Two years ago, the U.S. Securities and Exchange Commission charged Texas oil and gas mogul Christopher Faulkner with spending tens-of-millions of dollars of investor money on booze, strippers and expensive cars.
Lawyers for Faulkner, who described himself on national TV as the “frack master,” told The Texas Lawbook back then that their client “emphatically” denied the charges against him.
On Tuesday, Faulkner admitted the allegations were true and that he diverted about $23 million in investor money from his company, Breitling Energy Corp., and that he used the cash for luxury travel, professional concierge services, maintenance of multiple residences and the purchase of an Aston Martin, a Bentley, and a Mercedes Benz.
Faulkner pleaded guilty to violating federal criminal securities fraud laws, engaging in illegal monetary transactions and tax evasion, and simultaneously admitted to the SEC’s civil allegations against him.
As part of the plea agreement, Faulkner faces 12 years in prison and $350,000 in fines.
Faulkner’s deal with the SEC requires him to disgorge $23.8 million and bars him from serving as an officer or director of any SEC-reporting company, which probably would not happen anyway since he is already in federal prison.
“Faulkner first proclaimed himself the ‘Frack Master’ in order to deceive investors about his expertise and steal millions of dollars to fund his lifestyle, and the SEC put an early end to his second effort to defraud investors in a real estate scheme,” said Shamoil Shipchandler, director of the SEC’s Fort Worth Regional Office. “Today’s serious civil and criminal sanctions serve as a warning to anyone who intends to target retail investors.”
Court documents unsealed Tuesday show that Faulkner raised $71 million from investors between 2011 and 2016. In marketing materials to investors, he inflated the estimated drilling costs by up to 800 percent and he pocketed the difference.
Faulkner also provided potential investors with geology reports that he said were prepared by an independent expert. In truth, the expert was on Faulkner’s payroll and later became a witness for the SEC in the case against Faulkner saying he was told to inflate his estimates.
“As Mr. Faulkner continued to deceive his investors about drilling expenses and potential oil well output, he spent their millions of investment dollars on his lavish lifestyle, ” said Nealy Cox. “Let this case send a message that this type of egregious investor fraud will prosecuted to the fullest extent of the law.”
Brian Poe, a former state and federal prosecutor who is now in solo practice in Fort Worth, represents Faulkner.
The prosecutors from the Northern District of Texas involved in the case against Faulkner are Christopher Stokes, Katherine Miller and Mark Tindall.
The SEC lawyers leading the case against Faulkner are B. David Fraser, Scott F. Mascianica and Timothy S. McCole.