The US Securities and Exchange Commission (SEC) has leveled fraud charges against Houston American Energy, alleging the company misled investors by wildly exaggerating reserves in a Colombia oil play.
Houston American and its CEO John Terwilliger claimed that a Colombian exploration concession, in which the company only owned a fractional interest, held between one billion and four billion barrels of oil reserves.
The reserves were worth more than $100 per share to Houston American’s investors, as per an SEC enforcement investigation.
According to the SEC, the estimates lacked any reasonable basis and were falsely attributed to the concession’s operator, whose real estimates were much lower.
The charges were also leveled towards stock promoter Kevin McKnight and his company Undiscovered Equities, who were paid by Houston American to disseminate its fraudulent claims about the oil-and-gas concession project in Colombia.
The fraudulent conduct by Houston American occurred during several months in late 2009 and early 2010, under which the company raised about $13m in a public offering.
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The company’s stock price increased from less than $5 per share to more than $20 per share during the period.
Houston American has also participated in drilling several unsuccessful wells in the Colombia oil play from 2010 to 2012 and withdrew from the concession in early 2013 after failing to discover any oil.
SEC enforcement division associate director Gerald Hodgkins said: "Terwilliger and Houston American misled investors by wildly exaggerating the extent and nature of their oil and gas holdings.
"They used a cadre of third parties to publicise and bolster their misleading claims."