John Jason Fallows

Published on December 12, 2017 at 10:30AM

The Securities and Exchange Commission today 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 further finds 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.

“Reimbursement of travel and entertainment expenses, and other perks paid to executives, can be material information, and companies must ensure that the perks they pay for executives are properly recorded and disclosed in public filings,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division.  “Provectus failed to give its shareholders all of the relevant information about how its top executives were being compensated by the company.”

“The SEC’s settlement with Provectus – which does not include any penalty – takes into account the proactive remediation and cooperation by the company’s new leadership.  Provectus fired wrongdoers, took other steps to remedy its controls, and provided SEC staff with critical information regarding its former executives’ expense reimbursement abuses,” said Steven Peikin, Co-Director of the SEC’s Enforcement Division.

Provectus and Culpepper consented to separate orders, without admitting or denying the SEC’s findings.  They each agreed to cease-and-desist orders, and 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 complaint against Dees seeks an injunction, disgorgement plus interest, penalties, and an officer-and-director bar.  The SEC considered Provectus’ internal investigation regarding Dees and Culpepper, firing of Culpepper, cooperation in the staff’s investigation, as well as its implementation of new controls around reimbursement of travel and entertainment expenses, in determining to accept Provectus’ offer.

The SEC’s investigation was conducted by Brittany Hamelers, Christina McGill, Paul Harley, and Allen Genaldi, and supervised by Timothy N. England and Melissa R. Hodgman.  The SEC’s litigation against Dees will be led by Nicholas A. Pilgrim.

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