A Tennessee federal judge is allowing a securities fraud case to proceed against Miller Energy Resources Inc.
Miller, headquartered in Knoxville, Tenn., is the parent company of Cook Inlet Energy LLC, an Alaska oil and gas producer and explorer based in Anchorage.
Investors hit Miller with several lawsuits after its stock price tanked in 2011. The suits were consolidated into a single case, with the Oklahoma Firefighters Pension and Retirement System designated as lead plaintiff.
The investors allege Miller executives overstated the value of Cook Inlet oil and gas assets acquired in 2009, and violated accounting principles. This had the effect of artificially inflating the price of Miller’s stock, the plaintiffs contend.
Investors who bought the stock lost big after the fraud was exposed and Miller’s stock price crashed, the lawsuit alleges.
‘A reasonable person’Lawyers for Miller in July 2012 moved to dismiss the class-action case.
U.S. District Judge Thomas A. Varlan issued his long-awaited decision on Feb. 4, denying Miller’s motion.
In considering a motion to dismiss, court rules require judges to construe the complaint in a light most favorable to the plaintiff, Varlan said.
In viewing the complaint as a whole, he wrote, “a reasonable person could conclude” that the Miller defendants knew the value of the Cook Inlet assets was less than represented in statements to the public.
The ruling doesn’t mean Varlan decided the case in favor of the plaintiffs. Rather, he found that the lawsuit is sufficient to allow further proceedings.
Miller’s arrivalMiller Energy entered the Alaska oil and gas arena in December 2009 when its subsidiary, Cook Inlet Energy, acquired a collection of assets out of the bankruptcy of California-based Pacific Energy Resources Ltd.
The assets, arrayed along the inlet’s west side, included the West McArthur River oil field, the offshore Redoubt unit and Osprey platform, and an assortment of other properties and leases.
In a press release at the time, Miller said: “The discounted net present value of the Alaska reserves that Miller has acquired is over $325 million.”
Miller subsequently would make statements that the assets were worth even more.
But the investors suing Miller argue the assets weren’t worth nearly that much, and that company management knew it.
In the months after Miller acquired the Alaska assets, the company began to take on a much higher profile. Its stock price rose from pennies to several dollars, and the company listing moved from the OTC Bulletin Board to the Nasdaq exchange and finally to the New York Stock Exchange.
In the summer of 2011, Miller’s stock price nosedived.
The crash coincided with two events. First, a website called The Street Sweeper posted an article suggesting Miller had overstated the value of the Cook Inlet assets it acquired.
Second, Miller had to file revised financial statements with the U.S. Securities and Exchange Commission, after reporting that earlier filings contained errors and “should not be relied upon.”
Miller’s lawyers have said the company and its auditors stand by the asset valuation, and that the online article was the work of short sellers looking to profit from a decline of Miller’s stock.
The company’s stock price has since largely recovered. Nearly all of Miller’s crude oil production is in Alaska.