U. S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21926 / April 11, 2011
Accounting and Auditing Enforcement Release No. 3284 / April 11, 2011
Securities and Exchange Commission v. Brian D. Fox, Civil Action No. 11-CV-211-CVE-PJC, United States District Court for the Northern District of Oklahoma.
SEC Files Civil Charges against Brian D. Fox, Former CEO of Powder River Petroleum International, Inc., for Financial Fraud
On April 8, 2011, the Securities and Exchange Commission (Commission) filed a civil action in United States District Court in Tulsa, Oklahoma against Brian D. Fox (Fox), the former chairman, chief executive officer and chief financial officer of Powder River Petroleum International, Inc. (Powder River). The Commission’s complaint alleges that, from year-end 2004 through the first quarter of 2008, Fox misled the investing public by fraudulently inflating the revenue and omitting major liabilities of Powder River in Commission filings and by making other false and misleading public disclosures. Specifically, the complaint alleges that from year-end 2004, Powder River conveyed working interests in oil and gas leases to investors in Asia for over $43 million. The complaint further alleges that because Powder River promised full repayment of the working interest investors’ initial investment, with a 9% guaranteed annual return of principal, these transactions were, in reality, loans. Powder River, with Fox as its chairman, CEO and CFO, improperly recognized the loan proceeds as revenues that were incorporated in Powder River’s quarterly and annual public filings with the Commission.
The complaint further alleges that Fox was responsible for Powder River’s improper recording of oil and gas reserves on properties that the company did not own and inflation of the company’s net realizable value of those reserves.
The Commission’s complaint further alleges that, by mid-2007, Powder River made undisclosed, Ponzi-style payments of incoming working interest conveyance proceeds from new investors to fulfill its ongoing minimum guaranteed payment obligations to prior investors. The Commission alleges that as a result of Fox’s misconduct, Powder River materially overstated its revenues by 7% to 2,417%, its pre-tax income by 18% to 465%, and its assets by 7% to 48% in financial statements incorporated in its SEC filings. Finally, the Commission alleges that Fox, on behalf of Powder River, issued misleading press releases and other public disclosures announcing inflated revenues, assets, and reserves, and successful property purchases that Powder River never actually completed.
The Commission’s complaint alleges that Fox violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and that Fox aided and abetted Powder River’s violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 13a-1, 13a-11, 13a-13, 12b-20. The Commission seeks a permanent injunction, disgorgement, civil money penalty and an officer-and-director bar against Fox.