Federal securities regulators have charged Miller Energy Resources, as well as a former and current executive, with inflating values of oil and gas properties that led to fraudulent financial reports, the latest in a string of troubles for an Alaska operator that has benefited heavily from state tax credits.
The Securities and Exchange Commission alleges that Knoxville-based Miller Energy overstated the value of oil and gas properties acquired in Cook Inlet in 2009 by more than $400 million, increasing the company's net income and total assets, according to a statement issued Thursday announcing the civil claims.
"The allegedly inflated valuation had a significant impact, turning a penny-stock company into one that eventually listed on the New York Stock Exchange, where its stock reached a 2013 high of nearly $9 per share," the statement said.
With the company beset by the allegations and other problems, its stock on Thursday was worth 15 cents a share. The stock now trades in the over-the-counter market, after the New York Stock Exchange delisted the stock last week because its values had plunged so low.
The SEC's enforcement division said Miller paid $2.25 million and assumed certain liabilities to purchase the Alaska properties, then later reported the property values at $480 million.
Charged are Paul W. Boyd, chief financial officer at the time, and David M. Hall of Anchorage, chief executive of Miller Energy's Alaska subsidiary and chief operating officer for Miller. Also charged is a former independent auditor, Carlton W. Vogt III, from Warwick, New York, who the SEC alleges produced a deficient 2010 audit of the company's financial statements.
Miller Energy owns Cook Inlet Energy, a producer and explorer operating in Southcentral Alaska. In 2014, Miller purchased Savant Alaska LLC for $9 million, acquiring a two-thirds stake in the oil-producing Badami Unit on the North Slope to go with its Cook Inlet holdings.
Miller Energy managers are taking the civil claim seriously and are meeting today to discuss next steps, said Leland Tate, senior vice president of operations for Cook Inlet Energy in Alaska.
"It's a very serious matter, obviously," said Tate. "It came out today and they are taking it seriously."
Hall did not return a request for comment Thursday.
The commission alleges:
-- While properties are required to be recorded at fair value, Boyd relied on a reserves report that did not present a fair value and double-counted $110 million in fixed assets in the report.
-- Hall knowingly understated expense numbers in the report and altered a second report so it would look like it reflected an outside party's estimated property value.
-- Vogt issued an "unqualified opinion" of Miller's 2010 annual report and falsely stated the audit followed standards of the Public Company Accounting Oversight Board and that financial statements were presented fairly and met accepted U.S. accounting principles. At the time, Vogt worked at Sherb & Co. LLP in New York. The firm is now defunct and was suspended by the SEC in 2013 for issues not related to Miller Energy.
Miller Energy, Boyd and Hall violated anti-fraud provisions of U.S. securities laws and a related SEC anti-fraud rule, authorities say. The SEC charges the company also violated books and recordkeeping and internal control requirements.
Generous Alaska tax credits have helped the company. For example, it told investors in April it could collect about $89 million in payments from the state in 2015.
SEC authorities said they intend to obtain cease-and-desist orders to prevent further fraudulent activity, civil monetary penalties and the return of "allegedly ill-gotten gains" from the company, Boyd and Hall, the statement said. They also also intend to bar Boyd and Hall from serving as public company officers or directors and to bar Boyd and Vogt from public company accounting.
The statement said regulators plan to schedule a public hearing before an administrative law judge.
"We've charged that Miller Energy falsified financial statement information and grossly overstated the value of its Alaska assets and that the company's independent auditor failed to conduct an audit that complied with professional standards," said William Hicks, associate regional director of the SEC's Atlanta office, where the investigation was conducted. "The SEC will aggressively prosecute such conduct."