SEC Charges 'Frack Master' with Running an $80 Million Oil and Gas Fraud
June 24, 2016
The Fort Worth Regional Office of the Securities and Exchange Commission today charged four companies and eight individuals in an $80 million oil and gas fraud orchestrated by a Dallas man who calls himself the “Frack Master” for his purported expertise in hydraulic fracturing.
The SEC charged Chris Faulkner – the CEO of Breitling Energy Corporation (BECC) and frequent guest on CNBC, CNN International, Fox Business News, and the BBC to discuss oil-and-gas topics – with disseminating false and misleading offering materials, misappropriating millions of dollars of investor funds, and attempting to manipulate BECC’s stock. The SEC also charged BECC and suspended trading in BECC’s securities for 10 business days.
According to the SEC’s complaint, privately-held Breitling Oil and Gas Corporation (BOG) offered and sold “turnkey” oil and gas working interests. Faulkner ran most of BOG’s operations, while co-owners Parker Hallam and Michael Miller oversaw the sales process. The SEC alleged that BOG’s offering materials contained false statements and omissions about Faulkner’s experience, estimates for drilling costs, and how investor funds would be used. The SEC further alleged that the offering materials included reports by licensed geologist Joseph Simo that included baseless production projections and failed to disclose his affiliation with BOG. The scheme evolved to include BOG’s successor, BECC, a reporting company with shares traded on OTC Link and two affiliated entities, Crude Energy LLC and later Patriot Energy Inc., which Faulkner established to deceive investors through offerings similar to those conducted by BOG. The SEC alleged that Beth Handkins, a former employee of Crude and Patriot, Rick Hoover, the former CFO of BECC, and Jeremy Wagers, BECC’s general counsel and COO, all played essential roles in assisting Faulkner in the alleged fraud. BOG, Crude and Patriot raised more than $80 million from investors as part of the deceptive offerings; and Faulkner misappropriated at least $30 million of investor funds for personal expenses, including lavish meals and entertainment, international travel, cars, jewelry, gentlemen’s clubs, and personal escorts.
“Chris Faulkner orchestrated a sophisticated and multilayered scheme using BECC and its affiliated entities as a conduit to access millions of investor dollars,” said Shamoil T. Shipchandler, Regional Director of the SEC's Fort Worth Regional office. “The financing for Faulkner’s opulent lifestyle came directly at the expense of unwitting investors across the country.”
The SEC’s investigation, which is continuing, has been conducted by Scott Mascianica, Ty Martinez and Melvin Warren and supervised by Eric Werner and David Peavler. The SEC’s litigation will be led by B. David Fraser and Mr. Mascianica. See here for more information.