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Swarm of lawsuits engulfs Miller Energy Tennessee company, with oil and gas operations in Alaska’s Cook Inlet, sees stock price dive as lawyers allege securities violations Wesley Loy For Petroleum News
Miller Energy Resources Inc. has been hit with numerous lawsuits alleging the company might have violated federal securities laws.
Miller owns Cook Inlet Energy LLC, which operates oil and gas properties in Alaska’s Cook Inlet basin.
At least five lawsuits have been filed against Miller during the month of August. They all appear to be class actions filed in the federal court for the Eastern District of Tennessee.
Miller Energy is based in Huntsville, Tenn., northwest of Knoxville, where the federal court is headquartered.
Stock price crashes Miller Energy trades on the New York Stock Exchange, and lately its share price has nosedived. The stock closed at $2.32 on Aug. 24, far below the $7-plus seen through most of July.
Two events appear to have precipitated the crash.
First, a website called The Street Sweeper posted an article in late July suggesting Miller Energy had overstated the value of the Cook Inlet assets it acquired in December 2009.
Second, Miller Energy 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 chief executive, Scott M. Boruff, on Aug. 1 issued an “open letter” attempting to reassure stockholders and denouncing the website article as the work of short sellers hoping to “profit from discrediting our company.”
David Hall, chief executive of Anchorage-based Cook Inlet Energy, told Petroleum News on Aug. 3 the stock slide and emerging legal troubles were not expected to change the company’s aggressive drilling plans. Cook Inlet Energy operates the West McArthur River oil field as well as the Osprey offshore platform in the Redoubt unit.
Lawsuits allege fraud Many of the law firms filing suit against Miller Energy, its board members and executives issued online press releases announcing their cases and soliciting investor plaintiffs.
The Nashville law firm of Barrett Johnston, in an Aug. 17 press release, cited The Street Sweeper article and Miller’s revised financials, and said Miller’s stock “traded at artificially inflated prices” as a result of false statements.
The firm’s lawsuit names a “damaged” Miller shareholder as the plaintiff and Miller Energy, company founder Deloy Miller, CEO Boruff and two other company executives as defendants.
Another lawsuit filed by the Boston class action law firm Berman DeValerio makes similar claims. Filed Aug. 22, the suit says it is a class action brought on behalf of purchasers of Miller stock from Dec. 16, 2009, through Aug. 1, 2011.
“During its 2010 fiscal year, Miller significantly expanded its operations with the December 2009 acquisition of oil and gas operations in Alaska from Pacific Energy Resources,” the suit says. “While Miller purchased these assets for approximately $4.5 million as well as other consideration, Miller valued those assets on its balance sheet at approximately $327 million. Miller also issued quarterly reports in September 2010, December 2010 and March 2011 that contained detailed financial statements. Through these statements, Miller presented itself to investors as a worthy investment and not surprisingly, its stock price rose.
“On July 28, 2011, however, Miller’s pristine facade began to crumble.”
Small company’s fast rise Boruff, in his open letter to shareholders, defended the valuation of Miller’s Alaska assets, which were acquired out of the bankruptcy proceedings of former Cook Inlet operator Pacific Energy Resources Ltd.
Acquisition of the Alaska assets catapulted the small Tennessee company to a much higher profile.
In 2009, Miller was a penny stock quoted on the OTC Bulletin Board. On a steady stream of announcements about its Alaska successes, Miller jumped to the NASDAQ exchange and then to the New York Stock Exchange.
It was, however, and still is a small oil and gas company.
Boruff, who is identified in some of the suits as Deloy Miller’s son-in-law, said in his letter the company has production of about 1,500 barrels of oil equivalent per day. As of April 30, the company had 70 full-time employees and one part-timer, SEC filings show.
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