The US Securities and Exchange Commission has leveled fraud charges against junior explorer Houston American Energy, alleging the company misled investors by "wildly exaggerating" reserves in a Colombia oil play.
The SEC said it had charged the company and chief executive John Terwilliger in connection with a Colombia exploration programme that ran from 2010 to 2012 but failed to find oil.
The company could not immediately be reached by comment after local business hours.
Houston American, according to the SEC, told investors the oilfield tract in question contained between 1 billion and 4 billion barrels of oil reserves worth more than $100 per share to investors, falsely attributing overblown estimates to the concession's operator.
"Terwilliger and Houston American misled investors by wildly exaggerating the extent and nature of their oil and gas holdings,” Gerald Hodgkins, associate director of the SEC’s enforcement division, said in a statement.
“They used a cadre of third parties to publicise and bolster their misleading claims."
The inquiry dates from 2012 when the company divulged it had received three subpoenas from the agency but fired back against rumours that it was on the brink of insolvency.
The SEC also names stock promoter Kevin McKnight and his firm Undiscovered Equities in its complaint.
"Houston American raised approximately $13 million in a public offering and saw its stock price increase from less than $5 per share to more than $20 per share," the regulator said in a statement.
Shares have lost an estimated $600 million in market value since a 2010 peak, the SEC said. Shares closed down 2.86% at $0.34 and had already shed 8.82% more in after-hours trading Monday evening.
Houston American's first well on the CPO 4 block in Colombia, Tamandua-1, experienced "formation damage" that ultimately forced the company to abandon the well.
In July 2012 Houston American Energy’s partners SK Innovation and Gulf United Energy ditched Cachirre 1 after reaching a total measured depth of 9486 feet, prompting the explorer to go it alone with testing of C-9 sands that ultimately proved fruitless.
That December the company said its final probe on the block, the Zorro Gris well, was slated to be plugged and abandoned.
The company previously said it was exploring "strategic alternatives" but had not given up on the block pending results of ongoing seismic in 2013.
Chief financial officer James Jacobs left the company in July 2013.