Legal / Lawsuit

Guilty or Not? Obsidian Remains Silent After SEC Fraud Settlement

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[Summary: Obsidian Energy, formerly Penn West Petroleum, agreed to pay $8.5 million to settle its lawsuit filed by the SEC for accusations of accounting fraud in order to artificially lower its operating expenses. As a condition of this settlement, Obsidian will neither admit nor deny any of the allegations from the lawsuit. The SEC is still pursuing its claims against co-defendants, CFO Todd Takeyasu and former VP of Accounting Jeffery Curran.

The lawsuit arose when the SEC determined that Penn West and three executives deceived investors about its financial condition by understating operating expense and related metrics. Specifically, the complaint alleges that Penn West reclassified operating expenses as capital expenditures, improperly moved operating expenses to its royalty account, and engaged in impermissible "accrual softening." These accounting practices resulted in a reduction of up to 20% of Penn West's operating costs.

As a defense, the company claims that it was merely engaging in historic accounting practices and that it did not intend to deceive its investors or the SEC.

The settlement likely came to light after Penn West determined it was not in its best interest to litigate the case in front of a jury who could have found the company guilty of all of the reported violations. Instead, the company neither admits nor denies guilt, saving itself from further scrutiny and allowing it to move forward from the lawsuit.

The settlement is subject to court approval.]