Press Release SEC Charges “Frack Master” With Running an $80 Million Oil and Gas Fraud FOR IMMEDIATE RELEASE 2016-130 Washington D.C., June 24, 2016 — 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 recurring 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, Faulkner started the scheme dating back to at least 2011 through privately-held Breitling Oil and Gas Corporation (BOG), which 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. Faulkner allegedly established Crude and Patriot to deceive investors through offerings similar to those conducted by BOG. The complaint alleges that even though investors thought Hallam and Miller ran these two entities, Faulkner directed much of Crude’s and Patriot’s operations. The SEC alleged that BOG, Crude and Patriot raised more than $80 million from investors as part of these deceptive offerings. The SEC alleged that 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. 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. “Chris Faulkner allegedly 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 also alleged that Faulkner, Wagers and Hoover misrepresented various aspects of BECC’s operations in BECC’s public reports, including statements about the company’s financial performance, and its relationship to Crude and Patriot. In addition, while in the middle of perpetrating this fraud on investors, Faulkner engaged in a scheme to manipulate the price of BECC’s stock, with the assistance of former BECC employee Gilbert Steedley, by placing trades at the end of the day to “mark the close” of the stock. The SEC charged Faulkner, Hallam, Miller, Simo, Handkins, BOG, Crude, and Patriot with violations of the antifraud provisions for their respective roles in the offering frauds, and charged BECC, Faulkner, Wagers, and Hoover with violations of the antifraud, reporting, recordkeeping and internal controls provisions of the federal securities laws. The SEC also charged Faulkner, Wagers, and Hoover with lying to auditors, and charged Faulkner and Hoover with violating certification provisions of the Sarbanes-Oxley Act. Faulkner faces additional fraud charges based on his alleged manipulation of Breitling Energy’s stock, and the SEC charged Steedley was charged with aiding and abetting Faulkner’s manipulative conduct. Miller, Handkins and Steedley have offered to settle the Commission’s action against them on a bifurcated basis. Each will agree to full injunctive relief, including a conduct-based injunction for Miller, and will have the Court determine the appropriate disgorgement and civil penalties at a later date upon motion by the Commission. 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.
Complaint at paragraph 97, regarding charging up the company AMEX card, hilarious! "Faulkner used this card – which he referred to as his “whore card” – to charge more than $1 million solely for travel and expenses for various women, gentlemen’s clubs, nightclubs, and associated salacious expenditures." https://www.sec.gov/litigation/complaints/2016/comp-pr2016-130.pdf
Wow, that was a long complaint, lol! Ok, here's the Cliffs Notes version: 1. Faulkner made unregistered sales of securities. 2. Faulkner made material misrepresentations or omissions of facts to investors. 3. Falkner enriched himself and others by misappropriating clients' funds.. 4. Faulkner claimed he had both a master's and doctorate degrees, when he didn't. 5. Faulkner claimed he had extensive experience in oil and gas, which was false. 6. Faulkner grossly overestimated the costs of fracking to investors, knowing the estimates were false. 7. Faulkner misused the company's AMEX card in the MILLIONS OF DOLLARS. 8. Faulkner "double-dipped" by receiving reimbursement for the misuse of AMEX charges. 9. Faulkner manipulated the stock price of his own company and filed false 10K/10Q reports. And here's the kicker: Faulkner, who boasted the name "Frack Master", knew that investors had "virtually no chance of ever receiving the returns anywhere near the level" for which he presented. He also told investors their funds would be held in segregated accounts, however he just commingled them. If any of his LLC's had an issue, he simply created another LLC and repeated the process, duping NEW investors into the scam. So in a nutshell, the SEC is portraying this guy and his co-conspirators as true scammers, whereby Falkner allegedly misappropriated $80 MILLION from investors within 5 years. What's interesting is he sold "fractional working interests in oil and gas drilling sites" to investors. He hired a team of sales people who simply cold called from a lead list, and didn't verify whether or not the investors were "accredited" according to the SEC complaint. They even told investors that sales reps would NOT be making any transaction based compensation, which was a lie. He paid them 10% of each dollar brought in. There were so many red flags in Faulker's business model, any reasonable investor doing an OUNCE of due diligence would read through it. For example, if they just tried to verify his degrees from the universities, then they would have realized his character deficiency of lying on the brochures and advertisements. And who uses telemarketers to solicit investor funds without paying any compensation? I guess some investors fantasized about getting a piece of the fracking business, and easily parted with their $50,000 per unit of fracking interest offered by Faulkner.