The Securities and Exchange Commission charged a Canadian-based oil and gas company and three of its former top finance executives for their roles in an extensive, multiyear accounting fraud.
The SEC's complaint alleges that Penn West Petroleum Ltd., which has since been renamed Obsidian Energy Ltd., fraudulently moved hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts. This alleged fraudulent movement caused Penn West to artificially reduce its operating costs by as much as 20% in certain periods, which falsely improved reported metrics for oil extraction efficiency and profitability. Penn West was one of Canada's largest oil producers at the time.
According to the SEC's complaint, the fraud was orchestrated by the company's former CFO Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab. The SEC alleges that they manipulated the company's operating expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil.
"As alleged in our complaint, Penn West's widespread accounting abuses were directed by its most senior accounting executives," said Gerald W. Hodgkins, Associate Director in the SEC's Enforcement Division. "These executives breached their disclosure obligations to investors and kept hidden from the market the true nature of a key financial metric and the company's struggle to control its operating expenses."
Penn West allegedly created an internal budget target representing the amount it would improperly move in its publicly reported financial statements and gave the illusion that it was spending less money to get oil of out the ground. In fact, the SEC alleges, the company historically struggled to keep its operating costs under control, and Takeyasu, Curran, and Grab managed operating expenses to meet the budget target. According to the SEC's complaint, they frequently met this target to the dollar by having the company record large, round number, and unsupported adjusting journal entries. Within the company, this practice was referred to as "reclass to capital."
The SEC's complaint, which was filed in federal court in Manhattan, charges Penn West, Takeyasu, Curran and Grab with violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The SEC seeks permanent injunctions and monetary relief against all the defendants, officer-and-director bars from Takeyasu and Curran, and a clawback of incentive-based compensation awarded to Takeyasu.
Grab, who is cooperating with the SEC's litigation, has agreed to a settlement including permanent injunctions and an officer-and-director bar. Grab also agreed to a permanent suspension from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The settlement is subject to court approval.
SEC Charges Former Chief Operating Officer of Oxford City Football Club in Offering Fraud
The SEC announced fraud charges against the former chief operating officer of a Florida-based penny stock company that falsely claimed to be "the largest publicly traded diversified portfolio of professional sports teams in the world."
The SEC's complaint alleges that, from approximately July 2013 to July 2015, Diana P. Lovera and others at Oxford City used pressure tactics and a boiler room of salespeople to raise approximately $6.6 million from more than 150 investors, many of whom were unaccredited, through the sale of millions of unregistered shares of Oxford City stock.
Lovera was charged criminally in a parallel case. She pled guilty to conspiracy to commit mail and wire fraud and was sentenced to 20-month prison term, which she is now serving, and ordered to pay, jointly and severally with other defendants, approximately $6.31 million in restitution.
To settle the charges, Lovera agreed to the entry of a final judgment, subject to court approval, that permanently enjoins her from violating the charged provisions of the federal securities laws; imposes a conduct-based injunction, a penny stock bar, and an officer-and-director bar; and orders her to pay disgorgement of $81,374 plus prejudgment interest of $3,343, which will be deemed satisfied by the restitution order entered against her in the criminal case. Lovera also consented to an SEC order imposing a permanent associational bar.
Federal Court in North Carolina Orders Marbury Advisors and Owner to Pay More than $4.4 Million for Fraudulently Soliciting Customers
The Commodity Futures Trading Commission announced that Judge Loretta C. Biggs of the U.S. District Court for the Middle District of North Carolina entered an Order of Final Judgment by Default against Defendants Tracy Lee Thomas, formerly of Naples, Florida, and Marbury Advisors Inc., a Cayman Islands corporation.
The court's order finds that the defendants fraudulently solicited over $ 1.1 million from customers, lost those funds trading, and provided customers with false reports or statements indicating their investments were profitable.
The court's order, which stems from a CFTC complaint filed March 22, 2016, requires Thomas and Marbury, jointly and severally, to pay restitution of $1,110,413 and a civil monetary penalty of $3,331,239, which represents triple the monetary gain to defendants. The order also imposes permanent trading and registration bans and prohibits defendants from further violations of the Commodity Exchange Act, as charged.
