Mammoth Energy Services announced Wednesday a proposed settlement of derivative lawsuits filed by shareholders following federal investigations of contracts the company had to restore electrical power in Puerto Rico after the 2017 Hurricane Maria.
The Oklahoma City company had been hit with four such lawsuits in 2019, two in Oklahoma City federal court and two in Delaware federal court. Eventually one suit was dismissed and the remaining three against the company’s directors and executive officers were consolidated.
An agreement of settlement was reached last month which has yet to receive final approval in court. It involved shareholders Aaron Randall, Mohammad Shaer, and Christopher Jones.
Those named as defendants in the lawsuit were Mammoth’s President Arty Straehla, Mark Layton, Arthur Amron, Paul V. Heerwagen IV, Marc McCarthy, Jim Palm, Matthew Ross, and Arthur Smith and Gulfport Energy Company and Wexford Capital LP.
The terms of the stipulation provide for a $1.5 million payment to Mammoth from Mammoth’s Directors and Officers’ insurance policy with the provision that the company “will adopt certain corporate governance reforms, which will further enhance Mammoth’s current corporate governance policies.”
In addition, the insurers will pay $500,000 to plaintiffs’ counsel for their attorney fees and expenses. Under the stipulation, none of the defendants admit or concede any fault, liability, wrongdoing or damage whatsoever.
The Court has set a hearing date for January 7, 2022 to consider the final approval of the settlement.
The lawsuits were filed over federal indictments against former officers of Mammoth’s indirect subsidiary Cobra Acquisitions LLC which had been awarded two contracts totaling nearly $1.8 billion following the hurricane that hit Puerto Rico. The indictments accused then Cobra President Donald Ellison of providing items to FEMA officials in exchange for the contracts.
The shareholders in turn filed suit accusing Mammoth executives of breaching their fiduciary duties by failing to implement a reasonable, relevant, meaningful, and well-constituted system of internal controls that might have prevented the actions that led to the federal indictments.
According to Mammoth’s announcement, the sides agreed to the settlement to “avoid the distraction, costs, and risks of further litigation” and that the insurance payment, plus the promised corporate reforms would be in the bests interests of all.