A Tennessee federal magistrate judge on Monday recommended certifying two proposed investor classes accusing accounting giant KPMG of helping the now-defunct Miller Energy Resources Inc. falsify financials about oil and gas assets, finding the shareholders proved they fulfill all federal requirements.
U.S. Magistrate Judge Debra C. Poplin said that two classes — one bringing Section 10 claims under the Exchange Act and one bringing Section 11 claims under the Securities Act — should be certified after finding they were large enough, the prospective class representatives were typical of the classes overall, and their choice of counsel was adequate.
Investors Lewis Cosby, Eric Montague and Martin Ziesman should be appointed class representatives, and their attorneys at Gordon Ball PLLC and Cohen Milstein Sellers & Toll PLLC should be named class counsel, she said.
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The suit, filed in 2016, says Miller Energy paid $4.45 million for oil and gas assets in Alaska that it then claimed to be worth $480 million. Two years after the purchase, in 2011, investors pressured Miller Energy to hire an accounting firm such as KPMG, the investors said.
Around the same time, the SEC began asking about the value of the assets and a financial website reported that the company had overvalued them, according to court documents.
KPMG endorsed the figures nonetheless, the investors said. Shares of Miller Energy began to decline in value when people realized the company was understating extraction costs, and the stock was ultimately delisted by the New York Stock Exchange, the suit said. Miller Energy filed for bankruptcy in late 2015.
The investors have said KPMG shielded Miller Energy from investor scrutiny by vouching for its financial statements even though the accounting firm had "unfettered access" to documents that would have exposed the fraud. The SEC fined KPMG $6.2 million for its Miller Energy audit failures in 2017.
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