Miller Energy Resources Charged With Accounting Fraud

(RTTNews) - The U.S. Securities and Exchange Commission announced charges alleging that Miller Energy Resources Inc. (MILL) its former chief financial officer, and its current chief operating officer inflated values of oil and gas properties, resulting in fraudulent financial reports for the Tennessee-based company. The audit team leader at the company's former independent auditor also was charged in the matter.

The SEC's Division of Enforcement alleges that after acquiring oil and gas properties in Alaska in late 2009, Miller Energy overstated their value by more than $400 million, boosting the company's net income and total assets.

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.

Knoxville-based Miller Energy paid $2.25 million and assumed certain liabilities to purchase the Alaska properties. It later reported them at a value of $480 million, according to the SEC's Division of Enforcement. While accounting standards required the company to record the properties at "fair value," then-CFO Paul W. Boyd allegedly relied on a reserve report that did not reflect fair value for the assets, and he also is alleged to have double-counted $110 million of fixed assets already included in the reserve report.

The report by a petroleum engineering firm allegedly contained expense numbers that were knowingly understated by David M. Hall, the CEO of Miller Energy's Alaska subsidiary and Miller Energy's chief operating officer since July 2013. Hall, of Anchorage, Alaska, also is alleged to have altered a second report to make it appear as though it reflected an outside party's estimate of value.

The Division of Enforcement alleges that the fiscal 2010 audit of Miller Energy's financial statements was deficient due to the failure of Carlton W. Vogt III, the partner in charge of the audit. Vogt, of Warwick, New York, was then at Sherb & Co LLP, a now defunct firm that was suspended by the SEC in 2013 for conduct unrelated to its work for Miller Energy. Vogt issued an unqualified opinion of Miller Energy's 2010 annual report and is alleged to have falsely stated that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board and that Miller Energy's financial statements were presented fairly and conformed with U.S. generally accepted accounting principles.

The SEC's Division of Enforcement is seeking to obtain cease-and-desist orders, civil monetary penalties, and return of allegedly ill-gotten gains from the company, Boyd, and Hall. It also is seeking to bar Boyd and Hall from serving as public company officers or directors and to bar Boyd and Vogt from public company accounting. The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division's allegations and determine what, if any, remedial actions are appropriate.