SEC Charges Firm, CEO and CFO In Corporate Perks Action
The Commission charged a firm and its former CEO and CFO in actions centered on the improper payment of expenses facilitated by inadequate internal corporate controls. In the Matter of Provectus Biopharmaceuticals, Inc., Adm. Proc. File No. 3-18306 (Dec. 12, 2017).
Provectus is a development stage biotechnology firm whose shares are listed on the NYSE MKT. H. Craig Dees is a co-founder of the firm and previously served as CEO. Peter Culpepper previously served as the firm’s CFO. Over a five year period beginning in 2011 the company paid Mr. Dees about $3.2 million for what purported to be business travel and expenses. The majority of the funds were used for unauthorized personal travel and expenses. Much of the money was obtained in the form of cash advances. Provectus allowed Mr. Dees to obtain the travel advances based on requests in vague emails which lacked details justifying the amounts.
In 2011 and 2012 Mr. Dees submitted expense reports for the majority of the advances he received. Those reports often lacked documentation and were deficient. For example, he failed to apply about half of the advances he received. Rather, Mr. Dees sought reimbursement for the full amount. At times the questionable nature of the receipts that were furnished was apparent on their face. For his 2013 and 2014 expense advances, Mr. Dees failed to submit any expense reports. After concerns about the lack of reports were expressed internally, Mr. Dees submitted receipts for some 2015 expenses.
Mr. Dees’ travel advance requests and expense reports were submitted to CFO Culpepper for processing. They were paid by wire transfer. Under company policy only the CFO “determined the need” for the wire transfer. While the requests were channeled through two other executives at the firm, company policy did not require that they assess the sufficiency of the underlying documentation. For at least 2011 and 2012 the reimbursement expense reports of Mr. Dees were not sent to the firm’s provider of bookkeeping services.
Over a two year period beginning in 2013 Provectus paid Mr. Culpepper $199,194 in personal benefits and perquisites through travel advances and reimbursements. The personal benefits were not authorized. For example, from 2013 to 2015 the company paid Mr. Culpepper foreign currency cash advances. About $103,649 of those cash advances were for his personal benefit.
Mr. Culpepper’s travel advance requests and expense reports were paid by check. The firm’s policy required that two executives approve checks and that a review be made for proper backup. The policy was not enforced.
The firm’s inadequate internal controls facilitated these practices. For example, the internal accounting controls did not require that cash advances be substantiated. For returns, the controls did not define “support” or require the submission of third party support. Other controls were not followed.
From 2012 to 2015 the company did not disclose as compensation the personal benefits and perquisites Mr. Dees received from 2011 through 2014. Those benefits were material components of his compensation, exceeding his annual salary by substantial amounts. The Order alleges violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a).
In resolving the matter the company agreed to certain undertakings, including the retention of a consultant. The Commission also considered the firm’s cooperation which included making available the results of its internal investigation which facilitated the work of the staff.
To resolve the proceedings the company consented to the entry of a cease and desist order based on the Sections cited in the Order. See also SEC v. Dees, Civil Action No. 3:17-cv-00532 (E.D. Tenn. Filed Dec. 12, 2017)(charging Mr. Dees with violations of Securities Act Sections 17(a)(1) and (3) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5); the case is in litigation); In the Matter of Peter R. Culpepper, CPA, Adm. Proc. File No. 3-18308 (Dec. 12, 2017)(action against the former CFO in which he consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(3) and Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a), and agreed to the entry of an order denying him the privilege of appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after three years; he also agreed to comply with an undertaking to pay the firm disgorgement and interest of $152,378 and was ordered to pay disgorgement of $140,115 and prejudgment interest which is deemed satisfied by the payment of the undertaking to the company).