In 1996, Seven Seas Petroleum operates and maintains a significant working interest share of the Guaduas Oil Field in Colombia. In January 1998, Seven Seas begins trading on the American Stock Exchange and files its "proved reserves" estimates as required by the Securities and Exchange Act. It also files its Form 10-K which incorporates information as to its reserves from reports prepared by Ryder Scott. The Form 10-K estimates the proved reserves as 32.2 million barrels with a value of $144.9 million. Subsequent annual filings continue to show large reserves and even greater values. Plaintiffs are purchasers of Seven Seas' unsecured subordinated notes. Shortly after the purchase Seven Seas issues an additional $45 million in senior secured notes, 50% to Chesapeake Energy and 50% to a group of investors including the Chairman and Chief Executive Office of Seven Seas. Ryder Scott then issues a 2002 reserve report which revises downward the amount of proved reserves. This leads plaintiffs, among others, to file an involuntary petition for relief against Seven Seas in Bankruptcy Court. The case is converted to a Chapter 11 bankruptcy. The trustee then brings an action against various secured lenders, including the CEO alleging that the CEO breached duties owed to Seven Seas and its creditors. A few weeks later plaintiffs sue Ryder Scott and the CEO for negligent misrepresentation and fraud under the Texas Securities Act. The CEO files a summary judgment motion arguing that only the bankruptcy trustee has standing to bring the claims asserted by the plaintiffs. Ryder Scott then joins in the CEO's motion.
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