The 1950 Akira Kurosawa film Rashomon broke new ground with a plot device illustrating that one shared experience could produce different perspectives by the participants. To some extent that is also true of the now viral video on Periscope of short seller Marc Cohodes confronting the management team of regenerative medicine business MiMedx at the J.P. Morgan Healthcare Conference. But in this case, it is also true of some of the viewers.
In interviews with STAT Senior Writer Adam Feuerstein, who recorded the confrontation, Cohodes, and MiMedx CEO Parker “Pete” Petit, it becomes clear they each perceive the event differently.
First, some background.
MiMedx, based in Marietta, Georgia, has been around since 2008. It developed a way to process human placenta tissue to produce tissue allografts for regenerative medicine applications from orthopedics and wound care to surgery and sports medicine. It’s a bit like reverse engineering naturally-occurring tissue. For the nine months through Sep. 30, 2017, the company had profits of $29.8 million, up from $6.5 million in the same period in 2016. In the nine months ending Sep. 30, 2017, sales were $233.6 million, up from $175.1 million in the same period a year ago
The friction with short sellers began last fall and has revolved around two main allegations — channel stuffing (a term associated with corporations counting distributors as customers to inflate sales) and intellectual property. At least one former employee admitted to lying about the channel stuffing contention, according to MiMedx. Meanwhile, a court decision validated MiMedx’s IP claims. The company filed a lawsuit against short sellers for libel, slander, defamation, false light, and tortious interference — a legal term that involves one party interfering with the contracts or relationships of another party with the intent of causing economic harm. But a magistrate recommended scaling back the lawsuit. MiMedx comments on short seller allegations so frequently, it has dedicated a section of its website to compiling them.
Bruce Jackson, a senior healthcare equity analyst with Lake Street Capital Management who follows MiMedx, shared his take.
“An ordinary company would generally ignore the short sellers and let the financial execution speak for itself, but MiMedx is no ordinary company.”
For one thing, at 78, Petit is older than the typical CEO. For another, he has had experience with short sellers before when he was CEO of Matria Healthcare. The company, which provided programs for managing diseases and high-risk pregnancies, had been attacked by short sellers in 2006 in the wake of a Medicare fraud settlement before it was later acquired by Inverness Medical for $900 million.
In a phone interview, Petit expressed his frustration with what he contends is a short and distort campaign against MiMedx. Short and distort, an approach to short selling that’s illegal, involves making disparaging statements about a company without legitimate data to back it up.
“Cohodes has this personality that is so bombastic….He makes all kinds of outrageous statements without solid evidence to back up what he is saying,” Petit said in a phone interview.
So it’s odd that on the 13-minute video, at least in the beginning, Petit seems a bit blindsided and quiet in the face of Cohodes’ confronting him and then walking up to the table where Petit was sitting to introduce himself. But soon enough Petit responds forcefully and in some cases ignores Cohodes repeated interjections.
“There’s an old adage: ‘If someone is making a fool of themselves, don’t interrupt them.’ That’s what happened at this meeting,” he said dismissively.
He also is annoyed by Cohodes’ contention that Petit didn’t shake hands with him. He jokingly said in the video as Cohodes approaches him, “I’m too short to shake your hand.”
Petit, and Twitter users Brian Bolan, an equity strategist with Zack’s Investment Research, and journalist Gary Weiss have commented that the confrontation looked like it was staged by Feuerstein and Cohodes. Petit points to a moment in the video where Cohodes turns around and smiles at Feuerstein who was conveniently placed behind Cohodes.
Feuerstein denied any level of coordination. He said he contacted Cohodes, who runs the chicken farm Alder Lane Farm in Northern California, to see if he would be in the breakout session for MiMedx. Cohodes said he would be there.
Although Feuerstein had planned to live tweet the session, he said he opted to record it instead. The point was to get transparency, to go beyond the long-running feud between short sellers and MiMedx’s management team and capture a moment that most people don’t get to see, he said.
“The only reason I considered doing this for MiMedx and not the other sessions is most of the breakout sessions are pretty boring,” he said of the general tenor of J.P. Morgan breakout sessions. These sessions, which give investors and other attendees an opportunity to question company executives, follow corporate presentations by CEOs or CFOs and are held in a different room than those presentations. Hence the term, breakout session.
He continued: “All the back and forth accusations [between short sellers and management] have been really vitriolic…If there was going to be drama, it would be at this session,” Feuerstein said of the MiMedx breakout session. “Until now the animosity between Cohodes and Petit and their supporters had been expressed on websites, through legal documents, and on social media… This was the first time they would be in the same room.”
But he added, “Whatever side of this story you fall on, you could just watch the video.”
The short seller
Sometimes there is cognitive dissonance between what you see and what you believe. And that seems to have happened with Cohodes, who wrote that Petit wouldn’t even shake his hand, the video shows the opposite.
Parker The Coward wouldnt answer one question and when I got on my knee wouldnt even shake my hand @viceroyresearch $MDXG @adamfeuerstein Have not been to a Confernece in 20 years have to show up more often maybe Badger Daylight $BAD
— Marc Cohodes (@AlderLaneeggs) January 10, 2018
Cohodes used the event to draw attention to problems he contends he has spotted with MiMedx’s business practices as part of his short selling campaign against the company.
Cohodes appears to have a nose for fraudulent activity at various companies, both on his own and during his time as a general partner with hedge fund Rocker Partners which later became Copper River Partners.
Companies that he has called out for questionable business practices where fraud was later revealed include drugmaker AaiPharma and subprime lender NovaStar. In addition to MiMedx, other businesses are currently on his radar
Asked what he sought to accomplish by facing Petit in person at the healthcare conference, Cohodes said he was trying to “expose him for the fraud that he is.”
It is kind of amazing to me that no one holds this guy’s foot to the fire,” Cohodes continued. He added that this wasn’t the first time he has confronted CEOs at an investor meeting.
“He [Petit] knows I have the goods on him and that is why he is playing these games,” Cohodes said. “I will debate this guy anytime, anywhere.”
When it comes to MiMedx, the battle seems personal for Cohodes. His Twitter handle links to a website called Petite Parker the Barker, which is filled with accusations against the company. For example, Cohodes contends that Petit refuses to answer his question about who he has given shares to — they are simply labeled “advisers” and “independent contractors.”
In September last year, MiMedx announced that it was providing documents to the Securities & Exchange Commission per an SEC subpoena related to the allegations by former employees.
“After the counterclaims alleging channel-stuffing were filed by the terminated employees last December, we began to assemble summary documentation to supply to the SEC, which would include information from the investigation conducted by the Board of Directors and others,” Petit said in the news release which noted that soon after MiMedx received the subpoena.
The SEC investigation is ongoing and the company is continuing to cooperate with the Commission, a MiMedx spokesman confirmed.
Whatever the outcome of that investigation may be, the video and exchange have valuable lessons. It serves as a cautionary tale for public companies who have activist investors or incendiary short sellers.
Investor relations staff should pore over the exchange and find strategies to prepare their management for such uncomfortable showdowns. Short sellers can, in turn, look at the video to get tips on how to get under the skin of management.
Photo: Vlad Nikon, Getty Images