The Securities and Exchange Commission has charged four companies and eight individuals in an $80 million oil and gas fraud orchestrated by a man who calls himself the “Frack Master” for his purported expertise in hydraulic fracturing.
The SEC charged Chris Faulkner, the chief executive officer of Breitling Energy (BECC), 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, Breitling Energy, a reporting company with shares traded on OTC Link and two affiliated entities, Crude Energy and later Patriot Energy.
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 Breitling Energy, 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 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 said it has charged Faulkner, Hallam, Miller, Simo, Handkins, BOG, Crude, and Patriot with violations of the anti-fraud provisions for their respective roles in the offering frauds. The SEC also charged BECC, Faulkner, Wagers, and Hoover with violations of the anti-fraud, 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 said its investigation is continuing.