Case Study # 2:  Fraud Investigation and Corporate Restructuring

The Client:  A publicly traded company in the oil & gas industry.  The company was primarily the public investment vehicle that invested along side a private oil & gas development corporation whose service firm operated the leases.  The owners of the private corporation were minority shareholders in the public company.

The Task:  Oversee the finance department and prepare the company for an audit and filing a registration statement with the Securities Exchange Commission.  The company was seeking to raise additional capital following the filing of its registration statement with the SEC.

Issues:  Severe problems with corporate records and entanglement of operations.

Secondary Issues:  The company had signed a Letter of Intent (LOI) with a boutique investment bank to raise $10 million.

Coral Capital Partners was contacted by the corporation’s corporate counsel and asked to oversee the finance department and implement the necessary actions in order for the company to successfully complete its audit and file a registration statement with the Securities Exchange Commission (SEC).  One of the owners of the private development company had been serving as a member of the Board of Directors of the company and as its Chief Financial Officer.  The other officers and directors of the company had growing concerns over the delays in the production of the company’s financial statements.

A member of Coral Capital Partners was appointed to the Board of Directors and as Chief Financial Officer (CFO) of the company.  The initial activities were focused on evaluating the corporation’s oil & gas leases,  operational structure, and properly organizing the company’s books and records.

It was very quickly discovered that the company did not maintain proper controls and procedures in its financial department,  there were severe issues concerning the co-mingling of funds among the various corporations, and production records for the various oil & gas leases were non-existent.  Furthermore there was strong evidence of fraud and embezzlement at the all levels by the owners of the private development corporation.

Additionally,  Coral Capital Partners had a responsibility to, and did advise the investment bank that the company was not suitable for a capital raise given its situation.

Plan of Action:

A deeper investigation of the financial records was performed, confirming the concerns about the former CFO of the company.  During the investigation it was discovered the company had borrowed a significant amount of funds from a shareholder.  Additionally due to the poor state of the company’s financial records and the complete lack of production records for the oil & gas leases it was determined that an audit of the company could not be completed in its current form.  An evaluation of the company’s resources was performed, and a course of action was recommend for restructuring the company.

The restructuring efforts resulted in a settlement with the owners of the private development corporation whereby they returned the shares in the public company they owned to the company for cancellation, thus surrendering their ownership position; and assumed the liability for the debt with the shareholder in the public company.

The company entered into a settlement agreement with its shareholder accepted ownership of the company’s interest in an oil & gas lease that was unauditable due to a lack of production records; thus allowing the company to dispose of an unauditable asset in a manner that would allow the company’s books and records to be audited.


The company is currently undergoing an audit of its books and records.  Additionally the company is currently in negotiations with a potential merger candidate, which if successful will result in value creation for its shareholders and investors.