Provectus Biopharmaceuticals Inc (PVCT)

[Medcowboy]

2017 Article



Federal investigators accuse two former Provectus Biopharmaceuticals Inc. executives of defrauding investors of millions.
A lawsuit filed Dec. 12 in Knoxville’s U.S. District Court accuses Provectus co-founder, former CEO and former chairman Craig Dees of taking at least $3.2 million between January 2011 and February 2016. He resigned from the company Feb. 29, 2016, but now faces 10 counts of fraud.
“Although Dees represented that the funds he obtained were to be used for expenses that he incurred on behalf of Provectus, in reality Dees was treating Provectus as his personal piggy bank and used the Company’s funds to pay for his personal expenses, including but not limited to, entertainment, clothing, cosmetic surgeries for female friends, large tips at Hooters and other restaurants, as well as personal travel,” the Securities and Exchange Commission asserts in the lawsuit.
He did so by submitting “hundreds of false cash advance requests and expense reimbursements,” failing to provide documentation for most and falsifying those he did provide, according to the suit. “For example, in December 2015, Dees paid over $13,000 to cover breast enhancement surgery and other cosmetic procedures on behalf of female acquaintances,” the suit says.
Other Provectus executives were supposed to review that spending, but one of those responsible — former chief financial officer and later interim CEO Peter Culpepper — is alleged to have taken nearly $200,000 himself in a similar manner, according to the SEC.

Further allegations
Knoxville lawyer Jeffrey Whitt, representing Dees, didn’t return a request for comment Friday. On Dec. 12 he told Law 360 news service via email that his firm made no statements on pending litigation.
Provectus and Culpepper consented to separate SEC orders, without admitting or denying investigators’ findings, according to an SEC news release.
Peter R. Culpepper (Photo: Amy Smotherman Burgess/News Sentinel)
In the Dec. 12 order Culpepper is described as Provectus CFO from February 2004 to April 2016, chief operating officer from February 2008 to December 2016, and interim CEO from February 2016 to December 2016.
The order says Culpepper also got cash advances with little documentation, including $13,103 for “hotel stays, spa services, and products for Culpepper and his wife, and meals for his family.”
Altogether the SEC said he got $199,194 from 2013 to 2015 for unauthorized personal expenses. In 2016 and 2017, Culpepper cut his claims by $59,079 after questions emerged.
In his settlement with the SEC, Culpepper agreed to pay $152,376 in reimbursement and interest, plus a civil penalty above $90,000, according to Law 360. He is also barred from working as an accountant before the SEC for at least three years.

Culpepper’s attorney, Tera Rica Murdock of Nashville, also did not respond Friday to a request for comment.
The Provectus board voted unanimously Dec. 27, 2016, to fire Culpepper. President Tim Scott was appointed interim CEO. In a letter to the board, Culpepper denied the allegations, disputing an auditor’s finding that he owed Provectus $294,255, but said he couldn’t document $39,000 in expenses and would reimburse the company for them.

Company response
Provectus board chairman Dominic Rodrigues said Friday the company itself faced no monetary penalty, and is still fixing and testing its financial controls
"We are grateful to Commission staff for working with Provectus to conclude the SEC investigation of the Company,” he said in a Dec. 12 news release. “We also appreciate that the SEC recognized prompt and specific remedial acts by Provectus as well as the cooperation afforded to Commission staff by the Company during the investigation."
Rodrigues highlighted a quote from Steven Peikin, co-director of the SEC’s enforcement division.
“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,” Peikin said in a news release. “Provectus fired wrongdoers, took other steps to remedy its controls, and provided SEC staff with critical information regarding its former executives’ expense reimbursement abuses.”
The SEC noted the company hired outside counsel and a forensic accountant, replaced executives, created new internal controllers, and shared all results with investigators, "reducing the time and resources necessary for the Commission staff to conclude their investigation."
Rodrigues said Provectus is suing its former bookkeeper Bible Harris Smith PC and former internal auditor RSM US LLP, alleging negligence and breach of fiduciary duty against both for not catching Dees and Culpepper. The suits seek more than $3 million from Bible Harris Smith and more than $10 million from RSM US, Rodrigues said.

Joint history
Dees, Scott and Eric Wachter all worked at Oak Ridge National Laboratory, leaving to found Photogen Technologies Inc. in 1996, which initially sought to develop a laser therapy for cancer. Provectus split off from Photogen in 2002 to focus on drug development.
From at least 2011 until 2016, Provectus directly employed only its three founders and Culpepper as its CFO, though it retained consultants and contractors, according to the SEC.

Craig Dees (Photo: Clay Owen)
The court filing says Provectus has “no revenue.” The company repeatedly sought funding from investors to develop its drugs.
Dees, described in the suit as a 65-year-old resident of Hillsborough, N.C., was supposed to have a base salary of $500,000 per year, but got substantially more in perks and bonuses, according to the SEC: a total of $3 million in 2011, $1.2 million in 2012, $642,654 in 2013, and $637,692 in 2014.
But in response to a 2013 shareholder lawsuit alleging excessive executive pay, Provectus “significantly curtailed Dees’ discretion to award bonuses to himself and other executives and required Dees and other Provectus executives to repay bonuses from 2010 and 2011.” The 2014 agreement called for Dees, Scott, Wachter and Culpepper to repay $2.24 million.
So, the SEC charges, Dees made up for those losses through cash advances, growing from $238,423 in 2011 to $885,808 in 2015, and $67,261 in the first two months of 2016.
“The undisclosed amounts received by Dees supplemented his annual salary by 48 percent to 164 percent from 2011 to 2014 and exceeded his total compensation in 2013 and 2014,” the suit says.
In November 2015, an internal auditor raised questions on those cash advances. In response Dees submitted fabricated receipts which didn’t even add up correctly, according to the SEC.
Board fallout
On Feb. 29, 2016, Dees said he was leaving Provectus for “health and personal reasons,” at the same time announcing a review of company policies including executive compensation.
Alfred Smith IV replaced Dees as board chairman, while Culpepper became interim CEO; and Wachter, the chief technology officer, occupied Dees’ board seat.
In March 2017, Provectus announced it would restructure its board and seek up to $20 million in new financing. When stockholders PRH Group paid $2.5 million into an escrow account, Smith, Scott and Kelly McMasters would resign from the board, according to an agreement at the time. They would be replaced by Dominic Rodrigues, Bruce Horowitz, and a PRH appointee.
After another $5 million was raised – expected in June 2017 – Wachter and Jan Koe were to resign from the board as well. At that time Edward Pershing – who is also a PRH member – and another PRH nominee would join the board.
According to Provectus’ website, that first round of changes took place, but the second apparently didn’t: Smith, McMasters and Scott are off the board, but Wachter and Koe are still members, while Pershing is listed as “observer.”
Scott remains as president and Wachter is still chief technology officer, while Horowitz is chief operations consultant.


https://www.knoxnews.com/story/money/business/2017/12/29/hooters-provectus-investors-money-cancer-drugs-sec/988404001/