Houston American Facing Regulatory Scrutiny

The Securities and Exchange Commission (“SEC”) has instituted formal proceedings against Houston American Energy Corp. (“Houston American”), John F. Terwilliger, Jr. (“Terwilliger”), Undiscovered Equities, Inc., and Kevin McKnight.  Terwilliger, the CEO of Houston American, obtained a fractional ownership of an exploration concession in Columbia.  The SEC has alleged that Terwilliger and Houston American then proceeded to promote Houston American to investors over the following months and years based upon this untested Columbian interest. 

Specifically, the SEC has alleged that Houston American and Terwilliger fraudulently told potential investors that this area held “estimated recoverable reserves of 1 to 4 billion barrels” of oil, and that this oil was worth between $20-25 per barrel in the ground.  These numbers, if true, would have meant the Houston American’s interest in this area was worth approximately $100 per share to the shareholders, whereas the stock was only trading for between $4 - $20 per share during that entire period of time. 

At the same time, Houston American hired Kevin McKnight and his company Undiscovered Equities, Inc. to promote Houston American’s stock.  The company did so, repeatedly spreading these claims about the huge value that Houston American had in this oil and gas interest in Columbia.  Undiscovered Equities, Inc. spread this information by posting it on its own website, distributing mass emails to subscribers, and by posting information on various public, online forums.

Based upon this perceived grossly undervalued stock price, coupled with the promotions of Undiscovered Equities, Inc., Houston American was ultimately successful in raising approximately $13 million dollars in new capital from investors and simultaneously roughly quadrupling its share price.  Unfortunately, all of Houston American’s claims about the value of this Columbian interest were completely fabricated.

According to the SEC, Terwilliger has admitted that he knew that there were no reserves at all, and that the volume estimates he was given were almost 400% of what the actual estimates were.  Ultimately, no oil was produced from the interest, and Houston American’s stock plummeted to roughly $0.40 a share, a roughly 98% loss for investors who purchased at the top.  Nonetheless, between 2010 and 2012, Terwilliger received compensation from Houston American of almost $2.4 million between bonuses, options, and salary. 

To make things worse, a number of stock brokers, investment bankers, and/or investment advisors recommended Houston American stock to their clients.  In doing so, it appears that these brokers utterly failed to conduct basic due diligence on the basis of the claims.  Many of those clients now have suffered devastating losses as a result.  If you invested in Houston American at the advice of your financial professional, contact us for a free, no obligation consultation to see if you may have a claim to attempt to recover some or all of your losses.

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