Breitling Energy Corporation CEO Chris Faulkner declared himself the “frack master” during dozens of cable TV appearances. The federal Securities and Exchange Commission said Friday he was actually a fraud master, charging him and seven associates with allegedly engineering an $80 million oil and gas swindle.
While the scheme alleged by the SEC is complex, some of the basic claims are not. The SEC says:
* Faulkner lied about his background in oil and gas exploration — he had little, according to the charges. And he lied about receiving a master’s degree from the University of North Texas and a doctorate from Concordia College.
* He and his associates lied about what it would cost to drill wells — they vastly inflated the estimates and pocketed the difference paid to them for drilling by investors.
* They lied about how much production might come from the wells — using estimates based on the absolute best wells nearby, and sometimes better than that. And then used those inflated estimates to hook investors.
* The SEC accuses Faulkner directly of misappropriating “at least $30 million in investor funds to maintain a lifestyle of decadence and debauchery.”
The scheme sucked in hundreds of investors from across the country, the SEC said.
Larry Friedman, a Dallas lawyer representing Faulkner, said that the charges are not true and that his client intends to contest them in federal court. There is no criminal penalty attached to the accusations.
“We were very surprised to see this today,” Friedman said. “We have a long history with the SEC. And to my knowledge, we have no investor complaints.”
“The SEC is charged with enforcing violations of the securities and exchange act. This looks more like a vendetta,” he said.
But the SEC charges and incredibly detailed and specific.
“Faulkner allegedly orchestrated a sophisticated and multi-layered schemes using BECC and its affiliated entities as a conduit to access millions of investor dollars,” SEC Regional Director Shamoil Shipchandler said in a written statment. “The financing for Faulkner’s opulent lifestyle came directly at the expense of unwitting investors across the country.”
The SEC charges include the use of American Express company cards by Faulkner and Jeremy Wagers, a lawyer working for the company:
“Faulkner used this card – which he referred to as his ‘whore card’ – to charge more than $1 million for personal travel, expenses for various personal escorts, gentlemen’s clubs, nightclubs, and associated expenditures. Wagers used his card predominantly for gentlemen’s club expenses, including nearly $40,000 in charges at a Dallas gentlemen’s club over a four-day period in July 2014.”
But Faulkner’s lawyer said the SEC is ignoring what it takes to wine and dine potential high-roller investors.
“That’s just the cost of doing business,” Friedman said.
A call late Friday morning to the Dallas phone number listed on the company website rolled straight to a recording: “Thank you for calling Breitling Energy. We are currently closed.”
The company’s offices at 1910 Pacific Ave. Suite 12,000 are vacant. An employee at building’s property manager’s office said Friday that Breitling recently moved two floors up. In one of those offices, a sticker tagged to a desk read suite 12,000 had a “lock out” date of May 3. Nobody was inside the three Breitling offices on the 14th floor.
The SEC also suspended trading in Breitling stock Wednesday. The stock had closed Thursday at about 2 cents.
The company websiteoffers no financial records since the third quarter of 2014. But there is a current page of Faulkner’s media appearances. It includes links to 10 just this year on CNN International or Fox Business Network.
The authorities said Faulkner began the scheme in 2011 with Breitling Oil and Gas Corporation (the predecessor to BECC). He also created Crude Energy and Patriot Energy to scam investors, the SEC alleges. The SEC says he also created other entities that he used in 2014 to buy up Breitling stock in an attempt to make it look more valuable to other investors in the midst of the oil price crash.
The SEC says the whole scheme fell apart in April 2016. Although the various companies had pulled in more than enough money to handle the payments needed to drill and complete the wells they had agreed to, Faulkner had siphoned off so much cash that much of the drilling had to be shut down.
But the collapse has been a long time coming. In September 2015, Faulkner filed a form with the SEC admitting that financial statements for his companies going back to 2012 “should not be relied upon,” the SEC said.
A few months earlier, in April 2015, the Texas Observer had published an extensive investigation of Faulkner and his companies titled “The Lite Guv and the Frack Master.” The piece was pegged to Faulkner having been appointed to a “energy advisory board” named by incoming Texas Lt. Gov. Dan Patrick. Fauklner resigned two months after the appointment.
Patrick’s office has not responded to a request for comment Friday.
The Observer summarized Faulkner this way:
“State and federal court records in Texas, Oklahoma and Illinois show a litany of lawsuits by angry creditors and former employees as well as a minor arrest. Additionally, and central to the question of whether Faulkner met the criteria Patrick touted for his energy committee, in a series of interviews for this story, Faulkner and his spokesman painted a more limited picture of the company’s activities than some public statements by Faulkner and the name Frack Master might imply.”
In addition to Faulkner and Wagers, the SEC also charged:
Judson Hoover, 39, of Highland Village, Breitling’s CFO from February 2014 to February 2015; Parker Hallan, 35, of Dallas, a co-founder of the predecessor company to Breitling Energy; Joseph Simo, 64, of Plano, who provided supposedly independent geology analysis to Breitling even as he worked for the company; Dustin Michael Miller Rodriguez, 41, of Dallas, another co-founder; Beth Handkins, 41, of Waxahachie, listed as COO of Breitling-related companies from December 2013 through March 2016; and Gilbert Steedley, 51, of Bronxville, NY, Brietling’s vice president of capital markets from December 2013 through September 2015.
Miller, Handkins and Steedley have offered to settle the charges, the SEC said.