On June 28, 2017, the Securities and Exchange Commission charged a Canadian-based oil and gas company and three of its former top finance executives for their roles in an extensive, multi-year accounting fraud.

According to the SEC's complaint, the fraud was orchestrated by the company's former CFO Todd Takeyasu, former vice president of accounting and reporting Jeffery Curran, and former operations controller Waldemar Grab. The SEC alleges 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. Penn West allegedly created an internal budget target representing the amount it would improperly move in its publicly-reported financial statements and gave the illusion that it was spending less money to get oil of out the ground. In fact, the SEC alleges, the company historically struggled to keep its operating costs under control, and Takeyasu, Curran, and Grab managed operating expenses to meet the budget target. According to the SEC's complaint, they frequently met this target to the dollar by having the company record large, round number, and unsupported adjusting journal entries. Within the company, this practice was referred to as "reclass to capital."

As alleged in the SEC's complaint, Takeyasu and Curran directed the reclass-to-capital practices without ensuring that the accounting entries reconciled with actual capital spending amounts, and Curran and Grab were repeatedly warned by a subordinate accountant that the reclass entries lacked support. In September 2014, the company publicly reported that it would restate its financial statements from 2012 to the first quarter of 2014 and its historical financial statements and related audit reports could no longer be relied upon.

The SEC's complaint, which was filed in federal court in Manhattan on June 28, 2017, charges: (i) Penn West, Takeyasu, Curran, and Grab with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (ii) Penn West with violating Section 17(a) of the Securities Act of 1933, Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-16; (iii) Takeyasu, Curran, and Grab with violating Securities Act Sections 17(a)(1) and 17(a)(3), Exchange Act Section 13(b)(5), and Exchange Act Rules 13b2-1 and 13b2-2, and with aiding and abetting Penn West's violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-16; and (iv) Takeyasu with violating Exchange Act Section 13a-14 and Section 304(a) of the Sarbanes-Oxley Act of 2002. The SEC seeks permanent injunctions and monetary relief against all the defendants, officer-and-director bars from Takeyasu and Curran, and a clawback of incentive-based compensation awarded to Takeyasu. Grab, who is cooperating with the SEC's litigation, has agreed to a settlement including permanent injunctions and an officer-and-director bar. Grab also agreed to a permanent suspension from appearing and practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. Grab agreed to the settlement without admitting or denying the allegations or findings.

The SEC's investigation was conducted by Matthew T. Spitzer and Colin J. Rand, and the case was supervised by Anita B. Bandy. The litigation will be led by Sarah H. Concannon, Derek S. Bentsen, Thomas A. Bednar, and Matthew Spitzer.