Miller, SEC settle for $5M fine; assets overvalued by $400M
KENAI — The U.S. Securities and Exchanges Commission has reached a $5 million settlement with Miller Energy Resources after the company inflated the value of its Alaska assets.
The settlement, reached Jan. 12, concluded the SEC’s investigation into the oil and gas company, the parent company of Cook Inlet Energy.
The SEC charged the company, two former executives, and one of its former accountants with fraudulently inflating the values of the company’s Alaska oil and gas properties by more than $400 million.
The inflated reports began in January 2010, shortly after Miller Energy acquired a series of Alaska properties from another company, according to the settlement document. Between 2010 and the announcement of the charges in August 2015, the company’s stocks skyrocketed — from about 60 cents per share to almost $9 per share.
The company’s then-CFO, Paul W. Boyd, double-counted fixed assets, and then-CEO of Alaska operations David M. Hall knowingly understated expenses, according to the SEC’s cease-and-desist order from August 2015. An accountant from now-defunct accounting firm Sherb & Co audited the company’s reports in the year after the acquisition and failed to thoroughly investigate the financial statements, according to the cease-and-desist order.
The company bought its Alaska properties for $2.25 million in 2009 and later valued at $480 million.
“When computing their estimate of fair value, Miller Energy and the CFO failed to consider the existence of numerous, readily apparent data points strongly indicating that the assets were worth substantially less than the $480 million value Miller Energy recorded,” according to the settlement.
Boyd and Hall requested a reserves report with faulty numbers and then presented it as the total fair value of the oil and gas reserves, increasing the total value of the company on paper by $368 million, according to the settlement. They also “refashioned” an insurance study that misrepresented the value of the company’s assets, according to the settlement.
“As a result of the foregoing, Miller Energy overvalued the Alaska assets by more than $400 million,” according to the settlement.
Miller Energy has agreed to unregister all its stocks and fully cooperate with the SEC to produce documents and provide employees to testify about the violations, according to the settlement.
Miller Energy is also in the midst of a Chapter 11 bankruptcy and restructuring itself. The company announced the bankruptcy in October, blaming plummeting oil prices, a drilling plan that did not produce to expectations and the withdrawal of a private lender.
The company owes more than $180 million, as reported by the Clarion on Oct. 1, 2015.
Should the bankruptcy court accept the company’s plan for restructuring, the $5 million will become a “general unsecured claim,” essentially an IOU. The fine would then be paid “consistently with the payments made to Miller Energy’s other general unsecured creditors,” according to the SEC decision.
The federal bankruptcy court has until June 30, 2016 to decide whether to accept the bankruptcy plan, according to the settlement. If the court does not accept the bankruptcy plan, Miller Energy will have to pay the SEC in installments, completing payment by no later than 2019.
Reach Elizabeth Earl at [email protected].com.