Sunday, January 10, 2016

Valeant and Norma Provencio: Hmmm...

In December Bloomberg published an article observing that Norma Provencio (the head of the Board's Audit Committee) had held a similar position in a company (Heartronics/Signalife) which had been exposed as a major fraud.

Mitchell Stein - the key executive at Heartronics/Signalife went to prison. The Valeant press release (repeated in full below) states:

Ms. Provencio has followed the criminal case against Mr. Stein and believes that the matter was handled appropriately.

The same press release also absolves Norma Provencio from a long involvement in the fraud by stating:
With respect to her tenure at Signalife, Ms. Provencio served as a member of the Board of Directors and chair of its Audit Committee from  July 2005 to June 2007.  She chose not stand for re-election to the board of directors of Signalife.
In other words Ms Provencio was not there very long, certainly not involved since inception and she thinks the criminal case was handled appropriately.

Except that Norma Provencio was there from ear inception and was in business with Mitchell Stein from the first involvement I can find from Mitchell Stein.  Here is a link for an annual report for Recom Managed Services. That is the company that by reverse merger became Signalife/Heartronics.

And that report makes clear that the original funding for the deals came from Norma Provencio and Mitchell Stein.

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.

So Norma Provencio - chair of the Audit Committee of Valeant - was in business with the convicted crook from the inception of the criminal business and over two years prior to what Valeant press-releases as her involvement.

Valeant elided that fact in their press release (repeated in full below). Whether Valeant PR elided that fact deliberately matters.


(a) Provencio misled Valeant as to the nature of her involvement with Mitchell Stein, the convicted perpetrator of the Heartronics/Signalife fraud (and Valeant did not knowingly elide the truth in their press release) or

(b) Valeant is actively and deliberately misleading about the time that Ms Provencio was in business with the convicted criminal.

The second is unthinkable. Norma Provencio should resign from the Valeant board.

John Hempton

The Full Valeant release:

The Facts on Norma Provencio’s Tenure as a Director of Valeant Pharmaceuticals

December 15, 2015
  • Bloomberg News has published an article examining Norma Provencio’s tenure on the Board of Directors of Signalife and Valeant. In connection with this inquiry, Valeant provided the following information to Bloomberg News:
    Ms. Provencio  was first elected, as a non-incumbent nominee, to Legacy Valeant’s board in 2007.  More than 95% of the votes cast by shareholders with respect to her nomination were cast “for” Ms. Provencio’s election to the Legacy Valeant Board.  In nominating Ms. Provencio, the Legacy Valeant Board, thorough its Corporate Governance/Nominating Committee, a customary background check and interview process was conducted.
    Ms. Provencio was appointed chairperson of the Audit and Risk Committee of VPII (the current company, as surviving company of the 2010 Biovail-Legacy Valeant merger) in 2011.  Ms. Provencio served as the Chairperson of the Finance and Audit Committee of VPI from May 2008 until the Biovail merger in September 2010.  So, in addition to her accomplished professional background and qualifications, the Board had actual experience working with Ms. Provencio, as a director and as an audit committee chair, and obviously felt comfortable with entrusting her with as the Chairperson of VPII’s Audit and Risk Committee since 2011.
    Ms. Provencio has many years of financial and industry experience that make her well qualified to serve on Valeant’s Board. Ms. Provencio has been a certified public accountant since 1981 and served as the audit partner on numerous public companies with complex accounting issues during her public accounting career.  She has also lead numerous investigations for public and private companies and has been the forensic accountant  for numerous special committees during her professional career.
    The Board has determined that Ms. Provencio’s many years of sophisticated financial and industry specific experience at Provencio Advisory Services, Inc., KPMG LLP and Arthur Andersen, her service on the board and finance and audit committee of VPI, her wealth of knowledge in dealing with financial and accounting matters and the depth and breadth of her exposure to complex financial issues qualify her to be a member of the Board and the committees on which she sits.
    Ms. Provencio’s directorship with Signalife was disclosed in Valeant’s proxy statement, in compliance with applicable SEC rules. Prior to 2010, the proxy rules required disclosure of then-current public company directorships.  Accordingly, Valeant’s 2007 proxy disclosed Ms. Provencio’s directorship with Signalife.  Beginning in 2010, the proxy disclosure rules introduced a 5-year look back, and accordingly, Valeant’s proxy statements filed in 2010, 2011, 2012 and 2013 disclosed Ms. Provencio’s previous directorship with Signalife.
    The ad hoc committee was appointed by the Board of Directors to review allegations related to the company’s business relationship with Philidor and related matters, and consists entirely of independent directors.
    The votes appointing Ms. Provencio to the ad hoc committee and as chairperson to of the ARC were unanimous. And at each election of directors since Ms. Provencio was appointed to the Legacy Valeant board in 2007, she received the overwhelming support of shareholders as demonstrated by the shareholder vote.
    Mike Pearson commented, “Since I have known Norma Provencio, she has acted with integrity and displayed sound business judgment, and I believe that she is exceptionally well qualified to lead our Board’s Audit & Risk Committee.”
    With respect to her tenure at Signalife, Ms. Provencio served as a member of the Board of Directors and chair of its Audit Committee from  July 2005 to June 2007.  She chose not stand for re-election to the board of directors of Signalife.
    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.
    Signalife engaged outside CPA firms to perform its accounting functions during Ms. Provencio’s tenure on the board.  The CPA firms included Robert C. Scherne, CPA, PC  and Pickard & Green.  Both CPA firms provided accounting and other management consulting services for small companies, including preparing required SEC filings for public companies.
    Ms. Provencio has followed the criminal case against Mr. Stein and believes that the matter was handled appropriately.

Post script: The original reverse merger was in the second half of 2002 as per the annual report described above. Mitchell Stein's name does not appear before 2003 and appears in precisely the same deal as Norma Provencio.


Anonymous said...

In 2010 Valeant was required to disclose directorships in the previous 5 years. Maybe this is why they started with 2005 and not 2003 (which was not required).

Anonymous said...

It is disconcerting, as a female, that all the positions on Valeant's board that are occupied by women, are all women with questionable backgrounds. It shows the dearth of "acceptable" female talent that is available to serve on corporate boards. It is absolutely necessary for boards to recruit from a more diverse pool, and to stop recycling the same people over and over on numerous boards. Women currently occupying positions on the Valeant board of directors include:

1.) Norma Provencio-- as described in the Bloomberg, Valeant Now and Bronte Capital posts. Implicated in a criminal fraud case.

2.) Kate Stevenson-- served as a senior financial executive at the Canadian company Nortel 1995-2007 which underwent bankruptcy and torpedoed many retirement plans, both those of Nortel employees and those of Canadian retirees who were forced into investing in Nortel as a leading company on the TSX (similar to how Valeant was occupying a leading position on the TSX, the "most valuable company in Canada", until news started breaking in the autumn of 2015).

3.)Colleen Goggins-- was formerly in charge of Consumer Healthcare at J&J, until the then-CEO Weldon brought in Mike Pearson, then working at a top position for McKinsey, to make synergies in Goggins' group. Pearson worked closely with Goggins, and the results a couple of years later were manufacturing errors that threatened vulnerable populations, winding up with an invitation to answer questions from a Congressional panel. Goggins was essentially fired (early retirement) by Johnson& Johnson, and was quickly hired on to the Valeant Board of Directors.

Anonymous said...

Hi John,

I admire the courage that you show when you choose to attach your name to statements such as these. It's far more courage than I have.

Ted said...

Why do you think this is a zero? No one is going to listen to someone who doesn't show math and just says zero. Still waiting John.

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