Accounting firm KPMG has agreed to pay more than US$6.2 million to settle SEC charges that it had overlooked grossly overstated values of the assets of an oil and gas company, the U.S. Securities and Exchange Commission (SEC) said on Tuesday.
Tennessee-based Miller Energy Resources hired KPMG as an outside auditor in 2011. The accounting giant and the engagement partner John Riordan "failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year," the SEC said.
KPMG and Riordan failed to adequately assess and address facts about Miller Energy Resources' valuation, and failed to see that some fixed assets had been double-counted in the valuation.
"Without admitting or denying the findings, KPMG agreed to be censured and pay $4,675,680 in disgorgement of all the audit fees received from Miller Energy plus $558,319 in interest and a $1 million penalty," the SEC said.
Miller Energy Resources was charged with accounting fraud in 2015, for having grossly overstated the value of oil and gas assets it had purchased in Alaska. The company offered to settle the charges in 2016, and the SEC accepted.
In 2009, during a competitive bid in a bankruptcy proceeding, Miller Energy Resources bought assets in Alaska for US$2.25 million in cash and assumed certain liabilities it valued at approximately US$2 million. But later the company reported those assets to be worth US$480 million, and recognized a one-time "bargain purchase" gain of US$277 million. The overstated value of the assets resulted in an almost 5,000-percent rise in Miller Energy's total assets, which pushed its stock price from US$0.61 in December 2009 to an all-time high of US$8.83 in December 2013.
"Miller Energy materially overstated the value of its Alaska assets by more than four hundred million dollars," the SEC said in 2016.
Miller Energy's shares were delisted in September 2015, and the following month the company filed a voluntary petition for reorganization under Chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the District of Alaska.
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Upon the SEC's announcement of the KPMG audit failure settlement yesterday, Walter E. Jospin, Director of the SEC's Atlanta Regional Office, said:
"KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million were worth a half-billion dollars."
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More