The SEC charged a biopharmaceutical company with committing a series of accounting controls and disclosure violations, including the failure to properly report as compensation millions of dollars in perks provided to its then-CEO and then-CFO.
According to the SEC, Tennessee-based Provectus lacked sufficient controls surrounding the reporting and disclosure of travel and entertainment expenses submitted by its executives. The order alleges that Provectus’ former CEO, Dr. H. Craig Dees, obtained millions of dollars from the company using limited, fabricated, or non-existent expense documentation, and that these unauthorized perks and benefits were not disclosed to investors. Provectus’ former CFO, Peter R. Culpepper, also allegedly obtained $199,194 in unauthorized and undisclosed perks and benefits.
The SEC separately charged Dees in federal district court in Knoxville, Tennessee, alleging that, while Dees was Provectus’ CEO, he treated the company “as his personal piggy bank.” According to the complaint, Dees submitted hundreds of falsified records to Provectus to obtain $3.2 million in cash advances and reimbursements for business travel he never took. Instead, he concealed the perks and used cash advances to pay for personal expenses such as cosmetic surgery for female friends, restaurant tips, and personal travel. No court has found Dees committed wrongdoing as of this date.
In a separate SEC order, Culpepper agreed to pay $152,376 in disgorgement and interest, a civil penalty, and to be suspended from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Culpepper to apply for reinstatement after three years.
The SEC’s settlement with Provectus did not include any penalty. This took into account the proactive remediation and cooperation by the company’s new leadership. Steps the company took included:
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the Audit Committee retaining independent outside counsel and a forensic accounting firm to conduct an investigation;
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the company replacing its Chief Financial Officer and Interim Chief Executive Officer;
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instituting legal action or other steps to collect repayments from its Chief Executive Officer and Chief Financial Officer;
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hiring a Chief Operations Consultant and a Controller, both new positions;
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replacing the firms that provided or assisted with bookkeeping and internal audit and controls testing; and
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implementing new internal control procedures and policies concerning travel and expense reimbursement.
Further, following its investigation of Dees’ travel expenses, a Special Committee of Provectus’ Board, utilized independent counsel and a forensic accounting firm, and reviewed executive expenses in general, and then devoted several months to investigate Culpepper’s travel expenses. Provectus voluntarily shared the results and details of the Audit Committee’s and Special Committee’s investigations, which the SEC said reduced the time and resources necessary for the Commission staff to conclude the investigation.
In a somewhat similar enforcement action, the SEC required the issuer to pay a civil money penalty in the amount of $750,000.
Provectus and Culpepper did not admit or deny the SEC’s findings in the SEC orders.
