The U.S. Securities and Exchange Commission (SEC) charged four companies and eight individuals, including Breitling Energy Corp. CEO Chris Faulkner, with defrauding investors in an $80 million oil and gas scheme.
In a statement Friday, the SEC charged Faulkner -- who calls himself the "Frack Master" for his alleged expertise in hydraulic fracturing (fracking) and has made several appearances in the mainstream media -- with "disseminating false and misleading offering materials, misappropriating millions of dollars of investor funds and attempting to manipulate Breitling's stock."
The SEC also leveled charges against Breitling and suspended trading in the company's securities for 10 business days. Three companies -- Breitling Oil and Gas Corp. (BOG), Crude Energy LLC and Patriot Energy LLC -- also face charges. The other seven individuals charged are Jeremy Wagers, Rick Hoover, Parker Hallam, Joseph Simo, Michael Miller, Beth Handkins and Gilbert Steedley.
According to the SEC's complaint [Case No. 3:16-cv-01735-D], Faulkner began the scheme as early as 2011 through BOG, a privately-held company that offered and sold turnkey oil and gas working interests. At the time, Faulkner ran most of BOG's operations, while co-owners Hallam and Miller managed sales.
The SEC alleges that BOG's sales materials "contained false statements and omissions about Faulkner's experience, estimates for drilling costs, and how investor funds would be used." The commission also alleged the sales materials included reports from Simo, a licensed geologist, "that included baseless production projections and failed to disclose his affiliation with BOG."
According to the SEC, the scheme evolved to include Breitling and two affiliates, Crude Energy and Patriot Energy, which Faulkner allegedly founded "to deceive investors through offerings similar to those conducted by BOG," and collectively raised more than $80 million.
The complaint alleges that Faulkner spent at least $30 million on personal expenses, including "lavish meals and entertainment, international travel, cars, jewelry, gentlemen's clubs, and personal escorts." It further alleges that Handkins (a former employee of Crude Energy and Patriot Energy), Hoover (the former CFO at Breitling), and Wagers (Breitling's general counsel and COO) all played essential roles in the scheme.
"Chris Faulkner allegedly orchestrated a sophisticated and multilayered scheme using Breitling 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 Breitling's operations in its public reports, including statements about the company's financial performance, and its relationship to the affiliates. Faulkner also allegedly manipulated the price of Breitling's stock with the assistance of Steedley (a former Breitling employee) by placing trades at the end of the day to "mark the close" of the stock.
Faulkner, Hallam, Miller, Simo, Handkins, BOG, Crude Energy and Patriot Energy were charged with violating the antifraud provisions for their respective roles in the offering frauds. Meanwhile, Breitling, Faulkner, Wagers, and Hoover were charged with violating the antifraud, reporting, recordkeeping and internal controls provisions of federal securities laws.
The SEC also charged Faulkner, Wagers, and Hoover with lying to auditors, and charged Faulkner and Hoover with violating the certification provisions of the Sarbanes-Oxley Act. Faulkner faces additional fraud charges based on his alleged manipulation of Breitling's stock, and Steedley was charged with aiding and abetting Faulkner's manipulative conduct.
According to the SEC, 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.