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Miller Energy Resources Lawsuit: Investor Recovery Options

It may be possible for Miller Energy Resources stock investors to recover all or a portion of their investment losses by filing a lawsuit against the financial advisors who marketed and recommended the investment.  Our firm has worked with many investors in Miller Energy Resources stock and we have already successfully recovered funds on their behalf.  Those investors pursued arbitrations before the Financial Industry Regulatory Authority, or FINRA, against the financial advisors who recommended Miller Energy based on any of the following factors: (1) the financial advisor’s failure to conduct due diligence on Miller Energy; (2) an “overconcentration” in energy related securities; or (3) a conflict of interest with the financial advisor.

Miller Energy Resources was a Tennessee corporation that operated and developed oil wells in central Alaska.  The company filed for bankruptcy in 2015 following serious allegations of accounting fraud related to audits of Miller Energy Resources’ holdings.  It is uncertain if investors, who are paid last in a bankruptcy proceeding, will receive any compensation as a result of the bankruptcy of Miller Energy.  In fact, in most similar cases, investors receive nothing following a bankruptcy.

Allegations of Account Fraud Related to Alaska Purchase

You may have been told that Miller Energy’s failure was a result of falling oil and gas prices.  This is not entirely true. Although it is true that many energy related investments failed as a result of these market factors, Miller Energy Resources’ failure can be traced back to allegations that is auditor, KPMG “cooked its books” and overstated its value by hundreds of millions.  This, in turn, caused the stock price to become inflated.  Eventually the entire company collapsed when the allegations were made public by the Securities and Exchange Commission.

In December, 2009, Miller Energy Resources purchased oil and gas properties in Alaska for $2.25 million.  In March, 2010, the company filed its Form 10-Q and reported the value of the properties, which it acquired less than four months ago, was worth $480 million.  This resulted in a 5,000% increase in Miller Energy’s total assets, causing the stock to increase by nearly 1,000%.  This did not last long and as allegations resulted in swift action by the Securities and Exchange Commission.  Here is a timeline of events:

  • December, 2009, Miller Energy acquires oil and gas wells in Alaska for $2.25 million.
  • March, 2010, the company and its auditors, KPMG, report the value of the newly acquired assets as $480 million.
  • October 1, 2015, Miller Energy Resources and several other related companies file for bankruptcy protection.
  • January, 2016, Miller Energy Resources agrees to pay the Securities and Exchange Commission a $5 million fine.
  • August, 2017, KPMG, the auditor for Miller Energy Resources agrees to pay the Securities and Exchange Commission $6.2 million to settled charges.

Financial advisors have a fundamental obligation to conduct due diligence on any offering that is sold to the general public.  This obligation means that a broker-dealer must, before recommending a security to its customers, evaluate and understand the risk of any offering.  We believe that even minimal due diligence into Miller Energy could have uncovered these very serious accounting irregularities.  The failure of your financial advisor to conduct this due diligence could give rise to liability.

How Much of Your Portfolio Was in Energy?

In addition to its obligation to conduct due diligence, financial advisors also have an obligation to avoid overconcentrating an investor in one security or one asset class.  Essentially, a financial advisor must ensure that a client is well diversified in order to protect against losses in one particular asset class.  Many investors in Miller Energy Resources were heavily concentrated in the energy market, generally.  If your portfolio consisted of more than 10% Miller Energy Resources or more than 25% energy related securities, it may have been too overly concentrated.  If that is the case, you may be able to recover your losses against your financial advisor.

Did You Know About Your Financial Advisor’s Conflict of Interest?        

Many of the financial advisors who sold interests in Miller Energy Resources were also paid investment banking fees by the company.  This means that some, although certainly not all, of the financial advisors who sold Miller Energy Resources had a material conflict of interest that needed to be disclosed to their customers.  It also means that these financial advisors were highly incentivized to recommend Miller Energy because of the potentially lucrative fees.  Aegis Capital Corp., National Securities Corporation and Ladenburg Thalmann were examples of three firms that may have had such a conflict of interest.  If you purchased your shares of Miller Energy through any of those firms you should have been advised of the firm’s relationship to Miller Energy, as well as the potential conflict of interest, in writing before you invested.

What are my Next Steps?

Disputes between investors and their financial advisors are generally adjudicated through binding arbitration before the Financial Industry Regulatory Authority, or FINRA. Our law firm exclusively handles customer disputes before FINRA.  We undertake this representation on a contingency basis, which means that our clients will not pay us a fee unless we are able to recover funds on their behalf.  If you are interested in knowing more about Miller Energy Resources or our law firm, please contact either Marc Fitapelli at 212-658-1501 or Jonathan Kurta at 212-658-1502.

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