Mammoth Energy deals with federal investigation

Oklahoma City-based Mammoth Energy revealed more information about the federal investigation into the former President of the company’s subsidiary that handled contracts to restore electrical power electric power to Puerto Rico following the September 2017 category five Hurricane Maria.
In a Form 10-Q filed with the U.S. Securities Exchange Commission, the company said the investigation is being carried out by the U.S. Attorney’s office for the District of Puerto Rico and the Department of Homeland Security Office of Inspector General.
“The Company has been informed that the investigation is focused on the interactions between a FEMA official and the former President of Cobra. The Company has been cooperating with this investigation. Given the uncertainty inherent with respect to such investigations and any resulting litigation, it is not possible to determine the potential outcome at this time. If it is determined that the Company or its employees engaged in improper activities, however, the Company may be subject to civil and criminal penalties, and contractual, civil and criminal damages that may include the repayment of all or part of amounts paid to Cobra by PREPA and/or forgoing any of the amounts currently owed to Cobra.”
In the SEC filing, Mammoth stated that it continues to evaluate this situation and at this time is not able to predict the outcome of the investigation or whether it will have a material impact on the Company’s financial position, results of operations or cash flows.
The former President of Cobra Acquisitions Energy is Donald Keith Ellison. Federal agents seized $4.5 million of his assets earlier in the summer as part of the investigation. The investigation is focusing on Ellison’s relationship with a former FEMA official and how Cobra’s $1.8 billion in contracts with the Puerto Rico Electric Power Authority were awarded.
Reports in San Juan, Puerto Rico indicated Ahsha Tribble, a regional FEMA administrator supervised the reconstruction of the island’s power grid after Hurricane Maria.
Mammoth Energy is also dealing with a putative class action lawsuit filed in June 2018 over its power restoration efforts in Puerto Rico.
“On June 27, 2018, the Company’s registered agent notified the Company that it had been served with a putative class action lawsuit titled Wendco of Puerto Rico Inc.; Multisystem Restaurant Inc.; Restaurant Operators Inc.; Apple Caribe, Inc.; on their own behalf and in representation of all businesses that conduct business in the Commonwealth of Puerto Rico vs. Mammoth Energy Services Inc.; Cobra Acquisitions, LLC; D. Grimm Puerto Rico, LLC; Aseguradoras A, B & C; John Doe; Richard Doe, in the Commonwealth of Puerto Rico Superior Court of San Juan. The plaintiffs allege negligent acts by the defendants caused an electrical failure in Puerto Rico resulting in damages of at least $300 million.”
Mammoth indicated in the SEC filing that it believes the claim is without merit and is defending the act.
“However, the Company continues to evaluate the background facts and at this time is not able to predict the outcome of this lawsuit or whether it will have a material impact on the company’s financial position, results of operations or cash flows,” stated the firm in the filing.
Cobra is also dealing with four lawsuits filed in 2018 and 2019 by municipalities in Puerto Rico that claim the company failed to pay municipal license and construction excise taxes.
A class action lawsuit was also filed against the company in April, 2019 alleging the firm failed to pay a class of workers overtime. It was filed against Higher Power Electrical LLC, Cobra Acquisitions LLC and Cobra Energy LLC in Puerto Rico U.S. District Court.
Click here to read entire Form 10-Q filing.