The Securities and Exchange Commission brought charges this week against oil and gas company Houston American Energy and its CEO John Terwilliger for making fraudulent claims about the company’s oil and gas reserves.

According to the SEC, Houston American and Terwilliger fraudulently claimed that it held between one billion and four billion barrels of oil reserves relating to an oil-and-gas concession project in Colombia, and that the reserves were worth more than $100 per share to Houston American’s investors. In actuality, Houston American owned only a fractional interest of the oil reserves. “The estimates lacked any reasonable basis and were falsely attributed to the concession’s operator, whose actual estimates were much lower,” the SEC stated. 

Contrary to the lofty estimates made by Terwilliger and Houston American, the company participated in drilling multiple unsuccessful wells on the concession from 2010 to 2012, and withdrew from the operation in early 2013 without recovering any oil. 

“Terwilliger and Houston American misled investors by wildly exaggerating the extent and nature of their oil and gas holdings,” Gerald Hodgkins, associate director of the SEC’s Enforcement Division, said in a prepared statement. “They used a cadre of third parties to publicize and bolster their misleading claims.”

The SEC’s order instituting administrative proceedings also charges stock promoter Kevin McKnight and his firm Undiscovered Equities, who were paid by Houston American to disseminate its fraudulent claims about the oil-and-gas concession project in Colombia.

The SEC’s Enforcement Division alleges that the fraudulent conduct by Terwilliger and Houston American occurred for several months in late 2009 and early 2010.  During this time, Houston American raised approximately $13 million in a public offering, and saw its stock price increase from less than $5 per share to more than $20 per share. 

The company’s stock price eventually cratered under the weight of the fraud.  Houston American now trades for approximately 40 cents per share, which represents a market capitalization loss of $600 million since it peaked in 2010.

Topics