Executive accused of corrupt dealings
The federal government charged Houston-based Energy XXI founder John Schiller on Monday with failing to disclose well more than $10 million in personal loans and perks he received from corporate vendors and board members in exchange for business contracts and board appointments.
The U.S. Securities and Exchange Commission alleges Schiller engaged in pay-for-play with vendors dating back to 2014, personally receiving $7.5 million in undisclosed loans from companies that were awarded business contracts with Energy XXI. Schiller also was given a $3 million loan from a large Energy XXI shareholder who subsequently became a board member.
“Executives of public companies have a duty to act in the best interests of investors,”
said Anita Bandy, an SEC assistant director of enforcement. “Secret backroom deals for the benefit of corporate insiders violate those duties and deprive investors of important information.”
Before and during much of the oil bust that began in late 2014, Schiller, 59, owned a River Oaks mansion, a 350-acre Texas ranch, racehorses, and he lived an extravagant lifestyle that required him to spend millions a year to maintain. With much of his money tied up in his company’s shares, the oil collapse sucked up much of his liquidity, leading him to seek the personal loans without informing the company, the SEC contends. The SEC alleged that Schiller ordered his company’s executives to award contracts to energy services firms that gave him loans.
Schiller, who was ousted from Energy XXI in early 2017 after it emerged from bankruptcy, agreed to pay a $180,000 penalty and to accept a five-year ban from serving as an officer or board director of a public company. Schiller consented to the penalties without admitting or denying fault, the SEC said.
Schiller declined comment Monday but his lawyer, Barrett Reasoner, said, “Mr. Schiller cooperated fully with the SEC and its investigation and is happy to put this matter behind him with the settlement.” Reasoner said Schiller is currently pursuing private business opportunities in the oil and gas sector.
Energy XXI emerged last year from bankruptcy with the tweaked name Energy XXI Gulf Coast. The offshore oil and gas company agreed to be bought in June by a privately held Dallas company, Cox Oil, for more than $300 million, a deal that will bring an end to what was once the largest publicly traded independent producer in the shallow Gulf of Mexico.
Energy XXI Gulf Coast reiterated Monday that it has no ties to Schiller or to the others involved.
“EGC is a new company with an entirely new executive management team and board of directors. EGC is not a party to the actions announced by the SEC today,” the company stated. “Since emergence (from bankruptcy), EGC has taken a number (of ) actions to enhance corporate governance, including in the areas of vendor procurement, conflicts of interest, pledging EGC securities and gift, travel and entertainment expenses.”
The SEC said the additional $3 million loan for Schiller came from former board member Norman Louie, a portfolio manager at Energy XXI’s then-largest shareholder, Mount Kellett Capital Management. Louie was appointed to Energy XXI’s board just weeks later. The SEC alleges Schiller did not disclose the vendor loans or the Louie loan to Energy XXI. Louie settled with the SEC to pay a $100,000 penalty while Mount Kellett will pay $160,000.
The SEC also said Schiller received undisclosed compensation and perks in the form of lavish social events, first-class travel, a shopping spree, donations to Schiller-preferred charities, legal expenses for personal matters and an office bar stocked with high-end liquor and cigars. Overall, Energy XXI failed to report more than $1 million in excess compensation to Schiller over a five-year period.
Schiller was investigated internally by Energy XXI back in 2015 for taking personal loans from Energy XXI vendors and a board member. He was first stripped of his chairman’s title and later forced out of the CEO post and off the board.
Energy XXI was formed in 2005 by Schiller and, in less than a decade, went on a buying spree of more than $5 billion to build up its shallow Gulf acreage, including acquiring $1 billion in assets from Exxon Mobil.
The company’s expansion peaked in June 2014 when it closed a deal to buy rival EPL Oil & Gas for $2.3 billion, including the assumption of about $800 million in debt. In hindsight, the timing couldn’t have been worse.
That same month U.S. oil prices peaked above $107 a barrel. Soon after, oil prices began their slide, accelerating into freefall that hit bottom in February 2016 at just above $26 a barrel.
Two months later, Energy XXI filed for bankruptcy with about $2.8 billion in debt. Energy XXI certainly wasn’t alone. More than 300 U.S. energy companies, including about 160 based out of Texas, filed for bankruptcy following the 2014 collapse in oil prices.
The SEC said the investigation remains ongoing.