BCSC dismisses case against Preveceutical Medical
BCSC dismisses case against Preveceutical Medical
2024-05-02 20:59 ET - Street Wire
Also Street Wire (C-PREV) Preveceutical Medical Inc
by Mike Caswell
The B.C. Securities Commission has found that Preveceutical Medical Inc. is not liable for disclosure failures with respect to a $6.5-million financing from 2018. Enforcement staff had claimed that Preveceutical did not tell investors that it would be spending about half of the money from that financing on consultants. A BCSC panel has ruled that the company's disclosure was misleading, but the "half-truth" had no significant effect on the market.
The finding is contained in a decision that the BCSC released on Thursday, May 2. The ruling, handed down by a three-member panel, applies to Preveceutical and to its chief executive officer, Stephen Van Deventer. It follows a hearing that the BCSC held over four days in October, 2023.
The case stems from a financing that Preveceutical arranged as it was researching biopharmaceutical technologies related to scorpion venom in 2018. At the time, the company's need for money was readily apparent, as it was spending $6-million per year and it expected that it would be 10 or more years before it developed a product that could be sent to market. On June 29, 2018, the company issued a news release in which it said that it had raised $6.5-million, issuing 130.7 million units at five cents. According to the news release, the company intended to use the money for research and development programs as well as general corporate purposes.
The problem, at least according to the BCSC's enforcement staff, was that Preveceutical failed to disclose that it would only retain $3.3-million of the money. The remainder would go to consultants as part of a deal Mr. Van Deventer had made, the BCSC said. That deal involved a group of consultants who agreed to subscribe for $4-million worth of units in the financing, but only if they received $2.8-million in consulting fees. (It is not clear if the consultants did any actual work, as that was not an issue in the case.) The transaction went ahead as planned, with Preveceutical issuing 12 certified cheques, totalling $2.8-million, to the consultants, the BCSC said.
Investors, however, would not have expected Preveceutical to spend half of the money on consultants, enforcement staff claimed. Up until then, the company had spent roughly 10 per cent of its budget on consulting fees. Given that it required $6-million per year to continue its research, reasonable investors would have expected it to spend the money in a way that would not see it soon be "cash-starved," the BCSC contended.
In Thursday's ruling, the panel agreed that Preveceutical's news release was misleading. The company told investors that it had raised $6.5-million and that it was "continuing to meet key milestones in our portfolio of research and development programs" without telling investors about the consulting fees. That omission made the disclosure a "half-truth," the decision reads.
The panel also found, however, that the misleading statement had no significant effect on the market. Investors were aware that the company had a "multi-year road ahead of it" and would need to raise more money over time, the decision states. Investors would have been surprised to learn of the consulting fee, but "given the degree to which PreveCeutical did keep funds available .. we see it as an open question as to whether investors would have expected a significant effect on market price," the ruling states.
For shareholders, Thursday's dismissal comes with Preveceutical trading far below the five-cent level it was near when the company arranged the financing. The company, which now has 535.3 million shares issued, closed at two cents Thursday, down a penny.