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In Securities Fraud Trial of MiMedx Bassam Al Hajj and Mark Brooks Emails Cited US v Stein

By Matthew Russell Lee, Patreon
BBC - Guardian UK - Honduras - ESPN

SDNY COURTHOUSE, Oct 29 –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, here and below.

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.

On October 23 Judge Rakoff held another final pre-trial proceeding. He mulled sanctions against the defense lawyers but demurred. He asked why they wanted a special table and was told about a trial consultant.

  Judge Rakoff asked, A lawyer on your team?

That wasn't answered, except by reference to who will be in the "hot seat." Judge Rakoff said that the name of any trial or jury consultant would have to be disclosed. This wasn't answered either. Judge Rakoff predicted picking a jury in an hour and a half, and said he or his deputy have pooled 300 juries and have learned that overly long opening statements are unhelpful. So the cap is 30 minutes.

The case is US v. Petit et al., 19-cr-850 (Rakoff)


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