UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
Release No. 76006 / September 29, 2015
ADMINISTRATIVE PROCEEDING
File No. 3-16843
In the Matter of
Hyperdynamics Corporation
Respondent
ORDER INSTITUTING CEASE AND
DESIST PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A CEASEAND-
DESIST ORDER
I.
The Securities and Exchange Commission (the “Commission”) deems it appropriate that
cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the
Securities Exchange Act of 1934 (the “Exchange Act”) against Hyperdynamics Corporation
(“Hyperdynamics” or “Respondent” or the “Company”).
II.
In anticipation of the institution of these proceedings, Hyperdynamics has submitted an
Offer of Settlement (the “Offer”) which the Commission has determined to accept. Solely for
the purpose of these proceedings and any other proceedings brought by or on behalf of the
Commission, or to which the Commission is a party, and without admitting or denying the
findings herein, except as to the Commission’s jurisdiction over them and the subject matter of
these proceedings, which are admitted, Hyperdynamics consents to the entry of this Order
Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange
Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth
below.
III.
On the basis of this Order and Hyperdynamics’s Offer, the Commission finds1 that:
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other
person or entity in this or any other proceeding.
2
SUMMARY
1. Hyperdynamics failed to accurately record certain payments made by its
subsidiary based in the Republic of Guinea. The company initially recorded the payments as
public relations and lobbying expenses to unrelated third parties without evidence that such
services were actually performed. The company later determined that its Guinean-based
employee controlled the third party entities, but did not record the payments as related party
transactions. Hyperdynamics also failed to implement or maintain a system of adequate internal
accounting controls to track the subsidiary’s use of funds, as well as to determine whether the
company’s subsidiary paid related parties. The company’s internal accounting controls also
failed to provide reasonable assurances that Hyperdynamics’s recording of such expenditures
was accurate.
RESPONDENT
2. Hyperdynamics is a Delaware corporation headquartered in Houston, TX.
Hyperdynamics’s stock is registered under Section 12(g) of the Exchange Act and its shares are
quoted by the OTCQX, an over-the-counter marketplace operated by OTC Market Group, Inc.
Hyperdynamics is an emerging independent oil and gas exploration company which is exploring
for oil and gas offshore the Republic of Guinea in West Africa.
FACTS
3. Hyperdynamics was founded in 1996 as a commercial computer and
communications service provider. In 2001, the company transitioned to the oil and gas industry,
and one year later, Hyperdynamics purchased contract rights from a small oil company which
owned the exclusive drilling rights offshore the Republic of Guinea. Company executives
began travelling to Guinea in 2005, and eventually opened a wholly-owned subsidiary in
Conakry to facilitate ongoing operations.
4. From July 2007 through October 2008, Hyperdynamics, through its subsidiary,
paid $130,000 for public relations and lobbying services in the Republic of Guinea to two
supposedly unrelated entities – $55,000 to BerMia Service SRL, and $75,000 to Africa Business
Service (“ABS”). The subsidiary’s books and records were consolidated with Hyperdynamics’s
books and records, and these payments were recorded as public relations and lobbying expenses,
even though the company lacked sufficient supporting documentation to determine whether the
services were actually provided and to identify the ultimate recipient of the funds.
5. In late 2008, Hyperdynamics discovered that a Guinean-based employee
controlled BerMia and ABS. Hyperdynamics also learned that this employee was the sole
signatory on the ABS account. But Hyperdynamics could not determine how, if at all, BerMia or
ABS spent the funds they had received, or whether any services actually were provided.
Moreover, the company could not recover the funds. There is no evidence that these funds were
in fact spent on legitimate public relations and lobbying activities, yet Hyperdynamics’s books
and records continued to reflect that the funds were spent for these purposes.
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6. Hyperdynamics lacked adequate internal accounting controls over its
disbursement of funds through its Guinean subsidiary, as well as its recording of such
disbursements. In addition, the company did not have a due diligence and monitoring process in
place for vetting third-party vendors; accordingly, it failed to conduct due diligence on BerMia
and ABS. As a result, Hyperdynamics did not timely discover that the payments were made to
companies controlled by its employee, nor could it ascertain the true purpose for which these
funds were spent. The inadequate controls also led Hyperdynamics to record these
disbursements as public relations and lobbying expenses without any supporting documentation
that such services were provided.
7. As a result of the conduct described above, Hyperdynamics violated Section
13(b)(2)(A) of the Exchange Act, which requires issuers to make and keep books, records, and
accounts, which, in reasonable detail, accurately and fairly reflect the transactions and
disposition of the assets of the issuer.
8. In addition, Hyperdynamics violated Section 13(b)(2)(B) of the Exchange Act,
which requires all reporting companies to devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that transactions: (i) are executed in
accordance with management’s general or specific authorization; and (ii) are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles or any other criteria applicable to such statements, and to maintain
accountability for assets.
HYPERDYNAMICS’S REMEDIAL EFFORTS AND COOPERATION
9. Beginning in July 2009, Hyperdynamics replaced its senior management team and
its entire Board of Directors. The company also hired its first in-house lawyer, who
implemented a number of training programs and revised company policies related to its Guinean
operations. Hyperdynamics also increased the number of its accounting personnel, and
instituted a series of procedures to more strictly control and identify transfers of funds to Guinea,
including the transfer of signature authority over Guinean accounts to Houston-based employees,
as well as requiring corporate pre-approval for all Guinean expenditures.
10. In determining to accept the Offer, the Commission considered remedial acts
undertaken by Respondent and cooperation afforded the Commission staff.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions
agreed to in Respondent’s Offer.
Accordingly, it is hereby ORDERED that:
A. Pursuant to Section 21C of the Exchange Act, Hyperdynamics cease and desist
from committing or causing any violations and any future violations of Sections
13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
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B. Hyperdynamics shall, within 30 days of the entry of this Order, pay a civil money
penalty in the amount of $75,000 to the Securities and Exchange Commission for
transfer to the general fund of the United States Treasury, subject to Exchange
Act Section 21F(g)(3). If timely payment is not made, additional interest shall
accrue pursuant to 31 U.S.C. §3717. Payment must be made in one of the
following ways:
(1) Respondent may transmit payment electronically to the Commission,
which will provide detailed ACH transfer/Fedwire instructions upon
request;
(2) Respondent may make direct payment from a bank account via Pay.gov
through the SEC website at sec.gov; or
(3) Respondent may pay by certified check, bank cashier’s check, or United
States postal money order, made payable to the Securities and Exchange
Commission and hand-delivered or mailed to:
Enterprise Services Center
Accounts Receivable Branch
HQ Bldg., Room 181, AMZ-341
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
Payments by check or money order must be accompanied by a cover letter
identifying Hyperdynamics as a Respondent in these proceedings, and the file
number of these proceedings; a copy of the cover letter and check or money order
must be sent to David L. Peavler, Associate Regional Director, Fort Worth
Regional Office, Division of Enforcement, Securities and Exchange Commission,
801 Cherry Street, Suite 1900, Fort Worth, Texas, 76102.
C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall
be treated as penalties paid to the government for all purposes, including all tax
purposes. To preserve the deterrent effect of the civil penalty, Respondent agrees
that in any Related Investor Action, it shall not argue that it is entitled to, nor shall
it benefit by, offset or reduction of any award of compensatory damages by the
amount of any part of Respondent’s payment of a civil penalty in this action
("Penalty Offset"). If the court in any Related Investor Action grants such a
Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a
final order granting the Penalty Offset, notify the Commission's counsel in this
action and pay the amount of the Penalty Offset to the Securities and Exchange
Commission. Such a payment shall not be deemed an additional civil penalty and
shall not be deemed to change the amount of the civil penalty imposed in this
proceeding. For purposes of this paragraph, a "Related Investor Action" means a
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