SEC charges Albertan for fraudulent financials
Ticker Symbol: C:*SEC U:*SEC U:PWDR
SEC charges Albertan for fraudulent financials
U.S. Securities and Exchange Commission (C:*SEC)
Wednesday April 13 2011 - Street Wire
Also U.S. Securities and Exchange Commission (U:*SEC) Street Wire
Also Powder River Petroleum Inc (U:PWDR) Street Wire
by Mike Caswell
The U.S. Securities and Exchange Commission has filed civil charges against Alberta resident Brian Fox for fraudulently inflating the revenue and assets of Powder River Petroleum Inc., a Calgary-based OTC Bulletin Board listing. According to the SEC, Mr. Fox falsely reported millions of dollars in loan proceeds as revenue and counted properties that the company did not own among its assets.
The SEC's complaint, filed on April 8, 2011, in the Northern District of Oklahoma, identifies Mr. Fox as the president of Powder River from 2003 through 2008. During that time, he provided false information to auditors and bookkeepers that led to the company filing fraudulent financial statements, the SEC claims. Powder River, which had a 54-cent high in 2005, is now in bankruptcy proceedings and trades for 0.1 of a penny. (All figures are in U.S. dollars.)
The scheme, as described by the SEC, began in 2004 when Powder River was selling minuscule percentages of its U.S. oil and gas leases to Asian investors. The transactions were essentially loans, with the company repaying the investors 9 per cent of their original investment every year. The problem, as the SEC sees it, is that Mr. Fox caused the company to recognize $33.5-million of the money it received from the investors as sales, which artificially inflated Powder River's revenue by as much as 2,417 per cent. During the four years that this accounting practice continued, Mr. Fox told the company's auditor that the money was "prepaid production payments."
The complaint also cites Mr. Fox for causing the company to report assets that it did not have. According to the SEC, he represented to shareholders, both through the company's financials and at shareholder meetings, that Powder River owned two oil and gas leases in New Mexico and Texas worth a combined $11.5-million.
In reality, the company did not own either lease, the SEC says. Powder River had negotiated a deal in 2005 for the New Mexico property, and it paid a non-refundable $500,000 deposit. Within months it defaulted on that agreement, and forfeited its rights to the lease and to its down payment, the SEC claims. Despite that, Powder River continued to report the New Mexico lease as an asset for nearly three years, until the first quarter of 2008.
The Texas agreement, as described by the SEC, was similar. In 2006 and early 2007 Powder River made a $1.5-million non-refundable deposit to acquire a lease for $6.5-million. The company then reported the lease, along with an associated $5-million note payable, on its balance sheet through to 2008, even though it never consummated the deal. Powder River ultimately forfeited the $1.5-million down payment on that lease as well, the SEC says.
The complaint also cites Mr. Fox for causing Powder River to overstate its proved reserves. In its year-end results from 2004 through to 2007, the company claimed that it owned proved reserves worth between $3.7-million and $382-million. The problem, according to the SEC, is that the claim included reserves from properties that the company did not own. The reserves also included a questionable estimate prepared by a Texas engineer who was a convicted felon and securities fraud recidivist, the SEC says.
The result of Mr. Fox's overstatements was that the company reported revenue of $13.4-million in 2007, an overstatement of $10-million, the SEC claims. Its assets, which it reported at $27.8-million in 2007, were actually $19.2-million, according to the complaint.
During the scheme, Mr. Fox paid himself a salary that the SEC describes as "large" plus a $320,000 bonus that was linked to the company's fraudulently inflated revenue.
The SEC is seeking an appropriate civil penalty, a permanent officer and director ban, and disgorgement Mr. Fox's bonus.
ASC in the matter of Fox
The SEC suit is not the first regulatory action Mr. Fox has faced. In 2000, the Alberta Securities Commission cited him and two others for improperly raising money for a private entity called Renco Energy Corp. The ASC said they raised $481,500 from investors in B.C. and Alberta without filing a prospectus or being registered. The ASC banned him from serving as an officer or director for 18 months and ordered him to pay the $6,000 (Canadian) cost of the hearing.
© 2011 Canjex Publishing Ltd.
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