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Ebix – The Taxman Cometh

DECEMBER 13, 2018 – Ebix’s Mumbai office was “searched” by Indian tax authorities in Q3 2018. In other news, Robin Raina claims Ebix has never “been on the wrong side of any regulatory or tax authority”.

The Taxman Cometh – Report Download Link

Viceroy released its preliminary report on Ebix – titled Goodwill Hunting – on 11 December 2017, the contents of which we also discussed at the Kase Learning conference in New York on December 3, 2018.

This report will address the totally inadequate response Ebix issued on December 12, 2018, which was substantially an attempt at authority bias by CEO Robin Raina. Accordingly, we will also shine a light on the statements Raina decided to include in this press release, which we believe to be extremely misleading.

  • Ebix acknowledged our report via a press release on December 12, 2018, however CEO Raina would rather issue a hollow press release than address the issues Viceroy have raised in our preceding report.
  • Robin Raina claims Ebix has “never been on the wrong side of any regulatory or tax authority”. This is inconsistent with:
    • Ebix’s Mumbai office being subject to an undisclosed “search” by Indian Tax Authorities for suspicion of tax evasion in late August 2018;
    • Ebix currently subject to a tax audit by the Australian Taxation office since at least 2016;
    • Ebix historically settling an IRS dispute for >$20m;
    • Ebix being subjected to a prolonged SEC investigation;
    • Ebix being subject to a possible ongoing DOJ investigation;
  • Contrary to Raina’s claims, it appears his conduct was subject to regulatory scrutiny even prior to his rise to CEO. Ebix’s former auditor, Arthur Anderson, was charged by the SEC for improper conduct and fraud relating to the audit of Ebix’s revenue recognition practices at a time where Raina was VP of Sales and Marketing and COO.
  • Robin Raina claims Ebix has had “no difference with any statutory of consolidated auditors across the world in the last two decades”. This is objectively, and verifiably false, as we have already reported.
  • Ebix detracts attention to concerns raised through reinforcement Ebix – The Taxman Cometh 2018.12.13of its commitment to stock buybacks, of which it has announced US$330m since 2015 and only fulfilled US$187.169m.
  • Viceroy is writing to the Debt Providers shortly with these and other material concerns.

Viceroy’s original report can be found here:

https://viceroyresearch.org/2018/12/11/ebix-goodwill-hunting-2/

Ebix’s press release on December 12, 2018 can be found here: https://www.ebix.com/press-release/ebix-ceo-decides-to-take-salary-in-ebix-stock-instead-of-cash-the-company-commencing-purchase-of-ebix-stock-under-100-million-usd-repurchase-commitment-over-the-next-6-to-12-months-period

Featured

Ebix – Goodwill Hunting

Accounting irregularities, undisclosed tax investigations, auditor shuffling, poison pill to protect short sellers: welcome to Ebix.

DECEMBER 11, 2018 – Following on from our presentation of the same title, Viceroy are releasing our preliminary report on Ebix (NASDAQ:EBIX). Our investigation has uncovered accounting discrepancies dating as far back as 2008 to present day as well as several other red flags.

Report Download Link

Filings.zip – Download Link

  • Numerous accounting discrepancies in years 2013 to 2018 regarding the recognition of goodwill and acquisitions within the Ebix group. These discrepancies have largely gone unnoticed due to the delay in local filings being signed off and the multi-jurisdictional nature of these transactions.
  • Over the course of our investigation we uncovered evidence of what we believe is a scheme to incorrectly book revenue and earnings. We believe this is done through the shuffling of assets from one subsidiary to another while improperly booking internal revenues, and contingent consideration “cookie jar” accounting.
  • We are limited by the recency of the available subsidiary filings. We believe this behaviour continues to take place. Ebix’s acquisition spree in India further muddies the waters.
  • Ebix announced a change in auditor to T.R. Chadha from Cherry Bekaert (of MiMedx fame) after reporting material weaknesses regarding purchase and income tax accounting, pursuant to appointing a big four accounting firm in Q1 2019.
  • T.R. Chadha has never audited a US-listed entity and was auditor of several Indian Ebix subsidiaries in which there appear to be several accounting discrepancies.
  • Cherry Bekaert was subject to a scathing PCAOB inspection just weeks before its replacement.
  • Ebix’s subsidiary structure is excessively convoluted and opaque. The subsidiary structure includes holding companies in geographies where obtaining financials is near impossible. Many subsidiaries are held under a UK entity, Ebix International Holdings, which has only ever filed locally as a dormant company and recently received a warning of compulsory dissolution for failing to file accounts.
  • Ebix’s joint venture with Vayam Technologies, Ebix Vayam, accounts for 25% of Ebix’s receivables and only customers are Vayam Technologies themselves. Vayam appears never to have settled its receivables and the entire JV is funded by Ebix at an 8% interest rate, payable in receivables. This appears to be a scheme through which cash is injected in to make paper gains of margin plus 8%.
  • Ebix CEO Robin Raina is entitled to a massive payout in the event of an acquisition at the expense of shareholders. This poison pill protects short-sellers from takeovers by attaching an unreasonable premium to the company. This arrangement and its predecessor are currently subject of ongoing shareholder litigation.
  • The company’s debt-fuelled acquisition binge in India was originally intended to create and list an Indian payments entity. This appears to have turned into an unfocused rollup, with more and more scattered businesses being added to the Ebix stable. Despite these additions, Ebix does not break out its revenues from these disparate income streams.
  • Ebix’s has been subject to an undisclosed tax audit by the Australian Taxation Office since 2016, we believe due to the transfer of Telstra eBusiness Exchange assets to Ebix Singapore, and non-arm’s length transactions.

Due to the delay in availability of subsidiary accounts, and the rapidly expanding nature of the company’s operations we are unable to quantify a base downside. We believe it is highly likely given the progress of the shareholder litigation that regulatory authorities including the SEC open or reopen their investigations into the company. Accordingly, we believe that Ebix carries a high investment risk.

Featured

NEPI Rockcastle – Mucking Out the Stable

On November 28th, 2018 Viceroy Research released a report regarding NEPI Rockcastle (JSE: NRP) detailing what we believed to be overinflated profits in the company’s Romanian operations. NEPI issued a response to our research and hosted a call for concerned investors.

NEPI Response 2018.12.06 – Download Link

NEPI Dutch Filings – Download Link

Unusually NEPI provided some clarity in terms of their accounting treatments. We maintain our belief that NEPI is fundamentally overvalued with reservations regarding the sustainability of distributable income, the tax treatment in foreign jurisdictions and the status of the overall company. This we will update on.

  • NEPI Rockcastle have not sought to deliver any scope of investigation in response to a request by investors in August 2018, and claim it is the prerogative of investors to identify the exact issues they want investigated. It seems clear what issues 10 of South Africa’s largest financial firms sought clarity on: potential trading of associated companies, suspicious capital raising activity and property transactions.
  • Per our original report, we were of the opinion that transfer pricing is not an adequate explanation as to why statutory losses are incurred in Romania. This is due to transfer pricing legislation in Romania and the EU. On further investigation, these hard currency, unsecured, intra-group loans are disclosed in NEPI’s Dutch subsidiary at rate of 8%-12%, compared to the Romanian mortgage rate of 4.5-5% and safe harbor limit of 4%. This is a stark contrast to the CFO’s description, in which she did not provide the figures, but guided the rate was between 4% to 8%.
  • Having obtained the filings of Dutch subsidiary, NE Property Cooperatief UA, we find it untenable how a local CFO or Financial Controller locally can advocate a “fair” and arm’s length transfer pricing interest rate on unsecured loans of 8%, formerly 12%. Essentially, the equity holders at the local level are being punished for an excessive and non-arm’s length priced loan. We make this assumption based on local Euro borrowing costs within Romania with an LTV of circa 28% as disclosed by NEPI.
  • NEPI uses the entirety of its funds earmarked for deferred tax payments to inflate its distributable earnings figure. In effect, the company is likely improving their dividend figures at the expense of future disbursements.
  • New anti-abuse legislation will materially hamper NEPI’s transfer pricing model going forward in Romania, Netherlands, and across the EU. Given the extent of transfer pricing, this will impact NEPI’s distributable earnings.
  • Taking a step back, it is delayed outgoings, not earnings, that substantiate ~20% of distributable earnings. The Romania tax channeling is in fact one of many adjustments that allow this unsustainable dividend practice. Other items that deserve scrutiny include the dividend contribution of stocks, the antecedent dividend add back and the sale of financial investments.
  • At a property yield of 6.77%; after accounting for cash costs, interest costs, taxes, and the stock trading at a premium to NAV, we fail to see how NEPI can justify a 7.5% dividend unless holders choose to take their dividend as scrip, which is dilutive and makes future dividends even harder to justify. Accordingly, we maintain our view that the stock is fundamentally overvalued.
  • Of concern is that large money managers, including retirement money managers PIC, have continuously chosen to take dividends as scrip.
  • SENS trading data shows entities associated with the Resilient stable associate Roque Hafner traded large amounts of NEPI shares at least for the period between May 2016 and May 2018. Hafner was implicated in the media as being involved in the Resilient insider trading scandal and several Hafner entities used to trade Resilient shares also traded NEPI shares.

We reiterate our belief that NEPI Rockcastle’s shares carry a high investment risk and are fundamentally overvalued, which will become increasingly unattractive over time given what we believe are unsustainable distribution practices.

Featured

Ebix – Goodwill Hunting

The Alchemy of Creating Profits

Ebix Presentation – Download Link

Viceroy’s presented Ebix at the Kase Learning Conference on December 3, 2018. We will shortly release a full report into our findings.

Summary red flags:

  • Change in business model (IT providers to insurance v. finance sector) without visible synergies or management experience.
  • Accounting discrepancies suggests EBIX is booking external revenues on transactions between its subsidiaries: this occurred in 2014, 2015, 2016, 2017 across multiple geographies (UK, Singapore, India, Dubai, Mauritius).
  • The company has a growing unbilled receivables balance:
  • 50% from by EBIX’s India JV (Ebix Vayam Technologies) whose only customer is the JV partner (Vayam): it appears to have no other customers, and 446 days of receivables.
  • Rapid change of company auditors, most recently the replacement of Cherry Bekaert with T.R. Chadha, an Indian auditor with no history of auditing a major US-listed entity.
  • Unnecessarily intricate and opaque subsidiary structure, with very little insight provided to investors. Many assets are being held in opaque geographies and have been transferred with no disclosure or justification.
  • The CEO has financially engineered an >US$825m “poison pill” to prevent any takeover by mandating a large payout to himself in the case of such a takeover.

 

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Response to statement by NEPI Rockcastle

November 28, 2018 – Viceroy published its report on NEPI Rockcastle on November 28, 2018. NEPI Rockcastle have subsequently issued a preliminary response to our report.

Viceroy Response 28 Nov 2018 – Download Link

We note that our data was sourced directly from NEPI’s filings, government records, and court records. Where we have conducted calculations, our analysis and workings have been show in full. Investors have the ability to determine the veracity of our analysis and conduct their own due diligence.

We are not of the opinion that NEPI has consistently proven transparency towards shareholders, the latest example of which is the outright refusal to engage an independent party to investigate potential trading of associated companies, suspicious capital raising activity and property transactions, at the request of 10 of South Africa’s largest financial institutions (including Government fund managers).

In stark contrast to any “reasons” NEPI provides for accounting discrepancies, investors should also note with extreme caution that the Company failed to provide details of outgoings, arrears, management matters, negotiations, rent reviews, to its valuers, Cushman & Wakefield. This was not an issue for all its other geographies.

Further to this, analysis of NEPI’s Romanian portfolio accounts show the company has, on average, 80 days of accounts receivable. This is indicative of substantial rent arrears, and fails the company’s claim of a 99.9% collection rate. These issues are independent of where earnings have been recognized, if this should indeed be NEPI’s response, and would not account for discrepancies in taxes paid in foreign jurisdictions.

We look forward to NEPI’s comprehensive response to our report.

 

Featured

NEPI Rockcastle – Horsing around in the Stable

Irreconcilable international earnings, enriching management through M&A, hoodwinking investors through misleading analysis via rejection of independent investigation.

Report – Download Link

Letter to Auditor – Download Link

Romanian Subsidiary Filings – Download Link

NEPI Rockcastle (JSE:NRP) is a JSE-listed entity holding one of the largest real-estate investment portfolios in Eastern Europe. Viceroy’s investigations have uncovered numerous inconsistencies within NEPI Rockcastle’s financial reporting and major links to an established financial fraud:

  • Local filings for NEPI’s Romanian subsidiaries suggest company figures are massively overstated for at least the past 3 years. Romania is NEPI’s largest geographical income segment in which consolidated 2017 group accounts show net profit before tax of EUR 284.87m (2016: EUR 221.90m). Local income statements show these companies operate at losses of over >EUR 40m (2016: >EUR 50m) for the same period.
  • Viceroy believe corporate or tax-effective structure or transfer pricing does not adequately explain the substantial differences in Romanian earnings generation as NEPI’s reported income tax expenses in Romania also do not match local filings. Given the criminal implications of misrepresenting tax numbers to the Romanian tax office, we assume NEPI chose to instead mislead its shareholders.
  • NEPI’s recent acquisition of Rockcastle was immediately followed by a massive write-down of subsidiary loans reflecting uncollectable debt from SPVs. When taken together with the purchase premium for the business of almost 80%, it is clear that the only winners in the Rockcastle acquisition were Resilient Stable insiders.
  • NEPI’s former chairman Corneliu-Dan Pascariu was involved in Romanian real-estate venture CEEIF, funded by the Peregrine Financial fraud perpetrated by Russell Wasendorf Sr. NEPI purchased Romanian assets from CEEIF before the Peregrine Financial fraud came to light. Court filings establish that CEEIF and several subsidiary development & holding companies were utilized by Wasendorf Sr. to embezzle cash.
  • Despite having financial recourse for beneficial ownership of ~11% of CEEIF’s purported book value of >EUR 60m, Peregrine’s Receiver, Michael M. Eidelman, had no interest in pursuing these recoveries. Eidelman’s investigations alleged CEEIF was insolvent, did not discount asset values to CEEIF’s pro-rata minor stakes, hid assets and liabilities from its balance sheet, and had no audited financial statements. Given Pascariu’s involvement as a major shareholder and financier through Unicredit, at which he was chairman at the time, it would have to have been extremely neglectful to not detect this activity.
  • NEPI shareholders issued a written request on 8 August 2018 for an independent investigation into potential trading of associated companies, suspicious capital raising activity and property transactions. NEPI rejected demands for an independent investigation, instead establishing a subcommittee of its own members to investigate themselves, and their predecessors.
  • Even without considering the above points, NEPI is fundamentally overpriced when compared with peers.

Based on our analysis, we see a significant downside to NEPI’s share price driven by an unwarranted overvaluation and the likelihood of substantially lower-than-reported earnings. Were NEPI to trade in-line with peers we believe shareholders would face an 25% downside, however, given the suspected extent of financial misrepresentation, we believe the company’s shares are worth substantially less.

We believe stakeholders should reinforce their demands for an independent forensic investigation into the company’s operations and veracity of its financial consolidation and tax compliance. Until such time, Viceroy believe NEPI carries a high investment risk.

For more research into the Resilient Stable, readers should refer to the leaked internal memo by 36One Asset Management which we believe was published around the end of 2017. A Scibd link to this report is below. Viceroy have no business relationship with 36One Asset Management and have never discussed NEPI Rockcastle with them.

Featured

Open Letter to MiMedx

OCTOBER 15, 2018 – Request for investigation into perceived/potential conflict of interest.

Viceroy – Open Letter to MiMedx

On July 2, 2018 MiMedx announced the resignation of MiMedx CEO and Founder, Parker H. Petit, and the appointment of Mr. David Coles, a Managing Director of Alvarez & Marsal , as the company’s interim CEO.

The appointment of Mr. Coles follows MiMedx’s engagement of KPMG and King & Spalding, who we understand have been tasked, amongst other things, with conducting an independent internal investigation into MiMedx sales practices .

Viceroy understands that a key element of these internal investigations concerns MiMedx’s conduct with the United States Department of Veteran’s Affairs (DVA); specifically, the allegations of channel stuffing and the subsequent indictment of DVA physicians utilizing MiMedx products. These physicians are in the process of cooperating with the US Attorney General’s case in relation to the charges alleged in the criminal filings including receiving bribes and inducements, and over-use of MiMedx product within the VA.

Viceroy Research has been made aware of links between other Alvarez & Marsal and a cohort of individuals allegedly exercising undue influence over the DVA, colloquially referred to as the “Mar-a-Lago Crowd”.

Given the depth of investigations occurring at MiMedx relating to the company’s conduct with the DVA, Viceroy believe the appointment of Alvarez & Marsal represents an irremediable conflict of interest to MiMedx’s ongoing internal investigations, and to the investigations we understand are ongoing within the DVA and other federal regulatory entities.

We have addressed a separate letter to the Department of Justice and the DVA’s ethics committee outlining what we believe is a serious conflict of interest and undue influence within the DVA of several parties.Further, we believe that it is irresponsible that this group, when exposed by journalists, was saved from a congressional hearing by longtime friend of former MiMedx CEO Petit, Senator Jonny Isakson, who has benefited greatly from donations from MiMedx and Petit.

Enclosed is a brief report detailing our investigation into this matter. A more comprehensive report will be published post VA OIG approval. The PCAOB and Investigators has stated that “When an auditor is confronted with multiple indicators of problematic revenue recognition … he or she must get to the bottom of the relevant issues, including digging into management’s representations.” We stand ready to assist in this effort and sincerely appreciate your attention to this extremely important matter.

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Pretium Loses its General Manager

Viceroy detail Pretium’s unannounced departure of Brucejack’s General Manager just 12 days after our initial report (NYSE:PVG).

Download Link – Report

SEPTEMBER 18, 2018 – Viceroy continues its coverage on Pretium Resources Inc. This report will detail what appears to be an exodus of personnel from Pretium since the start of the operation at the Brucejack mine.

Notably the General Manager of Pretium’s Brucejack mine, Kevin Torpy, has just resigned from the company. This was not announced by Pretium, but instead by Torpy’s new employers: Titan Mining Corporation – a microcap zinc explorer – on 17 September 2018.

Yet again it is left to Viceroy to inform stakeholders of key developments.

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Pretium’s Catch-22

Viceroy addresses Pretium’s revised ARR and presents new evidence supporting overmining thesis. (PVG:TSX / PVG:NYSE)

Download link – Pretium’s Catch 22

SEPTEMBER 11, 2018 – On 6 September, 2018, Viceroy research published its first report on Pretium Resources detailing what we believe is a scheme to distort the company’s mining results and inflate the projected reserves of the company’s Brucejack mine.

On September 10 Pretium issued a press release correcting its 2017 Annual Reclamation Report, the contents of which were used in Viceroy’s original report. We believe this is a badly thought-out attempt at damage control for the following reasons:

  • Pretium’s new ARR figures are internally inconsistent and imply that Pretium misreported the Brucejack mine underground void by the volume of 140 Olympic-size swimming pools.
  • The decrease in the change of underground void volume continues to present major discrepancies to Pretium’s feasibility study, particularly around expected and historical bulk density figures obtained from the Brucejack mine
  • If investors choose to accept that no overmining has occurred, a pandora’s box of serious operational issues continues to plague Pretium. Specifically, it becomes inexplicable that Pretium’s COGS and Capex have blown totally out of proportion and why explosive has dramatically exceeded expectation.
  • Viceroy present new evidence of accelerated mine development from comments by Pretium management in last week’s Rodman Conference. Pretium appear to have accelerated stoping by 18-24 months, moving well into the VOK lower zone well ahead of schedule. If investors choose to accept no overmining has occurred, Pretium’s accelerated mine development and excess dore recoveries imply the company is selectively mining high grade deposits, and has already exhausted a large portion of these in the VOK-lower/upper zones.
  • Viceroy present new evidence of excess waste generated by Pretium throughout its development phase. Pretium sought indefinite extension of time to dispose of excess waste in extracted from its mines. Viceroy’s consultants confirm This is further evidence that the rate of mining and development at Brucejack mine far exceeds the design of the mine site, given that as far back as 2015 it was clear that Pretium lacked the correct equipment to dispose of waste ore.

Investors must seriously consider the implications of Pretium’s financial and operational figures should they choose to accept that no overmining has occurred. Further, they should question management as to their responses to our findings, instead of confining their responses to fireside chats with sell-side analysts.

Viceroy continue to believe that Pretium’s grades will fall significantly, operating metrics/analysis has been distorted, and assets will be seized by its secured creditors as collateral as the company is overburdened by debt.

Viceroy maintains its belief that Pretium’s equity is likely worthless.

Featured

Pretium Resources – digging up dirt

Distorted grades, involvement of SEC sanctioned entities, and high turnover of mineral consultants – Pretium flies many red flags. (PVG:TSX / PVG:NYSE)

Download – Full Report

Download – Summary

SEPTEMBER 6, 2018 — Pretium Resources owns and operates the purportedly high-grade Brucejack gold mine in Northwest British Columbia in Canada. Viceroy is short Pretium Resources, as our research suggests its mining results have been distorted and the equity likely worthless as the overindebted company bleeds cash over the next 12 months:

  • Strathcona Mineral Services Limited (Strathcona), the mining consultancy that famously declared Bre-X to be a fraud, resigned from Pretium’s 2013 bulk sample program later stating, “…they will not have a mine producing 425,000 oz. a year for the next 20 years, as they have been advertising so far”. The entire Pretium investment thesis rests on the validity of the 2013 bulk sample program.
  • After Strathcona’s resignation, Pretium hired Strategic Minerals LLC (Strategic Minerals), an entity owned and managed by disgraced investment manager Serofim “Sima” Muroff to handle the testing of its bulk sample program. Muroff was charged by the SEC for securities fraud after misappropriating millions of dollars of investor funds and siphoning away millions more. Our research suggests that Muroff has knowingly assisted Pretium in overselling the quality of Brucejack Mine to investors.
  • The funds embezzled by Muroff were partially invested in numerous early-stage gold mining assets which to date have produced no gold. We believe Muroff’s entity was created to similarly distort gold grades for these gold mining assets. Muroff’s investors funds were also used to invest in equities and derivatives of other gold mining assets which we believe included Pretium.
  • The overwhelming majority of our research indicates Pretium manipulated the results of its bulk sample program through an overreliance on samples taken from the Cleopatra vein, thereby artificially inflating Pretium’s grades and reserve projections for the Brucejack Mine.
  • The manipulated bulk sampling test performed by Strategic Minerals was used by the courts in Wong v. Pretium Resources, 2017 as the basis of their decision that the Strathcona analysis was incorrect. This did not exempt the company from withholding Strathcona’s preliminary analysis from investors.
  • Government documents indicate Pretium is moving approximately double the tonnage from the underground mine than disclosed to investors. This suggests reported grades and reserves are significantly inflated, a much greater amount of waste is being dumped into local lakes, and more explosives are being utilized. Pretium’s operational plan has experienced dramatic changes in a short amount of time, leading us to believe that management is scrambling to find consistent, high-grade ore to maintain the charade that its debt and equity are viable.
  • Pretium founder and chairman, Robert Quartermain’s only mine operating experience at Pirquitas, an Argentinian silver mine owned by Silver Standard, resulted in a ~53% reserve cut and subsequent shutdown. A number of Quartermain’s management team left Silver Standard to operate Pretium.
  • As of Q2 2018, Pretium has ~$700M of debt (excl. convertible notes) with an effective interest rate of ~15%. If Pretium can’t make or re-negotiate the payment, then Pretium may be unable to remain a going concern. We believe this deadline has provided an incentive for Pretium to inflate its results through the near-term depletion of the Cleopatra vein and take more rock out of the ground than disclosed and planned.

The implications of our findings on grade, tonnage and life of mine are damning and lead us to believe that Pretium’s equity is highly likely to be worthless in its current state, and its credit significantly impaired.

Viceroy believe Pretium bears striking resemblance to Rubicon Minerals, now operating as a shadow of its former self after revising mineral reserve estimates down ~90%.

We believe the most likely scenario is that Pretium’s assets are seized by its secured creditors as collateral.

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MiMedx – filling in the blanks.

More ties to Forest Park, active breach of federal sales regulations, knockback of “independent” research and the dead-on-arrival of international expansion.

PDF Download Link

The fraud at MiMedx continues to unravel as the company announced it would have to restate more than half a decade’s worth of financials, doctors receiving bribes from MiMedx and that its short selling commentary cannot be relied upon. Viceroy have identified further issues with the company including:

  • The announcement of MiMedx’s international expansion was a sad attempt at distracting investors from the Company’s compliance updates.
    • In the UK, the technology commentary from the NHS appears very skeptical as to the efficiency and economic viability of MiMedx’s EpiFix product compared to existing solutions. EpiFix has been available in the UK for 2 years as of January 2018, and the product was only stocked in 1 National Health Service (“NHS”) facility.
    • Viceroy have begun contacting international regulators to present evidence.
  • A major stumbling block to regulatory approval, as indicated by UK regulators, is the lack of independent research into MiMedx products’ efficacy and significant difference between company funded/sponsored reports and limited independent patient data.
  • Viceroy have uncovered an AmnioFix study conducted by Forest Park Medical Center employee, John Dulemba, and MiMedx consultant and former Matria healthcare Director of Clinical Research, Niki Istwan.
    • The study has no disclosures on compensation or relationships with MiMedx.
    • Istwan appears on multiple MiMedx studies sometimes as a MiMedx consultant and other times as an “independent”. We believe this obfuscation of relationships to the company is intentional and used by MiMedx to create an illusion of independence. MiMedx does not report payments to Doctors despite the legal requirements.
  • One of three individuals recently indicted for fraudulently accepting payments from MiMedx was also part of a clinical study into MiMedx products. The implication that MiMedx clinical research is directly influenced by the Company is likely to deter international approval altogether. More so for paying bribes to Doctors. MiMedx denied paying bribes or inducements in legal filings and illegal short selling commentary, but the Grand Jury disagrees.
  • MiMedx is in breach of federal procurement regulations (FAR/DFAR) due to the conditioning of settlement agreements and litigation settlements with former employees and whistleblowers on a requirement for withdrawal of complaints to, and prohibition of communication with, regulatory authorities. We have reported this to the relevant authorities and believe their findings will corroborate our own.

For further background on this issue, please refer to Viceroy’s MiMedx Greatest Hits report:

https://viceroyresearch.org/2018/05/11/viceroys-mimedx-greatest-hits/

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Capitec FY 2018 earnings analysis

It is our belief that Capitec management have continued to mislead investors since our previous correspondence with the company.

End-of-financial-year announcements in 2018 are reflective deteriorating business conditions and corroborate the continuity of several intentionally misleading accounting practices we have reported in the past.

We have again entertained Capitec’s invitation to field questions regarding its business.

An open letter to Capitec’s Audit Committee can be downloaded below:

Viceroy Letter to Audit Committee – PDF Download

In this instance, we are addressing the audit committee with our concerns, as they relate to broader financial reporting transparency and flawed management analysis, corroborating our previous analysis of unsustainable business practices.

Our continued review of Capitec’s practices and financial results leads us to believe management’s delivery of analysis to stakeholders is extremely misleading, and not at all reflective of declining business fundamentals.

This report will follow issues we have raised in previous reports and correspondence with management. You can find all of these reports on our website:

https://viceroyresearch.org/category/capitec-jsecpi/

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Viceroy’s MiMedx Greatest Hits

Over the past eight months, Viceroy have conducted an investigation into MiMedx Group, Inc (NASDAQ:MDXG). We have presented our research over the course of 20+ reports which can be on our website.

In the interest of those who have only recently begun following the story, Viceroy have decided to consolidate the major aspects of all 20+ reports into one document, organized by topic.

PDF Download Link – Greatest Hits MDXG

This is still a lengthy document however readers should be conscious that it is a combination of over 20 separate reports, which collectively is still small sample of the hoard of data Viceroy have provided to regulators.

When we began our investigation into MiMedx, we were shocked by the sheer volume, brazenness, extent and historic precedence of the fraud being perpetrated by the company. MiMedx management has yet to acknowledge any wrongdoing, remaining unrepentant despite the existence of several federal investigations into the company.

We reiterate our opinion that due to the overwhelming nature and amount of evidence against the company we believe MiMedx is a robust fraud, entirely uninvestable, and worth $0.00.

We encourage any persons with further evidence of fraud within MiMedx’s operations to lodge an anonymous report with regulators through the following channel.

https://www.sec.gov/whistleblower/submit-a-tip

Alternatively, Viceroy are happy to take the heat on publishing more evidence of malpractice at MiMedx, which we will treat with the utmost level of confidentiality. You can reach us at viceroyresearch@gmail.com.

Further reading on MiMedx’s criminal activity can also be found on:

www.petiteparkerthebarker.com

www.aureliusvalue.com

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AMD confirms CTS vulnerabilities, downplaying to avoid the financial implications

Discoveries by CTS Labs’ research into AMD flaws eliminate AMD’s competitive advantage in enterprise server segments and the company’s price competitiveness in retail aspects can no longer be justified.

 

PDF Download Link
The company’s rhetoric is that this is a non-issue hinges on the non-argument that administrator access must be established in order to exploit the vulnerabilities identified by CTS. This is short-sighted as the surrounding statement that most hackers will not have the know-how to exploit these vulnerabilities.
CTS have recently released a video showing the exploitation of AMD’s vulnerabilities to completely circumvent Windows Credential Guard and obtain decrypted passwords. AMD management specifically highlighted Windows Credential Guard as a key obstacle to the execution of CTS Labs’ identified exploits.
The video can be viewed in full here: https://www.youtube.com/watch?v=8YQaWIWbzhI&feature=youtu.be
Viceroy believes the practice of giving AMD discretion as to when, if and how it reports its own vulnerabilities facilitates poor corporate disclosure and keeps stakeholders in the dark. This is not how free financial markets operate for a reason and is validated by the SEC’s most recent statement2 relating to cybersecurity flaws: we would similarly not give fraudulent companies the discretion as to if and when they inform their investors they are a fraud.

  • Ryzen and Epyc processors facilitate tremendous freedom of access to customer’s data –The identified vulnerabilities in AMD’s EPYC and Ryzen processors give hackers the ability to entrench malware at the hardware level, making them virtually undetectable and untouchable by security products. By abusing these vulnerabilities at the Secure Processor level, malware characteristics can give hackers unlimited control over entire networks. None of the vulnerabilities identified by CTS, both firmware and hardware, require physical access to computers to be exploited. The continued sale of these processors puts customers at significant risk.
  • The security protocols that AMD have been promoting put customers at unacceptable risk to vulnerabilities identified by CTS – We expect AMD cloud customers including Microsoft Azure, Baidu, DellEMC and TenCent will flee in the short term given the serious nature of chip flaws. AMD is unlikely to be trusted in this space again.
  • One Ryzen chip could endanger an entire enterprise network – Vulnerabilities identified in the Ryzen chip allow hackers to perform credential dumps on infected Ryzen workstations even if the latest security mitigations are employed. Malware can quickly spread to other workstations throughout enterprise networks, regardless of whether they use a Ryzen chip or Intel. No prudent CISO or CTO will risk their network or their security by buying a Ryzen chip over more secure competitors.

This report expands on the financial impact of the CTS Labs vulnerabilities, specifically the impact of future earnings and possible legal liabilities that Viceroy believes will arise against the company. Viceroy have appointed lawyers to assess the reliability of the security claims made by AMD considering the basic level flaws that have been identified.

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AMD – The Obituary

Viceroy analyze CTS Labs’ report exposing fatal security vulnerabilities across AMD products

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CTS Labs, a cyber-security research firm, released its findings on http://www.amdflaws.com. These findings demonstrate that AMD’s key products, and it basis for profitability and growth, the EPYC and Ryzen processors, contain severe and pervasive security flaws that put users and organizations at an unacceptable and damaging risk. We understand that these flaws are difficult, some practically impossible, to patch.
We believe that AMD was compelled to release products as quickly and cheaply as possible as it was falling behind its competitors. This has led to what appears to be complete oversight or negligence of security fundamentals of AMD’s products, which promote an evidently misguided competitive advantage – particularly with its Secure Processor (a.k.a. Platform Security Processor or PSP) – of providing “the greatest peace of mind on every AMD product.”. Nothing could be further from the truth.
Viceroy, in consultation with experts, have evaluated CTS’s report. We believe the issues identified by CTS are fatal to AMD on a commercial level, and outright dangerous at an international level.
In light of CTS’s discoveries, the meteoric rise of AMD’s stock price now appears to be totally unjustified and entirely unsustainable. We believe AMD is worth $0.00 and will have no choice but to file for Chapter 11 (Bankruptcy) in order to effectively deal with the repercussions of recent discoveries.

Date: 13 Mar 2018

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ProSieben – TV’s real House of Cards

ProSieben’s (ETR:PSM) growth story is a lie: earnings manipulation, huge put liabilities – Published March 6, 2018

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ProSiebensat.1 Media SE (ProSieben) is a European media company focused in the German-speaking TV and digital market. The company’s core business is advertising-financed free TV, supplemented by digital segments built by a diversification campaign over the last half-decade.

Diversification has proven a costly and ultimately unsuccessful strategy. Viceroy believes ProSieben is a highly leveraged entity with non-performing subsidiaries offering no synergies. ProSieben’s core business – which has carried ProSieben’s investment losses – appears to be in accelerating decline, with a potential death knell spurred by the EU’s implementation of its General Data Protection Regulation (GDPR).

  • ProSieben’s acquisition and expansion strategy has been catastrophic, unfocused, and expensive – the company is currently attempting to control the damage caused. Many expensive investments are loss-making, hidden through segment accounting gimmickry, and offer no synergies. It is unlikely that ProSieben will be able to offset losses through divestment. There is no clear rhyme or reason to their business and such disjointed segments have proven difficult to manage and integrate.
  • Viceroy believes ProSieben’s non-cash barter transactions have artificially boosted revenues by EUR 210m in 2016: almost 50% of net income. Viceroy believe ProSieben’s media-for-equity and media-for-revenue transactions will never be realized in cash because investments have been pulled from the bottom of the barrel. Despite classifying these transactions as revenue items, ProSieben does not appear to adjust its operating cashflows to reflect this non-cash item, as equity/investments are inherently not a working-capital account.
  • ProSieben has subsidized a fabricated digital “growth story” using cash flows from its TV advertising business and idle TV advertising inventory. As its core business declines, ProSieben can no longer counterbalance its underperforming digital segments – the earnings structure is on the verge of collapse.
  • Significant unmet financing needs and dividend commitments far outweigh ProSieben’s cash flows. We believe shareholders will inevitably be subject to increasingly dilutive equity raises. Outstanding amongst these are ProSieben’s acquisition-related put liabilities which amounted to EUR 366m as of EOFY 2016.
  • ProSieben’s unconditional put liabilities have the characteristics of former management “bonuses” which bypass the consolidated income statement and stagger the company’s cash outflows (despite being unconditional). This allows ProSieben to consolidate entities (through majority ownership) without full cash outlay and minimizing P&L effects.
  • ProSieben has lost at least 14 senior executives & board members in 2017 alone. It is very telling that almost the entire finance-related management team has left the company within that period. It seems the people most familiar with the true financial state of ProSieben have jumped ship. The collective Executive Board and Supervisory Board directly hold a mere 65,244 shares in ProSieben as of December 31, 2017. This is equivalent to 0.0% of the share capital.
  • ProSieben is locked-in to new “output deal” contracts with major US studios to the tune of EUR 3,022m which it acknowledges does not meet the appetite of German viewers. Viceroy believe this will substantially increase costs in a declining market – a margin-trimming exercise.
  • The head of ProSieben’s M&A team who processed an acquisition was employed by the seller a short period after. Viceroy believe the transaction was extremely favorable to the sellers.
  • The Company’s dividend rates are fiscally irresponsible and unsustainable. Viceroy believes the capital raise in November 2016 which followed a large dividend payout was totally nonsensical.

Viceroy believes that ProSieben will be forced to issue another capital raise or cancel its dividend to zero to deal with these problems.

ProSieben displays all the signs of a business in an advanced state of decay in every operating segment. Viceroy believes that these issues have gone unattended for too long, and a correction is imminent as ProSieben’s market becomes stressed.

We value ProSieben at EUR 7.51 per share, representing a 75% downside on the closing price at March 5, 2018.

 

*Edit – 6 Mar 2018 – Correction on Figure 1.

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Capitec’s inadequate response to Viceroy

A perfect example of why Viceroy don’t “engage with management” – they don’t answer our questions.

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Viceroy issued an open letter to Capitec’s board of directors on 20 February 2018, responding to their invitation to engage with management and field our questions.

A full copy of our letter can be found here:

www.viceroyresearch.files.wordpress.com/2018/02/letter-to-capitec-20-02-18.pdf

Capitec replied to our letter on 22 February, 2018 via email, however provided no straightforward responses to any of our questions. At best, Viceroy received numerous largely insignificant statistics and tangential statements.

Capitec’s full response to our letter is attached to this report as Annexure 1.

Viceroy has been criticized for not engaging with management prior to publication of our reports. Capitec’s response is a prime example of why we choose not to. We maintain our recommendation that Capitec should be subject to an external, independent regulatory investigation, which we believe will result in Capitec being placed in curatorship in order to protect its consumers.

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The curious case of Mad River Community Hospital

Viceroy present further evidence of MiMedx illegally selling on reimbursement, adding our already extensive evidence of pervasive fraud.

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Viceroy has obtained documents detailing a legal dispute between MiMedx and Mad River Community Hospital (“Mad River”). The documents clearly outline MiMedx’s fraudulent sales methods including misrepresenting reimbursement rates for products and “marketing the spread”.

This report details the serious misconduct and underhanded sales tactics of MiMedx personnel in California, which executive management were certainly aware of given the ensuing litigation. As we have demonstrated over 20+ reports, these types of improprieties are commonplace throughout the organization. Never before have our legal advisors or consultants come across such gross and serious misconduct.

The Mad River documents also show MiMedx engaged in “selling on reimbursement”, contrary to a several laws and regulations and some alleged MiMedx policies.

  • MiMedx sued Mad River for non-payment of invoices for EpiFix and AmnioFix products. Unfortunately for MiMedx this is where the story becomes compelling for law enforcement and regulators.
  • MiMedx misrepresented to Mad River the reimbursement rates for its EpiFix and AmnioFix products, as well as misrepresenting insurer’s attitudes towards these products. Several insurers considered MiMedx products “experimental and un-reimbursable”.
  • Following Mad River’s failure to pay, MiMedx sent “reimbursement” specialists to Mad River who upheld that MiMedx’s represented reimbursement rates were correct. Mad River believes that this was simply a manner of continuing the ruse while raising further invoices.

The Mad River filings portray (we believe accurately) MiMedx as third-rate con-artists.

Contrary to Parker H. Petite’s rhetoric of ‘Good Business Acumen’ and persistent denials of “marketing the spread”, this report will unlawful practices that MiMedx, including “marketing the spread”. This is the very tip of the iceberg as law enforcement and regulators have been made aware of.

It is Viceroy’s intention to continue the dialogue with MiMedx’s auditors and regulators to bring about the prosecution of Parker H. Petit.

In the wake of mounting evidence of fraud, illegal revenue recognition systems, retaliation against whistleblowers and concealing evidence from investors, we immediately call for Parker H. Petit’s resignation.

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Viceroy responds to Capitec

On January 30, 2018 Viceroy Research released our report on Capitec (JSE:CPI) citing a need for large impairments and regulatory intervention.

The issues expressed by Viceroy have been reflected in a letter from Benguela Global Fund Managers to Capitec also raising concerns about Capitec’s lending practices[1]. This report presents the results of Viceroy’s further investigation into Capitec and a rebuttal of Capitec’s responses to Viceroy and Benguela.

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  • Since the publication of our last report, Capitec has disclosed that an extraordinarily large portion of its subprime, highly indebted customers who miss payments on their loans are somehow able to find the money to “catch up” or “cure” their arrears. This is suspicious.
    • Numerous former Capitec staff and 5 prominent debt counselling firms with proprietary datasets on South African unsecured lending support our thesis that this “curing” method is how Capitec hides the disastrous underlying performance of its loan book. If a borrower in arrears is able to beg or borrow the funds from a secondary lender to pay down their arrears and make themselves “current”, Capitec immediately offers them a new, larger loan. The borrowers use this new, larger Capitec loan to pay off the secondary lender used to cover the arrears.
    • Analysis of tens of thousands of Capitec borrowers’ datasets within debt counselling firms show consumers were able to get new loans after paying down their arrears the day prior. Thus, we can state empirically that this practice is still occurring. We contrast this with the lending criteria of a Standard Bank or Absa where there is a “cooling off” period before a borrower formerly in arrears can seek a new loan – to prevent exactly this behavior. By offering upsized loans to people who have just cleared their arrears, Capitec management is able to say with a straight face that they do “not lend into arrears”. This is TRUE in fact – but not in substance.
    • While the borrower is getting more and more indebted and is still unable to pay their debts, lending to people who were immediately prior in allows Capitec to artificially generate “cures”, unsustainably increase its loan book, charge massive initiation fees and create a façade of quality within its consumer base.
    • Well over half (70% – 80%) of Capitec consumers in debt counselling were issued new loans prior to repaying their existing loans.
  • Viceroy have obtained communications from Capitec Head Office dated 8 February 2018 to local branches advising that it has amended the number of allowable loans per customer. Reading between the lines, Capitec appear to be tightening or relaxing lending rules in order to achieve the greatest possible return as opposed to the consumers ability to repay those loans.
  • Viceroy has obtained evidence of Capitec intentionally abusing the debit order system to ensure its debits take priority ahead of other lenders.
  • Following the publication of our last statement several media outlets have reported on CEO Gerrie Fourie’s purchase of ZAR 1.5m of Capitec shares on the open market, presenting this as a show of faith in the company. We believe this is intentionally narrow-minded when viewed in the context of the net market sale of ZAR 49m worth of Capitec shares by Fourie in 2017. Collectively, directors sold ZAR 406m Capitec shares on market in 2017 alone.
  • We respond systematically to Capitec’s poorly constructed rebuttal of our prior report.

Capitec’s behavior has led to material overstatement of the quality of the book and substantial under-provisioning. We note the South African Reserve Bank (SARB) described Capitec as being liquid and solvent on the basis “of the available information”. Evidence suggests the available information is being deliberately distorted by Capitec management and we believe that as a matter of prudential supervision the SARB must investigate the lending practices at Capitec. We are providing this data to SARB and the NCR.

Viceroy continues to believe that Capitec is fundamentally uninvestable and reiterate our recommendation that an investigation by an independent body is launched in the face of the evidence presented in our research.

[1] https://www.biznews.com/sa-investing/2018/01/31/capitec-benguela-viceroy/

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Viceroy comments on SARB statement

Viceroy comments on information available to the South African Reserve Bank regarding Capitec:

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In response to Viceroy’s recent report on Capitec (JSE:CPI), the South African Reserve Bank (SARB) decided to vouch for Capitec. Indeed, it decided to stake its reputation on the accuracy of the company’s accounts. Below is their statement in full:

“The South African Reserve Bank (SARB) notes a report by a US based fund manager. As part of our mandate, we monitor the safety and soundness of all banks, including Capitec Bank Limited (Capitec). According to all the information available, Capitec is solvent, well capitalised and has adequate liquidity. The bank meets all prudential requirements.”

The South African Reserve Bank has a responsibility to determine whether the information provided to them – and on which they base their regulatory decisions is accurate. We do not think it is.

The SARB has, at this point, a responsibility to perform a full regulatory inspection of Capitec. Viceroy remains firm in its belief that this will result in SARB placing Capitec into curatorship.

Viceroy will shortly respond to Capitec’s press release in relation to our report.

 

 

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Capitec: A wolf in sheep’s clothing

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Based on our research and due diligence, we believe that Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider. We believe that the South African Reserve Bank & Minister of Finance should immediately place Capitec into curatorship.

Capitec Bank Holdings Limited (JSE: CPI) is a South Africa-focused microfinance provider to a majority low-income demographic, yet they out-earn all major commercial banks globally including competing high-risk lenders. We don’t buy this story. Viceroy believes this is indicative of predatory finance which we have corroborated with substantial on-the-ground discussions with Capitec ex-employees, former customers, and individuals familiar with the business.

Viceroy’s extensive due diligence and compiled evidence suggests that indicates Capitec must take significant impairments to its loans which will likely result in a net-liability position. We believe Capitec’s concealed problems largely resemble those seen at African Bank Investments (JSE: AXL) prior to its collapse in 2014.

We think that it’s only a matter of time before Capitec’s financials and business unravel, with macro headwinds creating an exponential risk of default and bankruptcy.

This report will provide underlying information and analysis we believe supports the following conclusions:

  • Reconciliation of loan book values, maturity profiles and cash outflows imply Capitec is either fabricating new loans and collections, or re-financing ~ZAR 2.5bn – 3bn (US$200m-$240m) in principal per year by issuing new loans to defaulting clients.
  • Legal documents obtained by Viceroy show Capitec advising and approving loans to delinquent customers in order to repay existing loans. These documents also show Capitec engaging in reckless lending practices as defined by South Africa’s National Credit Act. This corroborates Viceroy’s loan book analysis.
  • As a consequence of re-financing delinquent loans, Viceroy believes Capitec’s loan book is massively overstated. Viceroy’s analysis against competitors suggests an impairment/write-off impact of ZAR 11bn will more accurately represent the delinquencies and risk in Capitec’s portfolio.
  • Legal experts that we have spoken to believe that the outcome of an upcoming reckless and predatory lending test case in March 2018 will be used to trigger a multi-party litigation refund (class action). We believe that, at a minimum, Capitec will be required to refund predatory origination fees primarily related to multi-loan facilities; an estimated ZAR 12.7bn.
  • Viceroy’s investigations suggest that Capitec’s prohibited and discontinued multi-loan facility lives on, rebranded as a “Credit Facility”. Former Capitec employees have corroborated this. Despite its perception as an affordable lender, Capitec’s implied interest rates are significantly true of the maximum allowable rates in South Africa.
  • South Africa’s microfinancing sector has been the graveyard of numerous Capitec competitors who chased the same meteoric growth Capitec displays, largely due to low acceptance and mass delinquencies. We see no operational difference between Capitec and its ill-fated predecessors, including African Bank.
  • Former employees consider the business to still be an outright loan-shark operation, where fees are key. Some former employees believe they were fired for not deceiving borrowers and failing to meet rescheduling targets on impaired/defaulting loans.
  • Jean Pierre Verster, chairman of Capitec’s audit committee, is/was indirectly short Capitec through Steinhoff. We believe this is an oversight, and understand Verster to be an excellent analyst on the short side. We encourage Verster to raise the concerns within this report to company auditors and recognize Capitec’s resemblance to his previous African Bank short.

Given what we believe is a massive overstatement of financial assets and income, together with opaque reporting of loan cash flow and reckless lending practices, we believe Capitec is simply uninvestable and accordingly have not assigned a target price.

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As promised: MiMedx’s concealed documents

This post highlights the incriminating testimonies from MiMedx employees, associated entities and attorneys, which have subsequently been sealed by the company to conceal evidence from stakeholders.

The order to seal these documents came only after Viceroy’s highlighted that AvKare “didn’t do anything”, according to Mike Carlton (MiMedx VP of Global Sales), but only served to facilitate MiMedx’s channel stuffing & other suspicious activities. Parker H. Petit, knew investors would quickly realize he was misleading them – the information was incriminating MiMedx if left unsealed.

Parker H. Petit & MiMedx continuously attempt to sweep criminal actions and contradictory statements under the rug – in this instance, they sealed incriminating deposition transcripts. Fortunately, Viceroy had already obtained these records prior to the motion to seal bring filed with the court.

We are disclosing the documents in the public interest:

43-main

43-1

43-2

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Viceroy activates ‘The Honeypot’ – Parker H. Petit & MiMedx caught red-handed

New insights on MiMedx instructions to physicians on how to fraudulently increase compensation.

Following the release of our previous report titled “Viceroy release MiMedx EOB emails”, Viceroy Research has been contacted by physicians corroborating MiMedx’s role in distributing EOB to fraudulently increase Medicare reimbursement. This occurs through the reclassification of AmnioFix products as EpiFix products in order to obtain Medicare reimbursements.

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MiMedx’s recent nonsensical responses to our research have been evasive and does not acknowledge that at its core, the practice construes Medicare fraud. In order to demonstrate this, Viceroy set a Honeypot. MiMedx in their desperation to mislead investors, have taken our bait.

While the issue of reclassifying MiMedx product to exploit federal billing facilities was a major issue, there was another underlying element to the EOB.

Consider the following: in principle, Medicare reimbursements cover 80% of the cost of any treatment used as well as 80% of the Medicare application fee. Typically, this means a reduced payment for the patient, however by utilizing a larger graft than is necessary a physician can be reimbursed more than the cost of treatment.

Per the Rosenberger email, how can MiMedx justify physicians PROFITING from Medicare when system is intended to cover a PORTION of costs?

Viceroy yesterday showed MiMedx has zero credibility regarding their statements. Previously MiMedx had state to investors AvKare wasn’t an intermediary, controlled sales and it was all lies. MiMedx know full well what the implications of Mike Carlton’s deposition under oath means. There is no commentary, statements issued by MiMedx are purely intended to manipulate a situation where blind and naive analysts continue to promote the stock.

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MiMedx continue to consciously mislead investors, defame Viceroy and Marc Cohodes

AvKare just “made it easier” for former Advanced BioHealing agents to stuff federal customers with MiMedx product

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Viceroy present indisputable proof that Parker H. Petit has been misleading investors and defaming Marc Cohodes & Viceroy.

Mike Carlton, VP of Global Sales, was under oath giving a deposition about MiMedx’s relationship with Mid-South Biologics, who are suing MiMedx regarding contractual issues. Parker H. Petit and MiMedx attorneys would have known that during the deposition, Mike Carlton said this:

 

“AvKare didn’t sell the product. They didn’t do anything. They just made it easier to sell.”

Interestingly, when Viceroy and Marc Cohodes echoed this statement, we were met by a barrage of lies and a law suit from MiMedx who want to falsely asset our reports are factually inaccurate.

For the analysts that can find ‘no credible evidence of wrong-doing’, we recommend they review filings for all cases MiMedx are involved in.

Today’s focus is on case is Mid-South Biologics LLC (Pla) Vs. MiMedx Group Inc (Def) – Reference: Case 2:17-cv-02028-JTF-egb   Document 43-3   Filed 12/04/17. The deposition was taken on the 13th Day of October 2017.

Parker H. Petit and Mike Carlton are advised that we have forwarded this information to the SEC. Investors should be aware of the lengths MiMedx will go to mislead and misinform its shareholders

As a recap:

Analysts who can blindly find no credible evidence of wrong-doing should seriously review Viceroy’s reports and MiMedx’s own documentation showing channel-stuffing, fake revenue recognition, ‘free evaluation products’, breaches to anti-kickback statutes and many more violations.

As previously reported, MiMedx is being investigated by Regulators, it would be prudent for the sellside to conduct their own investigation instead of relying on a “binary outcome” in relation to allegations of fraud.

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Viceroy release MiMedx EOB emails

Viceroy has obtained emails instructing physicians how to falsify MiMedx Q-codes to fraudulently increase reimbursement.

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Viceroy have obtained printouts of emails sent from MiMedx employees specifically instructing physicians on how to fraudulently increase Medicare reimbursement.

An EOB document titled “EpiFix – Made Easy” has been sent to Viceroy, which appears to be advice from MiMedx to physicians on how to receive Medicare reimbursements for their product.

One problem: this advice was provided to surgical clients; whose products are ineligible for Medicare reimbursement.

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Steinhoff’s skeletons: off-balance sheet entities inflating earnings, obscuring losses

Viceroy is pleased to release its research report on Steinhoff International Holdings NV.

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Steinhoff (SNH) has long been under scrutiny for seemingly inexplicable factors including:

  • A long string of acquisitions of stagting or deteriorating businesses whose performance seems to miraculously improve post-acquisition, even if only on paper.
  • Cash flow trends that do not correspond to EBITDA.
  • Investigations into senior executives for tax-evasion, document forgery and fraud.
  • Rampant and dilutive equity raising.

Viceroy’s investigation into Steinhoff has revealed several concerning activities surrounding a number of at least two off-balance sheet, undisclosed related party entities:

  • Campion Capital
  • Southern View Finance

While the existence of some of these entities has been reported by the media, their activities have not. Viceroy’s analysis suggests Steinhoff uses these off-balance sheet vehicles to artificially inflate earnings:

  • Steinhoff has issued expensive loans to and booked interest revenue against Campion subsidiaries for the purchase of loss-making Steinhoff subsidiaries. These revenues will never translate to cash.
  • Steinhoff has moved two loss-making and predatory consumer loan providers to off-balance sheet entities: JD Consumer Finance and Capfin.
  • Steinhoff negotiated the re-purchase of the only profitable portions of JD and Capfin (loan administration and debt collection facilities) while allowing losses to be incurred at off-balance sheet, related party entities under Campion Capital.

Given these loss-making entities, such as Southern View Finance UK, are being round tripped back to Steinhoff, Viceroy believe it is possible that Steinhoff are ‘repaying’ Campion’s outlays through acquisition premiums (i.e. losses are being capitalized through round-trip transactions with related parties).

Viceroy believes that, based on the contents of this report, Steinhoff should consolidate Campion Capital and its subsidiaries given that Steinhoff bears full economic liability for these entities through loan arrangements and exert total control through overlapping management.

Viceroy believes the facts presented in this report will bring Steinhoff’s behavior to the attention of regulatory authorities.

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MiMedx now under investigation by DOJ enforcement & VA

Viceroy has received responses to two Freedom of Information Act (FOIA) requests lodged after the publication of our initial report, one from the Department of Veterans Affairs and the other to the Department of Justice.

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Both agencies withheld all requested documents under 5 U.S. Code § 552 5(b)(7)(A), which provides an exemption for agencies to make available public documents as it could “reasonably be expected to interfere with enforcement proceedings.”

Viceroy now believe MiMedx is under formal investigation by the DOJ, the DVA and the SEC.

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MiMedx caught red-handed circumventing VA regulations

Viceroy’s latest report reveals emails between the VA and MiMedx show MiMedx employees were instructed to circumvent VA policy regarding consignment agreements.

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Viceroy obtained a series of emails between MiMedx employees and VA personnel. These emails are focused on the arrangement of consignment inventory, contrary to VA hospital regulations at the time. The issue comes to a head when a VA supervisor decides to hold MiMedx responsible for repeatedly sending product that was not ordered. The VA have been made aware of these and other emails with a report of concern.

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MiMedx vendors soliciting up-coding of Medicare incentives.

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MiMedx emails to former employees in clear violation of federal law: settlements contingent on retracting statements to regulatory bodies.

Viceroy has obtained from a physician an email sent from MiMedx employees to physicians to fraudulently exploit the reimbursement system to financially benefit both the physician and MiMedx. This is done through manipulation of Q-codes which denote the form of treatment in which a product was used. The aim is for all treatments using MiMedx products to be coded as “wound care” in order to fraudulently maximize reimbursement. This type of Medicare fraud is referred to as ‘up-coding’.

In addition to this Viceroy present recent court filings and emails showing that MiMedx engaged in illegal settlement terms in its legal actions against former employees. MiMedx has sent legal material to former employees requesting that they do not contact regulatory authorities and has stipulated in its settlement agreements that former employees retract their statements to any regulatory body. This is a violation of the United States Code of Federal Regulations.

As a reminder of MiMedx selective statements to its investors, it’s by no coincidence that MiMedx are now blatantly cloaking their conduct in public courts relating to former employee proceedings on confidentiality grounds.

Viceroy continue to be contacted by physicians, former employees, former and current VA employees all speaking on a similar theme when explaining MiMedx conduct. We thank these brave individuals for fighting back against the unnecessary, aggressive, and retaliatory actions of MiMedx.

Viceroy were informed by various physicians that they had reported their concerns to the Office of Inspector General U.S. Department of Health & Human Services .

We are also led to believe that MiMedx’s statement of assisting the Department of Veterans Affairs with its on-going investigation is incomplete, if not deceptive, via omission. Viceroy believe investors should have been told of these investigations and what information was requested by VA investigators.

The more MiMedx management continue to lie to its investors through press releases and responses to short seller articles, the more disillusioned and harassed former employees send Viceroy evidence countering their claims.

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MiMedx Halloween Special – Viceroy evidence more PODs and channel stuffing of deceased doctors.

Part 14 – Halloween Special

Viceroy have discovered legal proceedings against MiMedx vendor RedMed for their alleged role in a kickback scheme and False Claims act violations. In addition to this Redmed’s principal Jeff Hannes is also involved with several other Physician Owned/related Distributors (PODs).

Viceroy will also highlight MiMedx sales to another POD whose physician is no longer alive and the LLC deregistered.

Viceroy will release details of further PODs shortly.

Happy Halloween.

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“The same thing happened at Matria”

Pete Petit would like us to examine his track record of running public companies. We find that Pete and his close-knit board & management has a tendency to run them into the ground.

Part 13 – The same thing happened at Matria
This report concerns MiMedx directors Parker “Pete” H Petit, Debbie Dean and Joseph “Joe” G Bleser and their previous positions at other Petit companies; Healthdyne Inc., Healthdyne Information Enterprises (HIE), Healthdyne Maternity Management (HMM) and Matria Healthcare.
The events detailed in this report resulted in a catastrophic collapse of Matria’s share price due to earnings downgrades and revision of future performance.

 

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MiMedx: Palmer-geddon

MiMedx employee Ricky Palmer worked as distributor for MiMedx customer, selling to the Department of Veterans Affairs and the Department of the Army.

This report concerns MiMedx employee Ricky Palmer and his position at a MiMedx distributor Southwest Medical Systems Inc while simultaneously being employed at MiMedx.

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Viceroy also addresses major discrepancies in MiMedx’s latest “commentary” piece. Specifically, MiMedx claim its “sales agents” do not “distribute” MiMedx supplies:

Short CommentaryThis statement directly contradicts FDA records suggesting many agents in MiMedx’s 2016 sales report both store and distribute inventory.

 

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MiMedx 2016 Ortho Sales Reports: Read ‘em & weep

Viceroy releases MiMedx sales records that directly contradict company statements. MiMedx, which department will Viceroy expose next?

Part 11 MiMedx Ortho Sales Report

MiMedx has increasingly come under pressure from both analysts and short sellers over the past month. The market is waking up to find MiMedx’s closet of skeletons quickly spilling open. Dubious hiring practices, physician owned distributors, employee owned distributors and poor corporate governance are all coming into focus. The spectre of action by the United States Department of Justice, Office of the inspector General of Veteran’s Affairs and the Securities and Exchanges Commission now hangs over the company.

Viceroy has obtained documents from former MiMedx employees detailing sales targets and historical figures broken down by distributor. The information directly contradicts statements made by MiMedx. Viceroy believes that MiMedx has systematically and deliberately misled investors and stakeholders and has forwarded this information to the relevant authorities.

 

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MiMedx: Up Schmidt Creek

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This report is concerned with the creation of Physician Owned/Related Distributors (henceforth PODs). The potential for fraud is well documented as evidenced by the release of the special fraud alert by the Office of the Inspector General of the Department of Health and Human Services:

https://oig.hhs.gov/fraud/docs/alertsandbulletins/2013/pod_special_fraud_alert.pdf

We previously highlighted the activities Donovan Schmidt, MiMedx Market Development Manager available here:

https://viceroyresearch.org/2017/10/03/mimedxs-selective-non-compete-litigation-questionable-disclosures/   

We now evidence MiMedx employee Donovan Schmidt’s active involvement in the premediated formation of a physician owned/related distributor (POD) with a prominent Atlanta physician.

“There is a MiMedx employee his name is Donovan Schmidt, he is an employee and also a distributor and also worked for Orthofix.” – Former MiMedx Employee

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More physician owned distributors – MiMedx may not wish to address its investors but it will have to answer the regulators

Viceroy is releasing more on illegal physician owned distributors (PODs) operating in the wound care space within the state of Texas. Our spreadsheet will follow shortly to expose multi state PODS and conflicts.

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Given the large proportion of income derived from Texas sales, investors should be concerned, especially as the numerous, undeniable, illegal PODs we illustrated on our report dated October 13, 2017 have not been addressed by management.

MiMedx’s blanket denial of Viceroy’s report and aversion to conducting an investigation suggest that management are either fully aware of these illegal distributors, or have been negligent in their duties…

MiMedx is not operating in an industry where these abuses are commonplace, and yet within the single state of Texas, we have connected MiMedx with:

  • Numerous illegal PODs;
  • Numerous related party distributors; and
  • Forest Park Medical Center, a $40m fraud uncovered by the DOJ and FBI.

Malfeasance by Physician Owned Distributors and kickbacks are an abuse of the healthcare system. The abuse not only costs patients and insurers, but ultimately undermines the integrity of physicians where products are prescribed to enrich suppliers (namely MiMedx) and enable Physician’s to obtain a kickback in reward.

This report further details connections between MiMedx and its network of physician owned distributors. This network of distributorships owned by employees and physicians allows MiMedx to engaged in large scale channel stuffing activities. The benefit to the physicians and employees comes at a cost to insurers and the medical facilities who ultimately pay the costs.

Lou Roselli made the headlines once more last week as an incriminating email surfaced where Lou admits MiMedx cannot reconcile inventory to federal customers. In the tissues business, this is strictly against the law.

Given the substantive evidence presented in our reports, we call on the board of MiMedx launch an immediate external investigation into the conduct of Senior Personnel, and subsequently resign.

The structure of these distributors leaves open great opportunities to exploit the US healthcare system. As a reminder to our readers, the Office of the Inspector General of the Department of Health and Human Services issued a special fraud warning stating that such ventures “should be closely scrutinized under the fraud and abuse laws.”

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Bankruptcy & DOJ/FBI indictments of Physician Owned Medical Center inconvenienced MiMedx CPM channel stuffing program

This report focuses on commercial relationships with currently indicted individuals for fraud with direct trading links with MiMedx and a Physician Owned Distributors in Texas with more to come.

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In this report, we detail exactly what MiMedx management withheld about its relationship with CPM Medical & unquestionably evidence physician owned distributors that have sold & are selling MiMedx products, with full references & FDA evidence. MiMedx’s channel stuffing distributor, CPM Medical, defaulted on its credit terms due to a DOJ/FBI crackdown on a key client, Forest Park Medical Center – a convicted $40M fraudulent kickback scheme.

Viceroy also present indisputable FDA evidence that MiMedx was specifically trading with physician’s spouses – via physician owned/related distributors registered to store MiMedx products ONLY.

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More whistleblowers come forward with details of MiMedx sales scheme

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Viceroy has previously published on MiMedx detailing its dubious hiring practices, connections to related party employee owned distributors, improper government filings and undisclosed SEC investigation. Since publication many former MiMedx employees that are not in legal conflict with MiMedx have reached out to Viceroy to provide information and corroboration of our investigations.

Information Viceroy has received from a further Whistleblower expands and gives details into the channel stuffing practices at MiMedx, including the structure of the employee and physician owned distributors and mechanisms of sales enticements.

 

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Ex-employees blow the lid on MiMedx sales scheme

Prior to Viceroy’s publications, we filed a significant data bundle of evidence to the SEC Whistleblower program. We always believe where appropriate in notifying regulators first. We under some may not wish to disclose or communicate with Viceroy, however can contact the SEC directly: https://www.sec.gov/whistleblower.

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Viceroy has previously published on MiMedx detailing its dubious hiring practices, connections to related party employee owned distributors, improper government filings and undisclosed SEC investigation.

Many former MiMedx employees that are not in legal conflict with MiMedx have reached out to Viceroy to provide information and corroboration of our investigations.

In this report, we detail:

  • Allegations corroborated by whistleblowers that MiMedx engage in a scheme with its distributors, in which larger and / or a number of small products are labeled as cheaper products. This scheme would draw attention away from MiMedx financial accounts as there are no ‘direct’ cash kickbacks to distributors, but distributors can unsuspiciously make large margins on marked up products.
  • Further apparent MiMedx related party entities controlled Donovan Schmidt, all of which appear to deal with medical products – we have a lot more to come on this.
  • MiMedx former subsidiary and current distributor Stability Biologics’ history as a with Osiris Therapeutics, a former NASDAQ listed competitor who is under investigation by the US Attorney’s Office for a criminal offence which, Viceroy believe this investigation is likely related to channel stuffing practices and revenue recognition.

Allegations as they stand are so substantial that Viceroy are now engaging in dialogue with the Department of Justice.

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How are MiMedx making their numbers?

“I don’t know how they’re hitting their numbers: that’s what’s blowing me away. What is going on? How are they supposedly hitting these numbers? I want to know.” – Former MiMedx Employee

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Viceroy continues piecing together further damning evidence of MiMedx’s dwindling relationship with the Department of Veteran Affairs.

As a recap, we have established flawed and dubious hiring practices for MiMedx, connections to related party employee owned distributors, improper government filings, photographic evidence of channel stuffing and an undisclosed SEC investigation.

MiMedx refuse to acknowledge the facts. In what appears to be a blatant disregard for the SEC rules and the need for 8-K filing, MiMedx recently filed an 8-K for relating to a “Amendment to Credit Agreement”, ignoring the elephant in the room: the SEC subpoena. According to MiMedx actions, an amendment to credit agreement” is significantly more important than the need to file an 8-K relating to an SEC subpoena. Viceroy believe that this is to avoid people tracking the issues of MiMedx and/or owning up to the seriousness of an on-going investigation.

This is in addition to MiMedx misleading its investors about the publication of an alleged independent report that was concealed from its own investors. As highlighted by Aurelius Value, MiMedx went one step further and prohibited its disclosure even when the SEC made enquiries. Investors would be prudent to check the SEC filings from April 18, 2017

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MiMedx’s selective non-compete litigation & questionable disclosures

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While Viceroy pieces together further damning evidence of MiMedx’s dwindling relationship with the Department of Veteran Affairs, investors should question the discretionary nature of MiMedx’s aggressive litigation. Namely against employees which have breached their non-compete with MiMedx. Viceroy has previously published on MiMedx detailing its dubious hiring practices, connections to related party employee owned distributors, improper government filings and undisclosed SEC investigation.

Many former MiMedx employees that are not in legal conflict with MiMedx have reached out to Viceroy to provide information and corroboration of our investigations. All whistleblowers are extremely fearful of physical and legal retribution from MiMedx. They have provided images, statements, corroborating phone data/records and further information about the company’s channel stuffing practices, executive impropriety and lack of disclosure.

Contrary to their statements, we believe MiMedx intentionally turns a blind eye to certain employees setting up their own distributorships especially where it is likely to benefit MiMedx revenue schemes. This has been confirmed by former employees who told Viceroy:

“…some people are allowed to break a rule [that] others are not. And there’s so much stuff that goes on behind the scenes with the executive team that no one knows who makes the rules…” – Former MiMedx Employee.

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MiMedx’s Channel-Stuffing: Hard Evidence

Viceroy has previously published on MiMedx detailing its dubious hiring practices, connections to related party employee owned distributors, improper government filings and undisclosed SEC investigation.

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Following publication of our first report, MiMedx held an investor conference call on September 21st where management knowingly made false statements to their investors and the general public. MiMedx published a rebuttal to Viceroy’s second report, which is posted to the front page of the MiMedx website, linked to a Box account, and not on company letterhead.

We believe this represents a misaligned focus between the organization’s strategy in crisis control and Pete Petit’s systematic attempts to clear his name and slander Viceroy’s investigations.

Many former MiMedx employees that are not in legal conflict with MiMedx have reached out to Viceroy to provide information and corroboration of our investigations. All whistleblowers are extremely fearful of physical and legal retribution from MiMedx. They have provided us with images, statements and further information about the company’s channel stuffing practices, executive impropriety and lack of disclosure.

 

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MiMedx (MDXG:NASDAQ) Part 2 – The same old story; Mimedx’s response is typical of companies trying to cover their tracks and is unacceptable.

MiMedx cherry-picked a handful of bulls for the September 21 call last week, restricting access for their own investors and others with an interest in the events that transpired on the week ending September 22, 2017. During the call, analysts asked pertinent questions that remain substantially unanswered. To assist investors, we’ve compiled a list of items that were conveniently ignored, avoided or even blatantly misrepresented.

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Over the last week, MiMedx has:

  • Dismissed “Deceptive Short Seller Reports”, including Viceroy’s, which presented evidence in the form of a withheld FOIA request suggesting that MiMedx was the subject of an undisclosed SEC enforcement investigation.
  • Announced that MiMedx are complying with an SEC subpoena, thus subject to an SEC investigation.
  • Failed to formally announce to the market that they are a subject of an SEC investigation. Viceroy requested management confirm whether it will fulfill their regulatory requirements by filing an 8-K in relation to an ongoing SEC investigation within the four days of becoming aware of it. If they have not filed an 8-K within 4 days of becoming aware of an SEC investigation, they are in breach of withholding material information from the investing public.
  • Been announced as the subject of an investigation by two securities litigation firms: Block & Leviton and Bragar Eagel & Squire, P.C. Both firms announced it had commenced investigations into a class action on behalf of MiMedx shareholders on September 22 and 25, 2017 respectively for not disclosing they were under SEC investigation, amongst other things.
  • Backdated government FAR & DFARS certification records as far as 2013 which were previously filled out by an employee, Don Ayers – who no longer worked at MiMedx at the time of certification – with Kimberley Durgan – who only commenced employment with MiMedx in 2014.
  • Backdated FAR & DFARs certifications remained signed with the authority of VP Brent Miller, whose LinkedIn status as of May 2017 is ‘Officially Retired’, and thus had no authority within MiMedx at the time of the amendments.
  • Announced it had come to a settlement of a confidential lawsuit with terminated employee Hal Purdy, a move we believe serves only to distract from the issues raised in our report which as yet go unacknowledged and undiscussed by the company. With ‘sealed’ documentation.
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MiMedx’s (NASDAQ:MDXG) employment of kickback & bribery scheme inducers makes it uninvestable.

Viceroy Research uncovered substantial previously-unreported data evidencing an incestuous hiring policy from a kickback & bribery scheme, a possible SEC enforcement investigation, and indications of channel stuffing.

  • Sean McCormack – MiMedx’s “New Market Initiatives Director” – was an instrumental figure in Advanced BioHealing’s kickback and bribery inducement scheme, which resulted in the largest settlement of a False Claims Act breach to date: $350m settlement, and a $600m+ write-down by Shire. At least 54 Advanced BioHealing alumnus have been identified by Viceroy within MiMedx’s sales force including at least 15 in senior employment positions.
  • A FOIA request was withheld by the Securities and Exchange Commission (SEC) suggesting MiMedx is the target of an undisclosed SEC enforcement investigation.
  • Former employees-turned whistleblowers accused MiMedx of aggressive channel-stuffing practices and improper revenue recognition policies. Their statement named many ex-Advanced BioHealing employees. Despite the fact these allegations having been withdrawn, Viceroy’s analysis found evidence supporting these claims in MiMedx’s financial accounts – there’s no smoke without fire.
  • MiMedx’s SAM compliance certification was filled out by Don Ayers, who was no longer employed by MiMedx at the time the forms were signed.

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田辺三菱には日本企業による悲惨な買収案件の列に加わる可能性のあるニューロダーム買収を再検討する機会が残されている.

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Mitsubishi Tanabe is making a huge mistake: Why we believe that Neuroderm (NASDAQ:NDRM) is a lemon.

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We believe that Mitsubishi Tanabe and its board need to immediately put a hold on the Neuroderm acquisition. We don’t know what representations have been made to Mitsubishi Tanabe by Neuroderm or others pushing this acquisition, but our research findings demonstrate the following:

  • Neuroderm has misrepresented the SIZE of the market, the RELEVANCE of their clinical study, and the EFFECTIVENESS of their ND0612 pump-delivered drug.
  • AbbVie’s Duopa/Duodopa pump is already ESTABLISHED in the market, has a SUBSTANTIALLY LOWER adverse effect rate, conducted its trials on an APPROPRIATE subject pool, and did not rely on SUPPLEMENTARY oral levodopa or entacapone, to boost its clinical trial results, unlike Neuroderm.
  • Neuroderm claims the size of ND0612’s target market across the USA and EU is ~350,000 patients. AbbVie’s superior pump has targeted the SAME market, only capturing ~3,500 patients.
  • The ND0612 drug is marketed towards ADVANCED stage Parkinson’s sufferers, however the efficacy study for the drug was conducted on EARLY stage Parkinson’s sufferers, which require substantially lower doses of the active drug component in order to be effective. We believe the FDA will closely review the stage 3 trials to ensure ND0612 is tested on an APPROPRIATE and RELEVANT subject pool.
  • Neuroderm’s ND0612 delivery pump is made up of GENERIC COMPONENTS and presents ZERO R&D proprietary value.
  • ND0612 is now only being tested for bioequivalence, not efficacy. While this may lead to a speedier FDA approved drug, Mitsubishi Tanabe is meant to be buying Neuroderm for its TECHNOLOGY. We see this concession as further evidence of Neuroderm’s weak R&D value, which Mitsubishi Tanabe thought it was buying with this acquisition.