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Miller Energy fights securities lawsuit Suing investors contend company falsely inflated value of assets in Alaska’s Cook Inlet; Miller says case lacks merit, seeks dismissal By Wesley Loy For Petroleum News
Lawyers for Miller Energy Resources Inc. are seeking dismissal of a class-action lawsuit alleging stock fraud on the part of company executives.
The case is pending in U.S. District Court in Knoxville, Tenn., where Miller is based.
Miller is the parent company of Anchorage-based Cook Inlet Energy LLC, which operates a collection of oil and gas assets on the west side of Alaska’s Cook Inlet.
The court case concerns the value of the Alaska assets, alleging that company executives “made false and misleading statements” and violated accounting principles, which “artificially inflated” the price of Miller’s stock.
When this conduct was exposed in a report on a website called The Street Sweeper, the price of Miller’s stock crashed, damaging shareholders, the lawsuit alleges.
Miller’s lawyers say the company and its auditors stand by the asset valuation, and that the online report was the work of short sellers looking to profit from a decline of Miller’s stock.
In a motion to dismiss now pending in the Tennessee court, the lawyers say the real victims of the “stock price manipulation” were Miller’s chief executive, Scott M. Boruff, and founder Deloy Miller, the firm’s largest shareholders.
“If, as Plaintiff alleges, investors lost 70% of the value of their shares as a result of the supposed fraud, then these gentlemen suffered the largest losses of anyone: over $48 million,” the motion says.
Miller’s entry into Alaska Miller Energy arrived on the Alaska oil and gas scene in December 2009, when it helped Cook Inlet Energy acquire the assets in a bankruptcy sale. Cook Inlet Energy would become a Miller subsidiary as part of the deal.
The assets included the West McArthur River oil field, the offshore Redoubt unit and Osprey platform, and more than 600,000 exploration acres.
Miller, in its court motion, says it estimated the fair value of the Alaska assets, including the oil and gas reserves it acquired plus fixed assets, at about $480 million. And that’s still the valuation Miller assigns today, the company says.
These assets have produced more than 644,000 barrels of oil equivalent and have generated more than $50 million in net revenue for the company, demonstrating their considerable worth, Miller says.
“Miller has been through two annual audits, with two different auditors, that have signed off on Miller’s opinion” of the value of the assets, the court motion says.
Small, struggling company Investors hit Miller Energy with several securities fraud lawsuits after its stock price plummeted in the summer of 2011. The company’s shares trade on the New York Stock Exchange.
The court eventually consolidated the suits into a single case, with the Oklahoma Firefighters Pension and Retirement System designated as lead plaintiff.
In a 103-page consolidated class action complaint, lawyers for the investors paint an unflattering portrait of Miller Energy and its executives.
For many years, Miller struggled to escape the “penny-stock arena,” and had little revenue and few assets, the suit says. By late 2008, the company was “essentially insolvent.”
In the Alaska deal, Miller executives saw a chance to save and grow the company, the suit contends.
But the executives misled investors, putting the value of the assets far above their real worth, the suit says.
As a result, Miller’s stock price rose to above $8 a share, and the company was able to work financing deals it otherwise wouldn’t have been able to secure, the suit contends.
The “scheme was successful,” the suit says. The stock soared, the company continued as a going concern, and the executives continued their “lavish lifestyles.”
And then came the crash.
The lawsuit seeks damages on behalf of investors who purchased Miller Energy common stock between Dec. 16, 2009, and Aug. 8, 2011.
Stock price recovers The Cook Inlet properties are Miller Energy’s main assets.
Miller’s stock price has recovered somewhat. It closed Aug. 29 at $4.55.
The company’s subsidiary, Cook Inlet Energy, has been highly active, recently installing a new drilling rig atop the Osprey platform. It also has been conducting exploratory drilling onshore for natural gas.
Miller’s lawyers say the suing investors utterly fail to prove the essential elements of stock fraud.
They note that company executives themselves sold no shares during the period at issue, “which means that they made no attempt to profit from allegedly inflating the stock price and, in fact, they lost millions of dollars in value when the price of Miller declined.”
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