SEC Issues Charges Surrounding $80 Million Oil and Gas Fraud

The U.S. Securities and Exchange Commission (SEC) recently 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.

Chris Faulkner, the CEO of Breitling Energy Corporation (BECC) and recurring guest on CNBC, CNN International, Fox Business News, and the BBC, is being charged with disseminating false and misleading offering materials, misappropriating millions of dollars of investor funds and attempting to manipulate BECC’s stock. Also the agency charged BECC and suspended over-the-counter trading in BECC’s securities for 10 business days.

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. At the same time, the SEC noted that Beth Handkins, a former employee of Crude Energy LLC and Patriot Energy Inc., 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.

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Furthermore, the agency 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. Additionally, 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.

According to the SEC’s report:

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.