According to the complaint filed on August 12, 2011, the defendants violated sections of the Exchange Act of 1934 in connection with a purchase of oil and gas assets and accounting irregularities.
On December 16, 2009, the Company announced that it had acquired assets valued at more than $300 million through a Delaware Chapter 11 Bankruptcy proceeding at a total cost of $2.25 million. According to the Company, the Alaskan oil and gas assets included onshore and offshore production facilities, $119 million in proven energy reserves, $185 million in probable energy reserves and $23 million in possible energy reserves, providing total reserves of $327 million.
On July 28, 2011, a report published on the internet called into question the Company's valuation of the Alaskan oil and gas assets. The report cited an executive from another company that had decided not to buy the same assets and who opined that the Alaskan assets likely had a value between $25 million to $30 million, offset by $40 million worth of liabilities that came with the acquisition of the assets.
Following this news, shares of the Company declined $1.64 per share, or 23.30%, to close on July 28, 2011, at $5.40 per share, on unusually heavy trading volume, and further declined another $0.99, or 18.33%, to close on July 29, 2011, at $4.41 per share, also on unusually heavy trading volume.
On July 29, 2011, after the close of the market, the Company filed its Annual Report on Form 10-K with the SEC, in which it restated its unaudited consolidated balance sheets as of July 31, 2010, October 31, 2010 and January 31, 2011 and its unaudited consolidated statements of operations and cash flows for the quarterly and year to date periods then ended. Thereafter, on August 1, 2011, the Company announced that the Audit Committee of the Board of Directors determined that the consolidated balance sheet at April 30, 2011, the consolidated statements of operations, stockholders' equity and cash flows for the year then ended, and the report of the Company’s auditors dated July 29, 2011, on such statements, which were included in the Company's July 29, 2011 Annual Report, should not be relied upon. Moreover, the Company disclosed that "The 2011 10-K was filed with the SEC on July 29, 2011 prior to [the Company’s auditor] completing its review of the annual report and issuing their independent accountants' report on the financial statements, as well as the consent to the use of their report filed as Exhibit 23.3."
On this news, shares declined by $0.46 cents per share, or 10.43%, to close on August 1, 2011, at $3.95 per share, on unusually heavy trading volume, and further declined another $0.58 per share, or $14.68, to close on August 2, 2011, at $3.37 per share, on heavy trading volume.
The intial complaint was voluntarily dismissed on December 15, 2011. The case is remains open in four related class action filings. The motion to consolidate the filings is currently pending before the Court.
On March 8, 2012, the Court issued an Order consolidating cases, appointing lead plaintiff, and approving the selection of lead counsel. On May 4, lead plaintiff filed their consolidated complaint. Ten days later, lead plaintiff filed a corrected version of their complaint.
On February 4, 2014, the Court issued an Order granting the Motion to Dismiss of an individual defendant, but otherwise denying the Motions of issuer defendant and others.