Hyperdynamics, a U.S.-based oil company with operations in Guinea, has reached an agreement with the U.S. Securities and Exchange Commission (SEC), and will pay a penalty for breaching certain sections of the Exchange Act.
Namely, following an investigation, the SEC has found that Hyperdynamics failed to accurately record certain payments made by its subsidiary based in the Republic of Guinea from July 2007 through October 2008.
According to the SEC, the company initially recorded the payments as public relations and lobbying expenses to unrelated third parties without evidence that such services were actually performed.
The company later determined that its Guinean-based employee controlled the third party entities, but did not record the payments as related party transactions.
Hyperdynamics also failed to implement or maintain a system of adequate internal accounting controls to track the subsidiary’s use of funds, as well as to determine whether the company’s subsidiary paid related parties, the SEC said.
The company’s internal accounting controls also failed to provide reasonable assurances that Hyperdynamics’s recording of such expenditures was accurate, the SEC added.
Violations of the Exchange Act
As a result of the above mentioned actions, the SEC determined that Hyperdynamics had violated Section 13(b)(2)(A) of the Exchange Act, which requires issuers to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer.
Furthermore, SEC said that Hyperdynamics had violated Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management’s general or specific authorization; and are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets.
Thus, the SEC has issued an order according to which Hyperdynamics will cease and desist from committing or causing any violations related to the above mentioned sections of the Exchange Act.
In a separate statement, Hyperdynamics said it consented to the SEC order, without admitting or denying the SEC’s findings and agreed to pay a $75,000 penalty to the SEC.
Worth noting, the oil company had offered settlement to the SEC, which the Commission determined to accept.
In reaching this resolution, the Commission considered remedial acts undertaken by the company and cooperation afforded the Commission staff.
The SEC Order recognizes that, beginning in July 2009, Hyperdynamics replaced its senior management team and its entire Board of Directors, revised its policies, implemented training programs, increased its legal and accounting personnel, and instituted a series of procedures to more strictly control transfers of funds.
This settlement fully resolves the SEC’s investigation.
As previously disclosed in May 2015, the Department of Justice closed its investigation into possible Foreign Corrupt Practices Act violations by Hyperdynamics without bringing any charges against the company.
DOJ had been investigating whether Hyperdynamics’ activities in obtaining and retaining concession rights offshore Guinea, and the company’s relationships with charitable organizations potentially violated the U.S. Foreign Corrupt Practices Act or U.S. anti-money laundering statutes.