SEC charges oil and gas company, top finance executives with accounting fraud

Linus Unah – Fourth Estate Contributor

Washington, D.C., United States (4E) – The U.S. Securities and Exchange Commission (SEC) has charged a Canadian-based oil and gas company and three of its former top finance executives concerning their roles in an accounting fraud that lasted for several years.

The SEC’s complaint alleged that Penn West Petroleum Ltd., which has since been renamed Obsidian Energy Ltd., fraudulently moved hundreds of millions of dollars in expenses from operating expense accounts to capital expenditure accounts.

The U.S. regulator said this alleged fraudulent movement caused Penn West to artificially reduce its operating costs by as much as 20 percent in certain periods.

Penn West, which was one of Canada’s largest oil producers at the time, falsely improved reported metrics for oil extraction efficiency and profitability.

“Combating financial fraud is critical to maintaining a fair and transparent marketplace,” said Stephanie Avakian, co-director of the SEC’s enforcement unit.

“We will continue to vigorously pursue and punish corporate executives and other individuals whose actions violate the federal securities laws.

According to the SEC’s complaint, the fraud was orchestrated by the company’s former chief financial officer Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab.

The SEC alleged that they manipulated the company’s operating expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing needed to sell a barrel of oil.

“As alleged in our complaint, Penn West’s widespread accounting abuses were directed by its most senior accounting executives,” said Gerald W. Hodgkins, associate director in the SEC’s enforcement unit.

“These executives breached their disclosure obligations to investors and kept hidden from the market the true nature of a key financial metric and the company’s struggle to control its operating expenses.”

The SEC’s complaint, which was filed in federal court in Manhattan, charges Penn West, Takeyasu, Curran, and Grab with violating the antifraud, reporting, books and records and internal controls provisions of the federal securities laws.

Grab, who is cooperating with the SEC’s litigation, has agreed to a settlement without admitting or denying the allegations or findings.

The settlement is subject to court approval.

The SEC’s investigation found no personal misconduct by Penn West’s two former CEOs, Murray Nunns and David Roberts, who have reimbursed the company for cash bonuses and certain stock awards they received during the period when the company allegedly committed accounting violations.

Those amounts, converted to U.S. dollars, are about $262,451 for Nunns and $22,290 for Roberts, according to the SEC.

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