rakoff at
1:45 pm, before this next
witness' direct examination.]
The witness with
immunity was a VP at #MiMedx.
He is describing Monday
morning meetings about revenue
and meeting guidance, attended
by Petit, Taylor, the 3 EVPs
and VPs at the witness' level.
AUSA: Top line revenue?
Witness: Total sales added up.
...So in
this email, Mr. Petit says,
Typical analysis, no
leadership. AUSA: So Mr.
Carlton, these are your text
messages? Carlton: Yes. AUSA:
What does P.O. mean? Carlton:
Purchase order.
Judge Rakoff is
telling the parties, "with
apologies," to clear out - he
has another matter in 5
minutes.
Day
2, Oct 27: Judge
Rakoff is reviewing again
Juror #4's prostate, &
another juror who didn't say
she lives in Queens (not in
the Southern District)....
They're back from
sidebar - Judge Rakoff tells
Juror #4 is is "an excellent
juror," so just raise his hand
when he needs to go to
bathroom. He responds: He
can't hold it on the train
down from the Bronx. Judge
Rakoff: Let's see how it goes
today.
Judge Rakoff: We
have all the jurors except
Alternate Number Two. Defense
Lawyer: We are all getting
tested for COVID, we are
working in a pod. Can I pass
documents to my pod-mate?
Judge Rakoff: Partners don't
know anything about documents,
so sure.
AUSA: The
defendant has a website about
the allegations. We ask that
the jurors be told not to look
online. And that Mr. Petit
lost a son to cancer, we
understand the defense does
not intend to raise it. But we
will be putting in his SEC
testimony...
OK,
Alternate Juror 2 has arrived,
and the direct examination of
MiMedx accountant continues.
To be continued
MiMedx
redux: Witness: When I met Mr.
Petit, I was not concerned I'd
be fired at that time. Q: They
why'd you send the email?
Witness: I was uncomfortable
with the revenue recognition.
Q: You told
Mr. Petit you didn't think it
was about his integrity?
Witness: Correct. I wasn't
aware of any facts that hadn't
been disclosed to me. Now with
jury out to lunch, the lawyers
are again discussing Juror
#4's prostate. Both sides
agree to strike him. Judge
Rakoff agrees. Judge Rakoff:
Sidebars should be in the
robing room because everyone
can hear them when we do them
here, due to social distance
Lunch break
is over, and Judge Rakoff asks
if he has to deal with
multi-colored exhibit list
now. No, AUSA says, not given
what the defense has said
about the length of cross.
Judge Rakoff: Juror 14 wants
off, due to financial
difficulties - daily commute
costs
Judge Rakoff:
Juror 14 does not have a
credit card and can't afford
out of checking account. The
solution, I think, is to see
if she can get paid commuting
funds in advance. Let's bring
in the jury.
[Inner City
Press' sense is that some
jurors during voir dire didn't
understand how long the trial
was going to be, or how boring
(?) or financial / accounting
it would be] Deputy: Jury
entering the courtroom! Judge
Rakoff: Please be seated.
Cross-examination.
Jennifer
Loeb of Freshfields, for Pete
Petit: Mr Anderson, You
understand Mr. Sankin (sp) had
evaluated your concerns you
raised in your email? AUSA:
Objection! Judge Rakoff:
Sustained. Loeb: May we
approach? [Sidebar]
Judge
Rakoff, returning: Ladies and
gentlemen, you may wonder why
we have sidebars. It's so the
lawyers can tell me what they
expect the testimony to be.
Let's proceed. Loeb: Mr.
Sankin told you everyone
disagreed with your concerns?
Anderson:
Correct.
Judge Rakoff is
commending to the lawyers the
US v. Simon case from 1960
("when you were all unborn or
in your knickers") for the
proposition that compliance
with GAAP doesn't mean you
can't be convicted. Judge
Rakoff: How many gov lawyers
are here? 3.
To be continued.
Day 1, Oct 26:
Assistant US Attorney Daniel
Tracer's open statement
explains "revenue.. ladies and
gentlemen, hitting the
guidance was critical to the
defendants. So they cheated
and lied to make sure they met
their guidance. MiMedx sold
skin patches to
distributors...
AUSA Tracer: They
report the revenue before they
get it. They recognized the
revenue as soon as they
shipped. It's allowed but only
if certain requirements are
met. If not met, you can't -
and it's a crime to lie to
auditors.
Now Pete Petit's
lawyer says, When you look at
the world through windows that
are dirty, everything looks
dirty. But this is far from a
typical fraud case. All you'll
see is the sale of real
products, for real money.
Defense lawyer:
Pete Petit is a self made man.
But he is not an accountant.
He came back into business in
2009 to rescue MiMedx. He
probably met the definition of
a workaholic. He pressed the
staff to meet sales goals. He
was tough and demanding.
Now it's Bill
Taylor's lawyer: The US claims
my client, not an accountant,
should go to jail for the
timing of revenue recognition.
They don't even say he got
money on the side. You're
going to be here for a long
time over complex accounting
rules. He's innocent.
NOTE: Taylor's
lawyer is describing a
contract MiMedx had with the
Saudi Arabia government. Inner
City Press' interest in this
trial is even more piqued...
Now on the
witness stand: former
Comptroller of MiMedx, who
came from Lilly. AUSA:
Why did you take the position
if the compensation was lower?
Witness: It fit
where I wanted to go in my
career. I was interviewed by
Pete Petit.
Judge Rakoff is
letting the Petit jury go for
the day at 3:40 (he has a
sentencing scheduled for 4
pm). He asks for a sidebar
with Counsel. "Juror Number 4
wants to inform us of further
information."
The issue
involves bathroom breaks;
Juror 4 says his prostate
condition requires use of
bathroom every 15 minutes
which wasn't done today.
Both sides say, Let's wait and
see.
Judge Rakoff: 30
years ago I was giving a
summation in Alexandria,
Virginia, a juror raised his
hand and asked to go to the
bathroom. Defense asks that
government witnesses not dial
in. OK
At the final
pre-trial conference Judge
Rakoff answered more than 30
questions, ranging from
whether paper exhibits will be
accepted (they are not favored
but will be accepted on
cross-examination) to if the
defense lawyers could bring
food in.
Judge
Rakoff noted that the SDNY
cafeteria is open, and he
doesn't expect lawyers to
bring food into his courtroom.
He said to expect an audio
feed - as it should be,
despite a recent audio-less
sentencing in EDNY, here - but
not a defense lawyer's "war
room" like T-Mobile had in
their antitrust bench trial
last year.
At the end of the
proceeding it emerged that
there may be a request to put
off the whole thing.
Judge
Rakoff said he wouldn't
prejudge it. But Inner City
Press wrote that would not bet
on this motion being granted.
And it was not.
The case is US v.
Petit et al., 19-cr-850
(Rakoff)
***
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