In re Miller Energy Resources, Inc. Securities Litigation...

II.."., AUG 16 ?UH

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE

AT KNOXVILLE

Clerk, U. S. District Court Eastern District ot Tennessee

At Knoxville

STEVEN ARLOW, Individually and on Behalf

Civil Action No.: 3 ( C 3?O

of All Other Persons Similarly Situated,

Plaintiff, JURY TRIAL DEMANDED

V. CLASS ACTION

MILLER ENERGY RESOURCES, INC. f/k/a MILLER PETROLEUM, INC., SCOTT M. BORUFF, and PAUL W. BOYD,

Defendants

CLASS ACTION COMPLAINT

Plaintiff Steven Arlow ("Plaintiff'), individually and on behalf of all other persons

similarly situated, by his undersigned attorneys, for his complaint against defendants, alleges the

following based upon personal knowledge as to himself and his own acts, and information and

belief as to all other matters, based upon, inter alia, the investigation conducted by and through

his attorneys, which included, among other things, a review of the defendants' public documents,

conference calls and announcements made by defendants, United States Securities and Exchange

Commission ("SEC") filings, wire and press releases published by and regarding Miller Energy

Resources, Inc. formerly known as Miller Petroleum, Inc. ("Miller" or the "Company"),

analysts' reports and advisories about the Company, and information readily obtainable on the

Internet. Plaintiff believes that substantial evidentiary support will exist for the allegations set

forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action on behalf of a class consisting of all

Case 3:11-cv-00386 Document 1 Filed 08/16/11 of 37 PageID #: 1

persons other than defendants who purchased Miller securities between December 21, 2009 and

August 8, 2011, both dates inclusive (the “Class Period”), seeking to recover damages caused by

defendants’ violations of the federal securities laws and to pursue remedies under the Securities

Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against the Company and certain of

its top officials.

2. Miller is an oil and gas exploration, production, and drilling firm. The Company

operates in the Southern Appalachian Basin and Alaska.

3. On July 28, 2011, analysts Melissa Davis and Janice Shell of TheStreetSweeper

issued an article questioning the Company’s valuation of certain assets. Citing a number of

sources, including interviews with industry experts, Shell and Davis stated that Miller and its

officers and directors had fraudulently overstated the value of certain assets.

4. On this news, Miller shares plummeted $2.63 or more than 37% in two

consecutive trading sessions, to close at $4.41 on July 29, 2011.

5. On August 1, 2011, Miller disclosed that its annual report on Form 10-K, filed

just three days earlier, should no longer be relied upon as the “10-K was filed with the SEC on

July 29, 2011, prior to KPMG LLP completing its review of the annual report and issuing their

independent accountants’ report on the financial statements.”

6. On these revelations, Miller shares declined an additional $1.04 or more than

23.5%, to close at $3.37 on August 2, 2011.

7. On August 9, 2011, Miller disclosed that for the fiscal quarters ended July 31,

2010 and October 31, 2010, it “failed to properly record depletion, depreciation and amortization

expense related to leasehold costs, wells and equipment, fixed assets and asset retirement

obligations and did not properly record the state tax credits expected from our Alaska


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operations.” Moreover, for the fiscal quarter ended January 31, 2011, the Company had

“inappropriately recorded revenue on a gross basis for overriding royalty interests.”

8. On these additional revelations, Miller shares declined an additional $0.37 or

more than 13%, to close at $2.36.

9. Throughout the Class Period, Defendants made false and/or misleading

statements, as well as failed to disclose material adverse facts about the Company's business,

operations, and prospects. Specifically, Defendants made false and/or misleading statements

and/or failed to disclose that: (1) the value of the Alaskan assets acquired by the Company were

substantially less than claimed by the Company; (2) the Company improperly accounted

depletion, depreciation and amortization expenses related to leasehold costs, wells and

equipment, fixed assets and assets retirement obligations and did not properly record the state tax

credits expected from its Alaska operations; (3) the Company improperly accounted revenue on a

gross basis for overriding royalty interests rather than recording revenue on a net basis; (4) the

Company improperly accounted sufficient compensation expenses on equity awards; (5) the

Company improperly calculated the liability for its derivative instruments; (6) the Company

failed to consolidate an entity that controls; (7) the Company lacked adequate internal and

financial controls; and (8) as a result of the foregoing, the Company’s statements were materially

false and misleading at all relevant times.

10. As a result of Defendants' wrongful acts and omissions, and the precipitous

decline in the market value of the Company's securities, Plaintiff and other Class members have

suffered significant losses and damages.

JURISDICTION AND VENUE


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11. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act (15 U.S.C. §78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder (17

C.F.R. §240.10b-5).

12. This Court has jurisdiction over the subject matter of this action pursuant to §27

of the Exchange Act (15 U.S.C. §78aa) and 28 U.S.C. §1331.

13. Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C.

§78aa and 28 U.S.C. §1391(b) as the shares of Miller were publicly traded in this District.

Moreover, Miller’s principal place of business is located within this District.

14. In connection with the acts, conduct and other wrongs alleged in this Complaint,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including but not limited to, the United States mail, interstate telephone communications and the

facilities of the national securities exchange.

PARTIES

15. Plaintiff as set forth in the attached certification, purchased Miller securities at

artificially inflated prices during the Class Period and has been damaged thereby.

16. Defendant Miller is a Tennessee corporation, with its principal place of business

located at 3651 Baker Highway, Huntsville, TN 37756. Until May 6, 2010, Miller was traded on

the OTC Bulletin Board (“OTC”). On May 6, 2010, Miller’s common stock began trading on

the NASDAQ Global Market (“NASDAQ”) under the trading symbol “MILL.” The stock was

trading under the name of Miller Petroleum, Inc. d/b/a Miller Energy Resources. On April 12,

2011, Miller’s common stock began trading on the New York Stock Exchange (“NYSE”) under

its ticker symbol “MILL” and under its new name Miller Energy Resources, Inc.


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17. Defendant Scott M. Boruff (“Boruff”) has been the Company’s Chief Executive

Officer (“CEO”) and director since August 2008. Defendant Boruff was the Company’s

President from June 26, 2010 to June 8, 2011.

18. Defendant Paul W. Boyd (“Boyd”) has been the Company’s Chief Financial

Officer and Treasurer since 2008.

19. The defendants referenced above in ¶¶ 17 - 18 are sometimes referred to herein as

the “Individual Defendants.”

SUBSTANTIVE ALLEGATIONS

Background

20. Miller is a high-growth oil and natural gas exploration, production and drilling

company operating multiple projects in North America. Miller's focus is in the Cook Inlet area of

Alaska and in the heart of Tennessee's Appalachian Basin. In 2009, the Company formed both

Miller Energy GP, LLC and Miller Energy Income 2009-A, LP (“MEI”). MEI was organized to

provide the capital required to invest in various types of oil and gas ventures including the

acquisition of oil and gas leases, royalty interests, overriding royalty interests, working interests,

mineral interests, real estate, producing and non-producing wells, reserves, oil and gas related

equipment including transportation lines and potential investments in entities that invest in such

assets except for other investment partnerships sponsored by affiliates of MEI. The Company,

through a subsidiary, owns 1% of MEI, however due to the shared management of the Company

and MEI, it consolidated this entity.

21. On December 16, 2009, the Company issued a press release entitled, “Tennessee

firm acquires more than $300 million in Alaskan oil and gas assets.” The Company stated the

following, in relevant part:


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Miller Petroleum, Inc. dba Miller Energy Resources ("Miller"), (OTC

Bulletin Board: MILL.OB) announced today that it has acquired certain

former Alaskan assets of Pacific Energy Resources ("Pacific Energy")

through a Chapter 11 U.S. Bankruptcy proceeding in Delaware.

Miller has acquired total reserves of over 13.2 million barrels of oil and

15.5 BCF of natural gas, including total proved reserves of 5.6 million

barrels of oil and 3.7 BCF of Natural Gas. The discounted net present

value of the Alaska reserves that Miller has acquired is over $325 million

dollars, including $119 million dollars of proven reserves, $185 million of

probable reserves and $23 million in possible reserves.

In addition, Miller has acquired onshore and offshore production and

processing facilities, an offshore energy platform, over 600,000 net acres

of land with thousands of acres of 3-D geologic seismic data,

miscellaneous roads, pads and facilities all of which originally cost almost $300 million to build and install over the last 5 years.

Miller will operate the facilities through its 100% owned subsidiary, Cook Inlet Energy LLC ("Cook") , which has been approved by the State of

Alaska as the long-term operator for the Alaskan oil and gas wells. Miller

has hired through Cook, the operating team who had overseen the

operations of these assets from early 2000 until the present.

Acquisition Details

Miller Energy Resources paid a total of $2.25 million dollars for the

Alaskan oil and gas assets, and an additional $2.22 million dollars for contract cure payments, bonds and other local, federal and State of Alaska

requirements to operate the facilities. Miller's acquisition multiples of the

Purchase/Reserves is $0.35 per Proved MBOE and $0.06 per Proved

MCFE. Including Proved, Probable and Possible Reserves makes the

acquisition multiples of this purchase only $0.14 per BOE and $0.023 per MCFE.

***

The acquisition increases Miller's total reserves 32 times, from 0.504

MMBOEs to 16.330 MMBOEs, and increases the Net Present Value

(discounted at 10%) of Revenue of Miller's Oil and Gas Reserves from

$4.99 million dollars (before the acquisition) to $331.13 million dollars at

closing, an increase of 66 times. Miller has increased its acreage from

54,506 net acres (pre-acquisition) to 656,506 net acres at closing....

The Alaska assets that Miller acquired from Pacific Energy were

originally acquired from Forest Oil Corp. in 2007 for $464 million. In


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2009, Pacific Energy declared bankruptcy and later abandoned its assets in

Alaska in September 2009. In October 2009, Miller entered into an agreement to acquire the majority of Pacific Energy's Alaskan assets. In

November 2009, the U.S. Bankruptcy Court approved the sale and the

acquisition closed on December 11, 2009. Also on December 10, 2009, Miller Petroleum, Inc. acquired 100% of the membership interests in Cook

Inlet Energy, LLC, an Alaska limited liability company from its members.

As consideration, Miller issued the sellers, who were unrelated third

parties, stock warrants to purchase three million five hundred thousand

(3,500,000) shares of Miller common stock, plus $250,000 and certain

expense related to the acquisition.

***

"The results of these acquisitions increases our reserves by 32 fold and

significantly strengthens our balance sheet," commented Boruff, "Initial

production is estimated to be 280 barrels of oil a day. Our three month

target is over 800 barrels a day with a goal of pushing production over

1,100 barrels daily by the fourth quarter of 2010 which would generate

more than $30 million dollars annually in gross revenue for Miller."

Materially False and Misleading

Statements Issued During the Class Period

22. On December 21, 2009, the Company filed a quarterly report for the period ended

October 31, 2009 on Form 10-Q with the SEC, which was signed by Defendants Boruff and

Boyd and represented the Company’s quarterly financial results and financial position. In

addition, pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”), the Form 10-Q contained signed

certifications by Defendants Boruff and Boyd, stating that the financial information contained in

the Form 10-Q was accurate, and that they disclosed any material changes to the Company’s

internal control over financial reporting.

23. The Form 10-Q also represented the following:

On December 11, 2009, the Company acquired former Alaskan assets of

Pacific Energy Resources ("Pacific Energy") valued at more than $300

million through a Delaware Chapter 11 Bankruptcy proceeding. The

Company paid a total of $2.25 million to acquire and obtain the Alaskan

oil and gas assets which include onshore and offshore production

facilities, $119 million in proven energy reserves, $185 million in


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probable energy reserves and $23 million in possible energy reserves,

providing total reserves of $327 million. The purchased assets includes the

West McArthur River oil field, the West Foreland natural gas field, and

the Redoubt unit with the Osprey offshore platform, all located along the

west side of the Cook Inlet. Also included in the asset purchase are

602,000 acres of oil and gas leases as well as completed 3D seismic

geology and other production facilities. At closing Miller paid Pacific

Energy a purchase price of $2.25 million and provided $2.22 million for bonds, contract cure payments and other federal and State of Alaska

requirements to operate the facilities. The Company will operate the

facilities through its recently acquired wholly-owned subsidiary, Cook

Inlet Energy LLC ("Cook"), which has been approved by the State of

Alaska as the long-term operator for the Alaskan oil and gas wells. In October 2009, the Company entered into an agreement to acquire the

majority of Pacific Energy's Alaskan assets. In November of 2009, the

Court approved the sale and the acquisition closed on December 11, 2009.

On December 10, 2009, the Company acquired 100% of the membership

interests in Cook Inlet Energy, LLC, an Alaska limited liability company

from the owners of this entity. As consideration for these companies we

issued the sellers, who were unrelated third parties, stock warrants to

purchase three million five hundred thousand (3,500,000) shares of our

common stock. The Warrants are to be issued in three tranches with

vesting features ranging from immediate to four years and with exercise

prices ranging from $0.01 to $2.00. In addition, within 90 days of closing,

the Company is to deliver $250,000 in cash to satisfy certain expenses as

well as reimbursement for reasonable out of pocket expenses. Under the

terms of the stock purchase agreement, the sellers agreed not to engage in

oil and gas operations for a period of three years following the closing

date. We also agreed that each of the sellers, Mr. David M. Hall, Walter J.

Wilcox II and Troy Stafford, would continue their employment with the

acquired company for at least three years from the closing date of the

transaction at their specifically defined compensation and benefit levels. In

addition, Mr. Hall was appointed as a member of the Company's Board of

Directors and as Chief Executive Officer of Cook Inlet Energy, LLC., Mr.

Hall will receive an annual salary of $195,000.

24. On December 23, 2009, the Company filed a Form 8-K represented the following

in connection to the Pacific Energy Alaska Assets Acquisition:

On December 10, 2009, Miller Petroleum, Inc. (“Miller” or the “Company”) acquired 100% of the membership interests in Cook Inlet

Energy, LLC (“CIE”), an Alaska limited liability company from the

owners of this entity. This company was created to acquire the assets of

from Pacific Energy Alaska Operating LLC and Pacific Energy Alaska

Holdings, LLC (“PER”) from the Chapter 11 U.S. bankruptcy filing. The


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owners of membership interests in CIE were David M. Hall, Walter J. Wilcox, II and Troy Stafford (collectively the “Sellers”). As consideration

for this company Miller issued the Sellers, who were unrelated third

parties, stock warrants to purchase three million five hundred thousand

(3,500,000) shares of Miller’s common stock. The warrants were priced

and vested as follows: Tranche 1 - 1,000,000 warrants with an exercise

price of one cent ($0.01) immediately vested as of the date of closing;

Tranche 2 - 1,500,000 warrants with an exercise price of one dollar

($1.00) vesting one year after closing; Tranche 3 - 1,000,000 warrants

with an exercise price of two dollars ($2.00) vesting two years after

closing. 350,000 of Tranche 1 warrants shall be delivered to an escrow account in the name of Miller and the sellers and is to be delivered to the

sellers upon release of certain potential claims by a former financial

advisor of CIE. As additional consideration, Miller agreed to place into

escrow, within 90 days of closing $250,000 in cash, which is to be delivered to the sellers upon the release of certain potential claims by a

former financial advisor of CIE. Miller shall also deliver to the Seller,

reasonable and normal out of pocket expenses that the Sellers have

incurred since December of 2008 through December 10, 2009.

***

On December 10, 2009, Miller’s wholly-owned subsidiary, Cook Inlet

Energy, LLC acquired certain Alaskan oil and gas assets from Pacific

Energy Alaska Operating LLC and Pacific Energy Alaska Holdings, LLC

(“Pacific Energy”) through a Chapter 11 U.S. Bankruptcy proceeding in

Delaware. Miller acquired total reserves of over 13.2 million barrels of oil

and 15.5 BCF of natural gas, including total proved reserves of 5.6 million

barrels of oil and 3.7 BCF of natural gas as reported by the Pacific Energy

in their most recent reserve report of January 1, 2009. The discounted net

present value of the Alaska reserves that Miller acquired is over $327

million dollars, including $119 million dollars of proven reserves, $185

million of probable reserves and $23 million of possible reserves, as stated

in its most recent reserve report as of January 1, 2009.

25. On March 15, 2010, the Company issued a press release entitled, “Miller Energy

Resources’ Assets Increase to $492 Million.” The Company represented the following in

relevant part:

Miller Petroleum, Inc. dba Miller Energy Resources (“Miller”), (OTC BB:

MILL) announced today that it has a total pro forma asset value of over

$492 million, including oil and natural gas reserves valued at $372 million

based upon an average net sales price of $61.18 per barrel of oil and $4.75

per mcf of natural gas. The increase is a direct result of the acquisition in


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December 2009 of oil and gas assets from Pacific Energy Resources

through a Chapter 11 U.S. Bankruptcy proceeding in which Miller

acquired onshore and offshore production and processing facilities, an

offshore energy platform, over 600,000 net lease acres of land with

hundreds of miles of 2-D and 3-D geologic seismic data, miscellaneous roads, pads and facilities. On March 3, 2010 Miller announced that its

Alaskan operations were producing more than 800 BOED.

“The Alaska acquisition has led to phenomenal growth at Miller and

greatly strengthened our balance sheet,” said Scott M. Boruff, Miller CEO.

“Over the last year Miller has increased its asset value over forty times, its

total oil and natural gas reserves ninety times, and its lease acreage by a

factor of twelve. In addition, production at our Alaska operations

continues to exceed original projections which will translate into greatly

increased revenues at Miller over the coming year.”

Ralph E. Davis Associates, a Houston-based independent petroleum

engineer firm, prepared the reserve report on Miller’s Cook Inlet

properties. Based upon this reserve report, in Alaska, Miller has estimated

total reserves of 16.4 million barrels of oil and 13.9 billion cubic feet of

natural gas, including proven (1P) reserves of 9.4 million barrels of oil and

4.9 billion cubic feet of natural gas, probable (2P) reserves of 5.9 million

barrels of oil and 4.0 billion cubic feet of natural gas, and possible (3P)

reserves of 1.1 million barrels of oil and 5.0 billion cubic feet of natural

gas.

26. On March 22, 2010, the Company filed a quarterly report for the period ended

January 31, 2010 on Form 10-Q with the SEC, which was signed by Defendants Boruff and

Boyd and represented the Company’s quarterly financial results and financial position.

Specifically, the Company represented a net income of $271.9 million or $9.51 per diluted share

and revenue of $1.2 million, compared to a net loss of $901,943 or ($0.04) per diluted share and

revenue of $612,838. The net income for the quarter included a gain of $472.5 million from the

Pacific Energy acquisition. In addition, pursuant to SOX, the Form 10-Q contained signed

certifications by Defendants Boruff and Boyd, stating that the financial information contained in

the Form 10-Q was accurate, and that they disclosed any material changes to the Company’s

internal control over financial reporting.


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27. The Form 10-Q also represented the following:


Pacific Energy Resources ("Pacific Energy") valued at more than $479


Company acquired the Alaskan oil and gas assets, which include onshore

and offshore production facilities, $215 million in proven energy reserves,

$122 million in probable energy reserves and $31 million in possible energy reserves, providing total reserves of $368 million. The purchased

assets include the West McArthur River oil field, the West Foreland

natural gas field, and the Redoubt unit with the Osprey offshore platform,

all located along the west side of the Cook Inlet. Also included in the asset

purchase are 602,000 acres of oil and gas leases as well as completed 3D

seismic geology and other production facilities. At closing Miller paid

Pacific Energy a purchase price of $2.25 million and provided $2.22

million for bonds, contract cure payments and other federal and State of

Alaska requirements to operate the facilities. The Company will operate

the facilities through its recently acquired wholly owned subsidiary, Cook

Inlet Energy LLC ("Cook"), which has been approved by the State of

Alaska as the long-term operator for the Alaskan oil and gas wells. In October 2009, the Company entered into an agreement to acquire the

majority of Pacific Energy's Alaskan assets. In November of 2009, the




from the owners of this entity. As consideration for this company we



common stock. The Warrants were issued in three tranches with vesting

features ranging from immediate to four years and with exercise prices

ranging from $0.01 to $2.00, the fair value of the warrants issued were

determined to be $2,071,655 and were expensed as a cost of the

transaction. In addition, the Company was obligated to deliver $250,000 in

cash by March 10, 2010 to satisfy certain expenses as well as

reimbursement for reasonable out of pocket expenses. As of the date of

this filing, this obligation is still outstanding. Under the terms of the stock

purchase agreement, the sellers agreed not to engage in oil and gas

operations for a period of three years following the closing date. We also

agreed that each of the sellers, Messrs. David M. Hall, Walter J. Wilcox II

and Troy Stafford, would continue their employment with the acquired

company for at least three years from the closing date of the transaction at

their specifically defined compensation and benefit levels. In addition, Mr.

Hall was appointed as a member of the Company's Board of Directors and

as Chief Executive Officer of Cook Inlet Energy, LLC., Mr. Hall will receive an annual salary of $195,000.


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28. On March 24, 2010, the Company issued a press release announcing its financial

results for the third quarter ended January 31, 2010. The Company reported net income of

$271.9 million, or $9.51 per fully diluted share and revenue of $1.3 billion, as compared to net

income of $75.6 million, or $0.35 EPS and revenue of $1.4 million for the same period a year

ago.

29. On July 28, 2010, the Company filed an annual report for the period ended April

30, 2010 on Form 10-K with the SEC, which was signed by, among others, Defendants Boruff

and Boyd, and represented the Company’s annual financial results and financial position. In

addition, pursuant to SOX, the Form 10-K contained signed certifications by Defendants Boruff

and Boyd, stating that the financial information contained in the Form 10-K was accurate, and

that they disclosed any material changes to the Company’s internal control over financial

reporting.

30. The 10-K also representing the following:


Pacific Energy Resources (“Pacific Energy”) valued at more than $479


Company acquired the Alaskan oil and gas assets, which include onshore

and offshore production facilities, $215 million in proven energy reserves,


assets include the West McArthur River oil field, the West Foreland


all located along the west side of the Cook Inlet. Also included in the asset

purchase are 602,000 acres of oil and gas leases and licenses as well as

completed 3D seismic geology and other production facilities. At closing

Miller paid Pacific Energy a purchase price of $2.25 million and provided

$2.22 million for bonds, contract cure payments and other federal and

State of Alaska requirements to operate the facilities. The Company will

operate the facilities through its recently acquired wholly-owned

subsidiary, Cook Inlet Energy LLC ("Cook"), which has been approved by

the State of Alaska as the long-term operator for the Alaskan oil and gas

wells. In October 2009, the Company entered into an agreement to acquire


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the majority of Pacific Energy's Alaskan assets. In November of 2009, the




















their specifically defined compensation and benefit levels. However,

subsequent to the balance sheet date, Mr. Stafford left the Company. In


Directors and as Chief Executive Officer of Cook Inlet Energy, LLC.,

Mr. Hall will receive an annual salary of $195,000.

31. On July 30, 2010, the Company issued a press release announcing its financial

results for the year ended April 30, 2010. For the year, the Company reported net income of

$249.5 million, or $8.29 per fully diluted share and revenue of $5.9 million, as compared to net

income of $8.4 million, or $2.56 per fully diluted share and revenue of $1.6 million for the same

period a year ago. The income included a gain of $461.1 million from the Company’s

acquisitions.

32. Defendant Boruff commented the following in the release:

The progress and accomplishments at Miller over the past year are nothing

short of extraordinary. We will look back on this as a watershed year in

Miller’s development, having made significant progress on key initiatives

and positioning us for growth in 2010 and beyond.


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33. On September 13, 2010, the Company filed a quarterly report for the period ended

July 31, 2010 on Form 10-Q with the SEC, which was signed by Defendants Boruff and Boyd

and represented the Company’s quarterly financial results and financial position. Specifically,

the Company reported net income of $682,907 or $0.02 per fully diluted share, and revenue of

$5.2 million, compared to a net income of $72,213 or $0.00 per fully diluted share, and revenue

of $527,620 for the same period a year ago. In addition, pursuant to SOX, the Form 10-Q

contained signed certifications by Defendants Boruff and Boyd, stating that the financial

information contained in the Form 10-Q was accurate, and that they disclosed any material

changes to the Company’s internal control over financial reporting.

34. On December 10, 2010, the Company filed a quarterly report for the period ended

October 31, 2010 on Form 10-Q with the SEC, which was signed by Defendants Boruff and

Boyd and represented the Company’s quarterly financial results and financial position.

Specifically, the Company reported a net loss of $1.7 million or ($0.05) per fully diluted share,

and revenue of $6.7 million, compared to a net loss of $156,024 or ($0.01) per fully diluted

share, and revenue of $333,4040 for the same period a year ago. In addition, pursuant to SOX,

the Form 10-Q contained signed certifications by Defendants Boruff and Boyd, stating that the

financial information contained in the Form 10-Q was accurate, and that they disclosed any

material changes to the Company’s internal control over financial reporting.

35. On February 4, 2011, the Company announced the appointment of KPMG as its

registered independent public accounting firm after dismissing its’ previous independent public

accounting firm, Sherb & Co. LLP.

36. On March 18, 2011, the Company filed a Form 8-K disclosing the non-reliance of

its previously filed financial statements for the quarterly periods ended July 31, 2010 and


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October 31, 2010 as it “failed to properly record depletion, depreciation and amortization

expenses related to leasehold costs, wells and equipment, fixed assets and asset retirement

obligations and did not properly record the state tax credits expected from our Alaska

operations.” Moreover, the Company disclosed the following:

Accordingly, our unaudited consolidated balance sheet at July 31, 2010 and the unaudited consolidated statement of operations and unaudited

consolidated statement of cash flows for the three month period ended

July 31, 2010 as contained in our Quarterly Report on Form 10-Q for the

three month period ended July 31, 2010, together with our unaudited

consolidated balance sheet at October 31, 2010 and the unaudited

consolidated statement of operations and unaudited consolidated statement

of cash flows for the three and six month periods ended October 31, 2010

as contained in our Quarterly Report on Form 10-Q for the three and six

month periods ended October 31, 2010 will be restated. We expect that

the correction of these accounting errors will increase our depletion,

depreciation and amortization expenses for the three month period ended

July 31, 2010, and the three and six month periods ended October 31,

2010. These increases of non-cash operating expenses will increase our

loss from operations and net loss in each of the periods. In addition, we

expect the correction of the state tax credits will result in an increase of

income tax expense for the three month period ended July 31, 2010 and

the three and six month periods ended October 31, 2010. The

misstatements described herein, which led to this restatement, resulted

from a material weakness that existed at the date of management’s most

recently issued report on internal control over financial reporting.

37. On March 22, 2011, the Company issued a press release announcing its financial

results for the third quarter ended January 31, 2011. The Company reported net income of

$909,950, or $0.02 per fully diluted shares and revenue of $7.8 million, as compared to net

income of $272 million, or $9.51 per fully diluted shares and revenue of $1.2 million for the

same period a year ago.

38. On March 22, 2011, the Company filed a quarterly report for the period ended

January 31, 2011 on Form 10-Q with the SEC, which was signed by Defendants Boruff and

Boyd and reiterated the Company’s previously reported quarterly financial results and financial


15

position. In addition, pursuant to SOX, the Form 10-Q contained signed certifications by

Defendants Boruff and Boyd, stating that the financial information contained in the Form 10-Q

was accurate, and that they disclosed any material changes to the Company’s internal control

over financial reporting.

39. The statements referenced in ¶¶ 22 - 34; 36 - 38 above were materially false

and/or misleading because they misrepresented and failed to disclose the following adverse facts,

which were known to defendants or recklessly disregarded by them that: : (1) the value of the

Alaskan assets acquired by the Company were substantially less than claimed by the Company;

(2) the Company improperly accounted depletion, depreciation and amortization expenses

related to leasehold costs, wells and equipment, fixed assets and assets retirement obligations and

did not properly record the state tax credits expected from its Alaska operations; (3) the

Company improperly accounted revenue on a gross basis for overriding royalty interests rather

than recording revenue on a net basis; (4) the Company improperly accounted sufficient

compensation expenses on equity awards; (5) the Company improperly calculated the liability

for its derivative instruments; (6) the Company failed to consolidate an entity that controls; (7)

the Company lacked adequate internal and financial controls; and (8) as a result of the foregoing,

the Company’s statements were materially false and misleading at all relevant times.

THE TRUTH BEGINS TO EMERGE

40. On July 28, 2011, TheStreetSweeper published an article discussing Miller’s

purchase of the Alaskan assets for $4.5 million and then pegging “the value of those assets at

more than $350 million on its books.” The article continued, in relevant part:

Despite that alarming track record, however, Miller has managed

to convince investors that the company finally hit the jackpot – by

snagging valuable assets that its previous owners (now bankrupt)

initially could not sell – this time around. Miller’s stock, which fetched


16

mere pennies on the lowly Pink Sheets just a few short years ago, now

commands $7 a share after snagging a coveted spot on the premiere New

York Stock Exchange. The company currently boasts a handsome market

value of $280 million, almost 12 times its prior-year sales, even though it

relied on a gigantic gain on its new Alaskan assets for the only dramatic

profit that it has ever recorded since going public through a reverse merger

almost 15 years ago.

But experts contacted by TheStreetSweeper , including skeptics in both the energy and financial sectors, have expressed clear doubt about those

numbers. For example, an executive at Nabors Industries (NYSE: NBR) -- a $7.6 billion energy giant that decided against buying those assets for

itself -- estimated that Miller actually wound up with just $25 million to

$30 worth of assets, offset by $40 million worth of liabilities, through that

transaction instead.

“That deal had been on the Street for over a year; everybody and their

brother had looked at it,” said Jordan “Digger” Smith, who manages energy projects for Nabors – which actually operated Miller’s new

properties – all across the country. “I’m a geologist, with 54 years of

experience, and I can’t see how anybody can write that up on their books

for $350 million ... There are not $350 million worth of assets there.”

*** So far, Miller has yet to supply audited financial statements showing that

KPMG – a respected Big Four firm hired almost six full months ago – has

verified the hefty valuation that the company placed on its new assets and

the impressive profit that resulted from the enormous gain that it recorded

on that acquisition deal. Miller is still relying on the blessing from its prior

auditor Sherb & Co., notorious for approving the books of dubious

Chinese reverse-merger companies, to lend credibility to those figures

instead.

***

Miller’s own audit committee actually reported some “accounting errors”

in the company’s financial statements this March -- the month after hiring

KPMG – when it warned of a likely restatement, adjusted for increases in

both expenses and losses, going forward. Miller has gone on to miss the

deadline for filing audited financials since that time, quietly violating a

covenant in a new credit agreement and technically defaulting on the

terms of that $100 million funding deal in the process.

41. On this news, Miller’s securities plummeted $2.63 or more than 37% in two

consecutive trading sessions, to close at $4.41 on July 29, 2011.


17

42. On July 29, 2011, after the market closed, the Company filed an annual report for

the period ended April 30, 2011 on Form 10-K with the SEC, which was signed by, among

others, Defendants Boruff and Boyd, and represented the Company’s annual financial results and

financial position.

43. The Form 10-K disclosed the following concerning the restatement for the

quarterly periods end July 31, 2010, October 31, 2010 and January 31, 2011:

The Company has restated its unaudited consolidated balance sheets as of

July 31, 2010, October 31, 2010 and January 31, 2011 and our unaudited consolidated statements of operations and cash flows for the quarterly and

year to date periods then ended. We failed to properly accrete our asset

retirement obligations in each of the first two quarters of fiscal 2011. In

these periods we also failed to properly record depletion, depreciation and

amortization expenses related to leasehold costs, wells and equipment,

fixed assets and asset retirement obligations and did not properly record

the state tax credits expected from our Alaska operations. In the third

quarter of fiscal 2011 it was determined that we failed to properly classify

royalty expense, failed to properly record sufficient compensation

expenses on equity awards, did not properly calculate the liability for our

derivative liability, and did not properly consolidate an entity we control.

44. The Form 10-K also disclosed the following:

In connection with a review of our Annual Report on Form 10-K for the

year ended April 30, 2010, the staff of the SEC has concluded that we

omitted required audited financial statements of three acquired businesses,

including ETC, KTO and CIE, from our Forms 8-K reporting these

acquisitions. Until such time as we file audited financial statements, the

staff has advised us it considers those Forms 8-K to be materially deficient

and that it will not waive these financial statement requirements. As a

result, we are unable to utilize a “short-form” registration statement on

SEC Form S-3. In addition, until such time as the audited financial

statements of the acquired businesses are filed, the staff of the SEC has

advised us it will not declare effective any registration statements or post-effective registration statements. We believe that the acquisitions of ETC

and KTO were not material and did not rise to the level which required

audited financial statements. Further, the CIE assets and liabilities were

acquired through bankruptcy and via the newly formed CIE. These oil

and gas producing assets were not operational for several months prior to

the acquisition, were consolidated in, as they were part of a larger

enterprise, and as accounting records were not adequately maintained by


18

Pacific Energy Alaska Operating LLC and Pacific Energy Alaska

Holdings, we were unable to carve out historical operational results on

these specified assets. At the time of acquisition of these assets, we

determined that the resulting assets and liabilities were not a separate

business for purposes of preparing pro forma financials with historical

results for the past year and / or related stub period and our Current Report

on Form 8-K/A as filed included only a pro forma balance sheet to reflect

the acquisition. We do not believe we will be able to obtain audited

financial statements on this acquisition for the periods provided in

Regulation S-X.

***

While we have designed a system of internal controls to supplement our

existing controls during our ongoing implementation of Section 404 of the

Sarbanes-Oxley Act of 2002 ("SOX 404"), we have been unable to

complete testing of these controls and accordingly lack the documented

evidence that we believe is necessary to support an assessment that our

internal control over financial reporting is effective. Without such testing,

we cannot conclude that there are any additional significant deficiencies or

additional material weaknesses, nor can we appropriately remediate any

such deficiencies that might have been detected. In addition, during the

analysis of our internal controls in connection with our implementation of

SOX 404, we did identify a number of control weaknesses, the

remediation of which is material to our internal control environment and

critical to providing reasonable assurance that any potential errors could

be detected. Those identified control weaknesses include:

We do not maintain a sufficient complement of personnel with an

appropriate level of accounting knowledge, experience and training in the

selection and application of U.S. GAAP and SEC reporting requirements

commensurate with our financial reporting requirements.

We do not maintain sufficient policies and procedures to prevent and/or

detect material misstatements over cut-off of accruals.

KPMG LLP has not issued a report on the Company’s internal control

over financial reporting.

***

On December 10, 2009, the Company acquired the Alaskan business of

Pacific Energy Resources (“Pacific Energy”) valued at more than $479


Company acquired the Alaskan business, which include onshore and

offshore production facilities, $215 million in proven energy reserves,


19


operations include the West McArthur River oil field, the West Foreland


all located along the west side of the Cook Inlet. Also included in the

purchase are 602,000 acres of oil and gas leases and licenses as well as

completed 3D seismic geology and other production facilities. At closing

Miller paid Pacific Energy a purchase price of $2.25 million and provided

$2.22 million for bonds, contract cure payments and other federal and

State of Alaska requirements to operate the facilities. The Company will

operate the facilities through its recently acquired wholly-owned

subsidiary, Cook Inlet Energy LLC ("Cook"), which has been approved by

the State of Alaska as the long term operator for the Alaskan oil and gas

wells.



















their specifically defined compensation and benefit levels. However,

subsequent to the balance sheet date, Mr. Stafford left the Company. In


Directors and as Chief Executive Officer of Cook Inlet Energy, LLC., Mr.

Hall will receive an annual salary of $195,000.

45. The Form 10-K also included the following Report of Independent Registered

Public Accounting Firm and Consent of Independent Registered Public Accounting Firm from

KPMG:

The Board of Directors


20

Miller Energy Resources, Inc.:

We have audited the accompanying consolidated balance sheet of Miller

Energy Resources, Inc. and subsidiaries (the Company) as of April 30,

2011, and the related consolidated statements of operations, stockholders’

equity, and cash flows for the year then ended. These consolidated

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements

based on our audit.

We conducted our audit in accordance with the standards of the Public

Company Accounting Oversight Board (United States). Those standards

require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes

assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement

presentation. We believe that our audit provides a reasonable basis for our

opinion.

In our opinion, the consolidated financial statements referred to above

present fairly, in all material respects, the financial position of the

Company as of April 30, 2011, and the results of their operations and cash

flows for the year ended April 30, 2011, in conformity with U.S. generally

accepted accounting principles.

/s/ KPMG LLP Knoxville, Tennessee July 29, 2011

***

We consent to the incorporation by reference in the registration statement

(No. 333-171106) on Form S-8 of Miller Energy Resources, Inc. of our

report dated July 29, 2011, with respect to the consolidated balance sheet

of Miller Energy Resources, Inc. and subsidiaries as of April 30, 2011, and the related consolidated statement of operations, stockholders’ equity, and

cash flows for the year then ended, which report appears in the April 30,

2011 annual report on Form 10-K of Miller Energy Resources, Inc.

/s/ KPMG LLP Knoxville, Tennessee July 29, 2011


21

46. On August 1, 2011, before the market opened, the Company filed a Form 8-K

disclosing that its Form 10-K for the year ended April 30, 2011 that was filed on July 29, 2011

should not be relied upon. Specifically, the Company disclosed the following:

On July 30, 2011, the Audit Committee of the Board of Directors of Miller

Energy Resources, Inc. determined that our consolidated balance sheet at

April 30, 2011, and our consolidated statements of operations,

stockholders’ equity and cash flows for the year then ended, as well as the

report of KPMG LLP dated July 29, 2011 on such statements, all as

included in our 2011 10-K, should not be relied upon. The 2011 10-K was filed with the SEC on July 29, 2011 prior to KPMG LLP 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.

We expect to file an amended Annual Report on Form 10-K/A for the year

ended April 30, 2011 (the “Amended 2011 10- K”) as soon as possible. We expect that the audited financial statements which will appear in the

Amended 2011 10-K will contain revisions from those which appeared in

the 2011 10-K to include corrections to errors in such financial statements,

including a revised consolidated statements of cash flows. We do not

expect any material changes to our consolidated balance sheet at April 30,

2011 or our consolidated statements of operations for the year ended April

30, 2011 in the Amended 2011 Form 10-K from that which appeared in

the 2011 10-K.

***

On July 28, 2011, the Audit Committee of the Board of Directors of Miller

Energy Resources, Inc. determined that our unaudited consolidated

balance sheets at January 31, 2011, October 31, 2010 and July 31, 2010

and our unaudited consolidated statements of operations and cash flows

for the quarterly and year to date periods then ended, could no longer be

relied upon as a result of errors in those financial statements. We failed to

properly classify royalty expense, failed to properly record sufficient

compensation expense on equity awards, did not properly calculate the

liability for our derivative instruments, and did not properly consolidate an

entity we control.

Our unaudited consolidated balance sheets at January 31, 2011, October

31, 2010 and July 31, 2010 and our unaudited consolidated statements of

operations and cash flows for the quarterly and year to date periods then

ended were restated in our 2011 10-K as filed on July 29, 2011, and will

be included in our Amended 2011 10-K to be filed as discussed above.


22

The misstatements described herein, which led to this restatement, resulted

from a material weakness that existed at the date of management’s most

recently issued report on internal control over financial reporting.

47. Later in the day, Defendant Boruff issued an open letter to Miller shareholders.

The letter stated the following in relevant parts:

This morning, the company filed an 8-K disclosing that the 2011 10-K

was filed with the SEC on July 29, 2011 prior to KPMG LLP 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. A form of KPMG's opinion dated July 29,

2011 was inadvertently included in the filing, when in fact, they had not

yet released the report. Accordingly, the Form 10-K is not a complete SEC

filing.

This also means that we are not considered timely filed by the NYSE

listing standards and expect to receive a letter from NYSE informing us of

this fact this week. As disclosed on July 15, 2011 when we filed for an

extension for our 10-K, we needed additional time to complete our

financial statements due to increased revenues and operating expenses. In

addition, we now expect that the audited financial statements which will

appear in the Amended 2011 10-K will also contain revisions from those which appeared in the 2011 10-K that was filed on Friday, July 29th to include corrections to errors in such financial statements, including a

revised consolidated statements of cash flows. We expect to file an

amended Annual Report on Form 10-K/A for the year ended April 30,

2011 as soon as possible. The 8-K also disclosed certain previously

disclosed restatements with respect to the first three quarters of fiscal

2011. Those restatements were made in the 10-K.

48. On these revelations, Miller shares fell an additional $1.04 or more than 23.5%, to

close at $3.37 on August 2, 2011.

49. On August 3, 2011, The StreetSweeper published a second article on Miller. The

article stated the following in relevant part:

Late Friday, with its stock hammered on questions raised by

TheStreetSweeper in a big investigative report, Miller Energy Resources

(NYSE: MILL) rushed to soothe nervous investors with a clean – but

premature – audit opinion on a tardy annual report that otherwise looked

like an ugly mess.


23

That formal 10K filing included a crucial blessing from KPMG that lent credibility to financial statements previously approved only by a tainted

small-time auditor, notorious for validating the books of dubious Chinese-reverse merger companies, instead. Three days later, however, Miller

quietly published an 8K on its company website – absent for up to an hour

(or more) from the official website operated by the U.S. Securities and

Exchange Commission – revealing that KPMG had yet to even complete

its audit of the financial statements that it had reportedly approved. Miller

further disclosed that its own audit committee had determined over the

weekend, a period marked by hopeful celebrations among relieved

investors, that the company’s brand-new financial statements – as well as

the audit attributed to KPMG and the consent to use that audit report -- “should not be relied upon” because of looming revisions down the road.

Miller’s stock, which recorded double-digit gains on reports of the audited

financials early Monday morning, soon began to tank on news of the 8k

filing before that document even surfaced – where investors could easily

find it – on the SEC website. The shares plummeted from a high of almost

$5 to a low beneath the $3 mark, sinking a total of 42.8% in less than two

hours, after the company dropped its alarming bombshell. Although the

stock has since clawed its way back toward $3.50 a share, it still fetches

half the price that it commanded before TheStreetSweeper first exposed Miller as a risky company less than a week ago.

Peter J. Henning, a law professor who formerly served as a senior attorney

for the enforcement division of the SEC, suggested that the company

could face even more pain – including possible backlash from securities regulators and its new auditing firm alike – as a result of its recent actions.

“The SEC is going to notice this,” said Henning.... “You can’t file a 10K

without audited financials; that’s a precondition ... I suspect that KPMG

will want to know how this happened and, if they don’t get straight answers, they will be gone.

“It looks like somebody, somewhere, had to have lied,” concluded

Henning.... “It’s hard not to draw any conclusion other than that this was

basically fraud.”

For its part, Miller waited until the final hour of trading on Monday before

it even began to publicly address the company’s bizarre actions. In an

open letter to shareholders, Miller CEO Scott Boruff finally came forward

to portray the recent 10K filing as an unfortunate accident. Specifically, he

claimed that “a form of KPMG’s audit opinion” had been “inadvertently

included” in the 10K (by unnamed parties) because the auditing firm had

not actually released that report – and its consent to use it – to the

company yet.


24

To skeptics, however, that excuse looks rather lame at best (and downright

fabricated at worst). After all, they note, Miller had already spent an extra

two weeks finalizing that report ahead of a widely anticipated release that

had attracted considerable attention by the time that it occurred. Far from

another routine 10K filing, critics emphasize, this particular annual report

– the first-ever reviewed by a Big Four auditing firm – could bring fresh

credibility to a company that had raised escalating suspicions after

bursting free from the penny-stock arena to secure a listing on the Nasdaq

and ultimately the prestigious New York Stock Exchange.

In short, critics note, Miller found itself operating under a powerful

microscope – with even CNBC monitoring the once-obscure company –

by the time that it finally released its overdue report. Miller’s four highest-ranking executives, as well as six outside directors, all signed off on that

annual report the day before its release. After that, video footage shows,

the CEO then personally assured CNBC that the company would file its

audited 10K just hours before that long-awaited annual report finally

appeared. The report included a so-called “comfort letter” from KPMG,

dated on the same day as the 10K itself, which upheld the validity of those

financial statements.

As outlined above, however, Miller would soon reveal (through both an

8K and a letter from its chief) that the company never secured a formal

blessing from its auditor before filing its annual report at all. As a result,

Miller explained, the company has yet to file a “complete” annual report – which requires audited financial statements – and now fails to meet listing

standards established by the NYSE for stocks that trade on that preeminent

exchange.

With Miller already bracing for a warning letter from the NYSE as early

as this week, critics say, the company could soon find itself scrambling –

but potentially failing – to protect its coveted listing on the world’s leading

stock exchange.

***

The Ugly Truth

Even when Miller first issued its new financial statements, skeptics felt,

the clean audit opinion from KPMG looked like nothing more than a

pretty decoration on a rather ugly annual report.

For starters, that filing reveals, Miller already faces a crackdown by SEC

regulators demanding omitted financial statements for three acquired

companies – including a core Alaskan subsidiary that reshaped its parent’s

books – before they will approve the crucial paperwork necessary for


25

additional stock sales. Miller claims that it was unable to supply the

financial reports for its new Cook Inlet Energy (CIE) unit in Alaska, an

addition that now accounts for the vast majority of the assets and revenues

on its books, because the former owner of those assets failed to maintain

proper records before filing for bankruptcy and abandoning its operations.

Miller further states that it does not believe that it can obtain those audited

financials, either, “which will adversely impact our ability to raise

additional capital” unless the SEC – unbending so far – decides to change

its mind and waive those mandatory reports.

As a result, Miller now looks entirely dependant upon a new $100 million

credit facility to finance its big exploration plans. But Miller has failed to

meet a key obligation set forth in that credit agreement, records indicate,

which requires the company to supply audited financial statements no later

than 75 days after its fiscal year ends (a deadline that passed in mid-July)

in order to avoid a technical default. By tripping that covenant, records

suggest, Miller could see its interest rate on that loan – already steep at a

minimum of 9.5% -- jump to credit-card levels of 16.5% if the company retains ongoing access to those funds, rather than immediate demands for

repayment, at all.

From the start, records indicate, Miller faced onerous restrictions whether

the company remained in compliance with that credit agreement or not.

Under the terms of that deal, records show, Miller must request any new

funds from that account weeks in advance – while it waits, at the mercy of

its lenders, for a decision – and then use 90% of its net revenue, starting in

January, to begin paying off the money it has already borrowed along the

way. Miller will see that entire loan mature in mid-2013, or less than two

years from now, with the company apparently banking on a dramatic surge in revenue to cover the bill if it blows through the full $100 million by that

time.

Miller initially secured permission to borrow $35 million from that

account this June, records indicate, and has already spent at least $10.87

million of that money at this point. The company used a sizable chunk of

that total to repay an earlier short-term loan from PlainsCapitalBank,

secured with stock pledged by its CEO and his father-in-law (the founding

chairman), that was scheduled to mature just a few weeks later. By paying

off that loan in full, records indicate, Miller eliminated the brief risk taken

by those two insiders when they pledged a portion of their massive stock

holdings as security for a temporary credit line soon replaced by the

current facility.

When the CEO issued his letter to anxious shareholders on Monday,

however, he specifically emphasized that Miller insiders had “personally

put themselves on the line” by guaranteeing that loan from PlainsCapital


26

Bank without reminding investors that the company had since eliminated

that same risk by paying off the credit line.

***

The Red Flags

Miller actually delivered some weak financial results, overlooked by

many, before dropping its big bombshell on the market this week.

The company fell well short of its ambitious revenue targets, its 10K filing

shows, while reversing a year-ago profit (generated through a hefty, but

controversial, acquisition-related gain) by posting a sizable loss for the

latest fiscal year instead. Ever since Miller acquired its new Cook Inlet

Energy (CIE) subsidiary in Alaska back in late 2009, records show, the

company has indicated that it would likely generate $30 million worth of

annual revenue from those celebrated assets (purchased for just $4.5

million in a bankruptcy auction and then valued at more than $350 million on its books). As it turns out, however, Miller posted sales of barely $20

million – almost one-third lower than the company’s CIE revenue target –

from the oil and gas produced by all of its assets combined.

While Miller increased its annual revenue by $17 million last year, a

290% jump (from a modest base) that looks rather impressive on paper,

the company also increased its annual expenses by an even higher $20.7

million during that same period. Miller posted total expenses of $37.9

million, more than double the expenses reported for the previous year,

with the company spending more on overhead – particularly compensation

for its well-paid insiders and outside consultants – than it spent on actually

drilling for oil.

Miller spent $14.5 million last year on overhead, its new 10K filing

shows, compared to just $9.7 million on drilling activities during that

same period. The company recorded $5.16 million in stock-based

compensation alone – a total that excludes the generous cash payments

showered on its top executive – with that cost, totaling 12 cents a share,

basically accounting for the entire net loss (also 12 cents a share) suffered

by the company last year.

As CEO of the company, records show, Boruff received a compensation

package valued at $2.1 million all by himself. He scored $1.425 million of

that in cash – a sum approaching all of the unrestricted cash listed on the

company’s most recent balance sheet – after securing a hefty bonus that

more than tripled the cash payout that he would have otherwise received.

He also owns more than 4 million shares of Miller stock, records show, a


27

10% stake in the company that’s still worth roughly $13.5 million even

after the recent collapse.

50. On August 9, 2011, before the market opened, the Company filed a Form 10-K/A

for year ended April 30, 2011. The Company disclosed the following:

The Company has restated its unaudited consolidated balance sheets as of

July 31, 2010, October 31, 2010 and January 31, 2011 and our unaudited consolidated statements of operations for the quarterly and year to date

periods then ended. In each of the first two quarters of fiscal 2011, we

failed to properly record depletion, depreciation and amortization expense

related to leasehold costs, wells and equipment, fixed assets and asset

retirement obligations and did not properly record the state tax credits

expected from our Alaska operations. In the third quarter of fiscal 2011, it

was determined that we inappropriately recorded revenue on a gross basis

for overriding royalty interests (rather than recording revenue on a net

basis). The correction of this classification error resulted in a decrease to

“oil and gas revenue” and “oil and gas operating” of $824,746,

$1,036,987, and $1,429,499, respectively, for the quarters ended July 31,

2010, October 31, 2010, and January 31, 2011. We also determined that

we failed to properly record sufficient compensation expense on equity

awards, did not properly calculate the liability for our derivative

instruments, and did not properly consolidate an entity we control. The

consolidation of MEI resulted in a decrease to notes payable, an increase

to stockholders’ equity, and minor adjustments to cash, other assets and

accrued expenses.

The corrections recorded to restate the unaudited consolidated financial

statements as of July 31, 2010 include errors related to 2010 that were

identified during the review of our 2011 fiscal third quarter. Such errors

were originally corrected in the Company’s restated unaudited

consolidated financial statements for the first quarter ended July 31, 2010.

After identifying additional errors, we determined that the aggregate

impact of such errors was material to the unaudited consolidated financial

statements for the quarter ended July 31, 2010. Accordingly, the 2010

consolidated financial statements were revised to correct these errors,

which are considered immaterial to 2010. Such corrections to our unaudited consolidated financial statements for the quarter ended July 31,

2010 resulted in a decrease to “general and administrative” of $1,107,000

and a decrease to “depreciation, depletion, and amortization” of $715,306.

51. As a result of these revelations, Miller shares fell an additional $0.37 or more than

13%, to close at $2.36.


28

PLAINTIFF’S CLASS ACTION ALLEGATIONS

52. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or

otherwise acquired Miller securities during the Class Period (the “Class”); and were damaged

thereby. Excluded from the Class are defendants herein, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal

representatives, heirs, successors or assigns and any entity in which defendants have or had a

controlling interest.

53. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Miller securities were actively traded on the OTC,

NASDAQ, or NYSE. While the exact number of Class members is unknown to Plaintiff at this

time and can be ascertained only through appropriate discovery, Plaintiff believes that there are

hundreds or thousands of members in the proposed Class. Record owners and other members of

the Class may be identified from records maintained by Miller or its transfer agent and may be

notified of the pendency of this action by mail, using the form of notice similar to that custom-

arily used in securities class actions.

54. Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by defendants’ wrongful conduct in violation of

federal law that is complained of herein.

55. Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.

Plaintiff has no interests antagonistic to or in conflict with those of the Class.


29

56. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

• whether the federal securities laws were violated by defendants’ acts as

alleged herein;

• whether statements made by defendants to the investing public during the

Class Period misrepresented material facts about the business, operations and

management of Miller;

• whether the Individual Defendants caused Miller to issue false and misleading

financial statements during the Class Period;

• whether defendants acted knowingly or recklessly in issuing false and

misleading financial statements;

• whether the prices of Miller securities during the Class Period were artificially

inflated because of the defendants’ conduct complained of herein; and

• whether the members of the Class have sustained damages and, if so, what is

the proper measure of damages.

57. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

58. Plaintiff will rely, in part, upon the presumption of reliance established by the

fraud-on-the-market doctrine in that:

• defendants made public misrepresentations or failed to disclose material facts

during the Class Period;

• the omissions and misrepresentations were material;

• Miller securities are traded in efficient markets;


30

• the Company’s shares were liquid and traded with moderate to heavy volume

during the Class Period;

• the Company traded on the OTC, NASDAQ, or NYSE, and was covered by

multiple analysts;

• the misrepresentations and omissions alleged would tend to induce a

reasonable investor to misjudge the value of the Company’s securities; and

• Plaintiff and members of the Class purchased and/or sold Miller securities

between the time the defendants failed to disclose or misrepresented material

facts and the time the true facts were disclosed, without knowledge of the

omitted or misrepresented facts.

59. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a

presumption of reliance upon the integrity of the market.

COUNT I

(Against All Defendants For Violations of Section 10(b) And Rule 10b-5 Promulgated Thereunder)

60. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

61. This Count is asserted against defendants and is based upon Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC.

62. During the Class Period, defendants engaged in a plan, scheme, conspiracy and

course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,

practices and courses of business which operated as a fraud and deceit upon Plaintiff and the

other members of the Class; made various untrue statements of material facts and omitted to state

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading; and employed devices, schemes and artifices to

defraud in connection with the purchase and sale of securities. Such scheme was intended to,

and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and


31

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

Miller securities; and (iii) cause Plaintiff and other members of the Class to purchase Miller

securities and options at artificially inflated prices. In furtherance of this unlawful scheme, plan

and course of conduct, defendants, and each of them, took the actions set forth herein.

63. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the

defendants participated directly or indirectly in the preparation and/or issuance of the quarterly

and annual reports, SEC filings, press releases and other statements and documents described

above, including statements made to securities analysts and the media that were designed to

influence the market for Miller securities. Such reports, filings, releases and statements were

materially false and misleading in that they failed to disclose material adverse information and

misrepresented the truth about Miller’s finances and business prospects.

64. By virtue of their positions at Miller, defendants had actual knowledge of the

materially false and misleading statements and material omissions alleged herein and intended

thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants

acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose

such facts as would reveal the materially false and misleading nature of the statements made,

although such facts were readily available to defendants. Said acts and omissions of defendants

were committed willfully or with reckless disregard for the truth. In addition, each defendant

knew or recklessly disregarded that material facts were being misrepresented or omitted as

described above.

65. Defendants were personally motivated to make false statements and omit material

information necessary to make the statements not misleading in order to personally benefit from

the sale of Miller securities from their personal portfolios.


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66. Information showing that defendants acted knowingly or with reckless disregard

for the truth is peculiarly within defendants’ knowledge and control. As the senior managers

and/or directors of Miller, the Individual Defendants had knowledge of the details of Miller

internal affairs.

67. The Individual Defendants are liable both directly and indirectly for the wrongs

complained of herein. Because of their positions of control and authority, the Individual

Defendants were able to and did, directly or indirectly, control the content of the statements of

Miller. As officers and/or directors of a publicly-held company, the Individual Defendants had a

duty to disseminate timely, accurate, and truthful information with respect to Miller’s businesses,

operations, future financial condition and future prospects. As a result of the dissemination of

the aforementioned false and misleading reports, releases and public statements, the market price

of Miller securities was artificially inflated throughout the Class Period. In ignorance of the

adverse facts concerning Miller’s business and financial condition which were concealed by

defendants, Plaintiff and the other members of the Class purchased Miller securities at artificially

inflated prices and relied upon the price of the securities, the integrity of the market for the

securities and/or upon statements disseminated by defendants, and were damaged thereby.

68. During the Class Period, Miller securities were traded on an active and efficient

market. Plaintiff and the other members of the Class, relying on the materially false and

misleading statements described herein, which the defendants made, issued or caused to be

disseminated, or relying upon the integrity of the market, purchased shares of Miller securities at

prices artificially inflated by defendants’ wrongful conduct. Had Plaintiff and the other members

of the Class known the truth, they would not have purchased said securities, or would not have

purchased them at the inflated prices that were paid. At the time of the purchases by Plaintiff


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and the Class, the true value of Miller securities were substantially lower than the prices paid by

Plaintiff and the other members of the Class. The market price of Miller securities declined

sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class

members.

69. By reason of the conduct alleged herein, defendants knowingly or recklessly,

directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule 10b-5

promulgated thereunder.

70. As a direct and proximate result of defendants’ wrongful conduct, Plaintiff and

the other members of the Class suffered damages in connection with their respective purchases

and sales of the Company’s securities during the Class Period, upon the disclosure that the

Company had been disseminating misrepresented financial statements to the investing public.

COUNT II

(Violations of Section 20(a) of the

Exchange Act Against The Individual Defendants)

71. Plaintiff repeats and realleges each and every allegation contained in the

foregoing paragraphs as if fully set forth herein.

72. During the Class Period, the Individual Defendants participated in the operation

and management of Miller, and conducted and participated, directly and indirectly, in the

conduct of Miller’s business affairs. Because of their senior positions, they knew the adverse

non-public information about Miller’s misstatement of income and expenses and false financial

statements.

73. As officers and/or directors of a publicly owned company, the Individual

Defendants had a duty to disseminate accurate and truthful information with respect to Miller’s


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financial condition and results of operations, and to correct promptly any public statements

issued by Miller which had become materially false or misleading.

74. Because of their positions of control and authority as senior officers, the

Individual Defendants were able to, and did, control the contents of the various reports, press

releases and public filings which Miller disseminated in the marketplace during the Class Period

concerning Miller’s results of operations. Throughout the Class Period, the Individual

Defendants exercised their power and authority to cause Miller to engage in the wrongful acts

complained of herein. The Individual Defendants therefore, were “controlling persons” of Miller

within the meaning of Section 20(a) of the Exchange Act. In this capacity, they participated in

the unlawful conduct alleged which artificially inflated the market price of Miller securities.

75. Each of the Individual Defendants, therefore, acted as a controlling person of

Miller. By reason of their senior management positions and/or being directors of Miller, each of

the Individual Defendants had the power to direct the actions of, and exercised the same to cause,

Miller to engage in the unlawful acts and conduct complained of herein. Each of the Individual

Defendants exercised control over the general operations of Miller and possessed the power to

control the specific activities which comprise the primary violations about which Plaintiff and

the other members of the Class complain.

76. By reason of the above conduct, the Individual Defendants are liable pursuant to

Section 20(a) of the Exchange Act for the violations committed by Miller.


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PRAYER FOR RELIEF

WHEREFORE , Plaintiff demands judgment against defendants as follows:

A. Determining that the instant action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class

representative;

B. Requiring defendants to pay damages sustained by Plaintiff and the Class by

reason of the acts and transactions alleged herein;

C. Awarding Plaintiff and the other members of the Class prejudgment and post-

judgment interest, as well as their reasonable attorneys’ fees, expert fees and other costs; and

D. Awarding such other and further relief as this Court may deem just and proper.

DEMAND FOR TRIAL BY JURY

Plaintiff hereby demands a trial by jury.

Dated: August 15, 2011 BRAMLETT LAW OFFICES BY:

s/Paul Kent Bramlett_____________ PAUL KENT BRAMLETT #7387 P. O. Box 150734 Nashville, TN 37215-0734 Telephone: 615.248.2828 Facsimile: 866.816.4116 E-Mail: [email protected] TN SUP CT #7387/MS SUP CT #4291

POMERANTZ HAUDEK GROSSMAN & GROSS, LLP

Marc I. Gross Jeremy A. Lieberman 100 Park Avenue, 26th Floor New York, New York 10017-5516 Telephone: (212) 661-1100 Facsimile: (212) 661-8665


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POMERANTZ HAUDEK GROSSMAN & GROSS, LLP

Patrick V. Dahlstrom One North LaSalle Street, Suite 2225

Chicago, Illinois 60602 Telephone: (312) 377-1181 Facsimile: (312) 377-1184

Attorneys for Plaintiff


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In re Miller Energy Resources, Inc. Securities Litigation...

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