A U.S. judge has ordered two former finance executives at Penn West Petroleum Ltd., now known as Obsidian Energy Ltd. (NYSE: OBE), to face regulatory charges that they helped engineer a multi-year accounting fraud to reduce the Canadian company's operating expenses.

In a decision made public on June 11, U.S. District Judge Gregory Woods in Manhattan said the Securities and Exchange Commission's (SEC) complaint raised a "strong inference" that Todd Takeyasu and Jeffery Curran intended to defraud investors.

Prior to being terminated in 2014, Takeyasu had been Penn West's CFO, and Curran reported to him as vice president of accounting and reporting.

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The SEC accused them of helping to move hundreds of millions of dollars to capital expense accounts from operating expense accounts, reducing reported operating costs and making oil extraction activities appear more profitable and efficient.

"In light of all of the facts alleged, the SEC sufficiently pleads that Takeyasu and Curran were at least aware of improper accounting practices and did nothing to correct them or to otherwise ensure the strength of Penn West's internal controls," Woods wrote, without ruling on the merits.

Richard Albert, a lawyer for Takeyasu, said his client "looks forward to the substantial factual record refuting the SEC's claims coming to light, and to ultimately prevailing."

Helen Gredd, a lawyer for Curran, said the portrait of her client in the SEC complaint "bears no resemblance to him," and that Curran looks forward to showing the regulator's allegations are meritless.

Both lawyers commented in emails. Woods' 42-page decision is dated June 9.

Obsidian agreed in November to pay an $8.5 million civil fine to settle related SEC charges.

The Calgary, Alberta-based company did not admit or deny wrongdoing. It paid about C$53 million (US$41 million) in 2016 to settle related shareholder litigation.

Penn West was once among Canada's largest oil and gas producers, producing around 100,000 barrels of oil equivalent per day, but downsized by selling most assets.

Its adoption of the Obsidian name was an effort to distance itself from Penn West's past, including a September 2014 restatement of more than two years of financial statements.

The case is SEC v Takeyasu et al, U.S. District Court, Southern District of New York, No. 17-04866.