Penn West Petroleum, Ltd d/b/a Obsidian Energy Ltd. recently agreed to pay $8.5 million in civil penalties in settling SEC charges. According to an SEC Litigation Release , Penn West’s former CFO, Todd Takeyasu, and former vice president of accounting and reporting, Jeffery Curran, are still part of an SEC litigation matter regarding an oil and gas investment scam.
The original complaint reads like a classic accounting fraud scheme, resulting in overstated financials by 16 to 20 percent a year in 2012 through 2014. Allegedly the Defendants ignored international and internal accounting practices to make it look as if Penn West was spending far less than it really was to generate oil and gas revenue. Some of the accounting allegations include:
- “Reclass to Capital.” Reclassifying millions of dollars in operating expenses to capital expenditures to artificially improve the expense side of the financials that investors review.
- “Reclass to Royalty.” Operating expenses were also allegedly reclassified as royalty expense in order to make it appear as if more royalties were paid based on production.
- Imaginary KPIs. Penn West was supposedly arbitrarily setting key performance indicators during budgeting, and making journal entries with little to no supporting documentation in order to appear to hit the financial objectives. In 2012 alone, the fraudulent journal entries totaled $40 million.
Investors ask Questions.
In prior years, Penn West had struggled with some of the highest production expenses in the industry. When oil and gas investors see expense numbers improve by 16-20 percent, they should investigate if the explanation appears valid. Moreover, as attorney engaged in oil and gas investment scams, we strongly potential and current investors engage in due diligence to confirm, among other things, the apparent expenses of the company.
In 2014, following the termination of key financial executives, Penn West internal investigators found fraudulent accounting, and made the appropriate disclosures. When you first hear about fraud, communicate with your friends and family members who may have oil and gas investments, and consider calling an oil and gas fraud lawyer.
Oil and gas produces a substantial stream of revenue for many producers, speculators and individuals. However, if you find that you may be on the receiving end of fraud, don’t hesitate to meet with an experienced oil and gas litigation lawyer. We are here to help.
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