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Self-styled “frack master” Chris Faulkner, an oil and gas executive frequently featured on cable news programs, is accused of defrauding investors out of $80 million, the Securities and Exchange Commission (SEC) said in a June 24 court filing.
An SEC complaint said Faulkner, CEO of Breitling Energy Corp. (BECC), lied to investors and diverted their funds to maintain a “lifestyle of decadence and debauchery.”
Faulkner, 39, of Dallas, did not respond to a request for comment.
Faulkner, a regular guest on CNBC, CNN International, Fox Business News and the BBC, is accused of a scheme dating back to at least 2011 through privately held Breitling Oil and Gas Corp. (BOG), which offered and sold turnkey oil and gas working interests, the SEC said.
According to the SEC, Faulkner and his co-defendants “duped hundreds of people out of millions of dollars by intentionally and repeatedly lying about several aspects of the investments.” That included Faulkner’s industry experience, the nature and operation of the investments, estimated costs to drill and complete prospects, the use of investor proceeds, and the projected oil and gas production that investors could expect, the SEC said.
The SEC accused Faulkner of brazenly using at least $30 million of investor funds for lavish meals, international travel, cars, jewelry, gentlemen’s clubs and personal escorts.
The SEC complaint also accuses former employees of Faulkner’s companies including Jeremy S. Wagers, Judson F. (Rick) Hoover, Parker R. Hallam, Joseph Simo, Dustin Michael Miller Rodriguez, Beth C. Handkins and Gilbert Steedley.
The complaint said that at the heart of Faulkner’s scheme was the use of grossly inflated estimates for drilling and completion costs for oil and gas wells. The estimates were presented to investors along with well result projections that offered remarkable production.
The projections were made by Simo, a licensed petroleum geologist. Simo’s estimates were derived used the best-performing well in an area as a baseline, the SEC said. Simo was also portrayed as an unaffiliated third party, despite having associations with Faulkner and his companies.
To further entice investors, the SEC said, Faulkner would indiscriminately increase Simo’s numbers and provide them to investors in offering materials.
Following the industry downturn due to oil price declines, the SEC said Faulkner manipulated Breitling’s stock price and trading volume. From December 2014 through February 2015, Faulkner engaged in heavy daily trade in Breitling’s stock using, in part, a private entity he owned and controlled, the complaint said.
The SEC said that Faulkner’s scheme was derailed in April.
Even though the company raised “exponentially more funds than needed to drill, test and complete its prospects, Faulkner siphoned off so much money that [his companies] could no longer fund the drilling and completion,” the complaint said.
Faulkner dubbed himself the “frack master” in media releases and said he had earned graduate and doctoral degrees from universities and had extensive experience in “all aspects of oil and gas operations.” None of that was true, the SEC said.
“In fact, his only exposure to the oil and gas industry was through website data hosting work he and his prior company, C I Host, performed for oil and gas companies,” the SEC lawsuit said.
Faulkner also authored “The Fracking Truth — America’s Energy Revolution: the Inside, Untold Story,” a book about the hydraulic fracturing revolution.
“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, Texas, regional office. “The financing for Faulkner’s opulent lifestyle came directly at the expense of unwitting investors across the country.”
Miller, Handkins and Steedley have offered to settle the SEC’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.
The SEC also accuses Faulkner, Wagers and Hoover of lying to auditors, and said Faulkner and Hoover violated certification provisions of the Sarbanes-Oxley Act. Faulkner faces additional fraud accusations related to manipulation of Breitling Energy’s stock.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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