The Securities and Exchange Commission (SEC) said Friday that it has charged several companies and individuals in an $80 million oil and gas fraud orchestrated by a Dallas-based CEO who calls himself the “Frack Master.”
The SEC has charged four companies and eight individuals for allegedly participating in the scheme, including the CEO of Breitling Energy Corporation (BECC) Chris Faulkner.
Faulkner, who is a recurring guest on several cable news channels, calls himself the “Frack Master” for his purported hydraulic fracturing expertise.
The SEC charged Faulkner 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, the scheme dates back to at least to 2011.
The agency alleges that Faulkner began the scheme through privately-held Breitling Oil and Gas Corporation (BOG), that offered and sold “turnkey” oil and gas working interests.
The SEC said that 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 that “failed to disclose his affiliation with BOG.”
The scheme allegedly evolved to include BOG’s successor, BECC, a reporting company with shares traded on OTC Link and two affiliated entities, Crude Energy LLC and Patriot Energy Inc.
“Faulkner allegedly established Crude and Patriot to deceive investors through offerings similar to those conducted by BOG,” the SEC said.
The complaint alleges that while investors believed that Hallam and Miller ran Crude Energy and Patriot, Faulkner directed “much” of the firms’ operations.
The SEC alleged that BOG, Crude and Patriot raised more than $80 million from investors as part of the “deceptive offerings.”
The SEC alleged that Faulkner misappropriated at least $30 million of investor funds that were used for personal expenses, including “lavish meals and entertainment, international travel, cars, jewelry, gentlemen’s clubs and personal escorts.”
Beth Handkins, a former employee of Crude and Patriot, former CFO of BECC Rick Hoover and BECC’s general counsel and COO Jeremy Wagers all allegeldy played “essential roles” in assisting Faulkner in the scheme.
The SEC also alleged that Faulkner, Wagers and Hoover misrepresented various aspects of BECC’s operations in the firm’s public reports, including statements about the company’s financial performance and its relationship to Crude and Patriot.
In addition, while perpetrating the investor fraud, Faulkner allegedly 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 Energy and Patriot Energy with violations of the antifraud provisions for their roles in the offering frauds.
BECC, Faulkner, Wagers, and Hoover were also charged 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 is facing additional fraud charges for his alleged manipulation of Breitling Energy’s stock.
The SEC also charged Steedley with aiding and abetting Faulkner’s “manipulative conduct.”
The agency said that 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 at a later date upon motion by the SEC.