Friday, January 15, 2016

Follow up on Norma Provencio, Valeant and Signalife/Heartronics

Valeant has offered a short reply to my last post. To quote in full:
We understand that Ms. Provencio participated in a private placement in May 2003 and completely sold her position in 2004.  We also understand that Mr. Stein was neither an officer nor director of Signalife during the time period of Ms. Provencio’s investment. According to Mr. Stein’s indictment, his fraudulent activities began in July 2005.
The background is that Ms Provencio, the chair of Valeant's audit committee had held the same position at Heartronics/Signalife which has since been exposed as a major fraud and where the principal (Mr Stein) is in prison.

So lets take the defence of Ms Provencio as read.

Valeant seem to accept that Mr Stein's fraudulent activities began in July 2005.

Ms Provencio joined the Heartronics/Signalife board on 29 July 2005.

Her tenure as chair of the audit committee coincided to the month the beginning of outright criminality.

Moreover we know she previously co-invested in Heartronics/Signalife with Mr Stein. To quote and earlier annual report:
On May 15, 2003, we completed the first tranche of a private placement pursuant to which we sold 82,667 units to Mr. Mitchell Stein, SJ Investments and Ms. Norma Provencio at $3 per unit for cash amounting to $248,000. Each unit consisted of one common share and one warrant. Each warrant is exercisable at $3 until May 14, 2004. Upon exercise of the warrants each investor will receive one common share and an additional warrant to purchase one common share $6 per share until November 15, 2004.
Sure Mr Stein was not a director at the time of that investment - but he was certainly influential. After all the earlier annual report also notes this:
Mr. Stein is the spouse of Ms. Tracey Hampton, who owns and controls ARC Finance Group, LLC, which owns approximately 69.6% of our outstanding common shares.
So whilst Mr Stein was not a director Norma Provencio would have known she was investing in what was for practical purposes Mr Stein's family business.

Later she joined the board and served as chair of the audit committee. Coincident to the month the accounts were wildly and fraudulently faked and Mr Stein's family began dumping huge amounts of stock. 

Let me repeat: Ms Provencio joining the board (and audit committee) matched to the month the start of outright criminal behavior.

Ms Provencio should resign from the Valeant board immediately. The creditors (who are at risk of not being repaid) should demand it.

If Ms Provencio does not resign the other board members should resign to protect their reputations and state their disagreement.


PS. And this is worth stating: Ms Provencio can "see no evil". A previous Valeant press release stated:

The only financial reporting matter that Ms. Provencio is specifically aware of that overlapped with her tenure on the Signalife board is a sale in September 2006 of $190,170 that was alleged to have not been a legitimate sale.  With respect to that specific matter, the SEC complaint states that it was concealed from that company’s CFO, auditors, outside counsel and other officers.

Hey - there was an indictment that said the criminal activity started in July 2005. There was a trial. There was a conviction.

But according to a Valeant press release Ms Provencio is unaware of any financial reporting matter that overlapped her tenure starting in July 2005.

There is blissfully unaware, there is blind, there is wilfully blind and there is Ms Norma Provencio.

I mean seriously - after an indictment, trial and conviction regarding a company on which she was the chair of the audit committee she is still unaware.

This so strains credibility as to be ridiculous.



Brian Chan said...

Ok, totally off topic here. Was reading your latest letter. Can I take a guess on the specialty chemical new stock in your portfolio? It sounds like Chemtura

Anonymous said...

Maybe the other "criminal activities" weren't "financial reporting matters"?

Your blog is interesting, but I sometimes wonder if you are deriving unwarranted conclusions from apparent violations of the Gricean Maxims.

Anonymous said...

Off topic but any update on SUNE? New debt at 10+% can't be good if ROA is sub 10% in a model predicated on growth.

Unknown said...

Off topic. You say that you do not think Google is that cheap and that you are no proud to own it. Then, do not own it. It is an absurd statement in my opinion. In addition, you make numbers for search spend and compare it to google. i think you are wrong as agencies are not only driving their ad spend but also their whole marketing budget to Google and Facebook. You are also ignoring the impact (direct and indirect) of Android. You seem to misunderstand the power of Youtube. And regarding the moonshots optionality.... you have a sort of VC-type apporach with the huge advantage over traditional VCs that Google has: i) tons of funds derived from its cash-flow generating business lines and ii) tons of data from clients and client themselves that can be leveraged to the new ventures.

I think you are wrong here John.
All the best

John Hempton said...

a. I do not hate owning Google. Just don't think it obviously ownable.

b. I am short a LOT. If I had no longs I would blow up in an up-draft. Portfolio requires a long book.

c. Google better than most longs around.

Its portfolio management not stock picking here.

If I did not have a big short book I probably would not own Google.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.