© 2016 The Texas Lawbook.
By Mark Curriden
(June 24) – The U.S. Securities and Exchange Commission on Thursday charged Dallas-based Breitling Energy Corp. and its CEO, “Frack Master” Chris Faulkner, of fraudulently spending tens-of-millions of dollars of investors money on lavish meals, expensive cars, strippers and escorts.
The SEC claims that Faulkner masterminded an elaborate $80 million oil and gas fraud that included Breitling, three other affiliated energy companies – Crude Energy and Patriot Energy – and eight corporate executives, including Breitling Energy General Counsel Jeremy Wagers, who previously practiced law at Houston-based Vinson & Elkins and Skadden, Arps, Slate, Meagher & Flom in Houston.
Larry Friedman, a Dallas lawyer representing Breitling and Faulkner, said his clients “deny emphatically” the charges brought by the SEC.
“This reads more like a Grisham novel and less like an SEC complaint,” Friedman said. “It reads like a vendetta. Lots of personal attacks that are uncalled for, especially against a company and an executive that has an otherwise clean record.”
Faulkner, who is a frequent guest on CNBC, Fox Business News and CNN, disseminated false and misleading offering materials, misappropriated tens of millions of dollars of investor funds and attempted to manipulate Breitling Energy’s stock, the SEC charges in a 63-page complaint filed Friday in federal court in Dallas.
“Since at least 2011, Chris Faulkner has orchestrated a massive, multi-pronged, and fraudulent scheme that has defrauded hundreds of investors across the country out of approximately $80 million invested in oil-and-gas investments sold by companies he owns and controls,” the SEC charges. “Faulkner has misappropriated at least $30 million in investor funds to maintain a lifestyle of decadence and debauchery.”
The SEC also charged Breitling Oil and Gas, which offered and sold “turnkey” oil and gas working interests, BOG co-owners Parker Hallam and Michael Miller, Breitling Energy General Counsel Jeremy Wagers and Breitling Energy CFO Rick Hoover with assisting Faulkner in the alleged fraud. The federal agency suspended trading in BECC’s securities for 10 business days.
SEC Regional Director Shamoil Shipchandler, in a written statement, said that
Faulkner started the scheme five years ago when he developed offering materials for potential investors in Breitling Oil and Gas that contained false statements and omissions about Faulkner’s experience, false estimates for drilling costs and false statements about how investor funds would be used.
The offering materials included reports by licensed geologist Joseph Simo that included baseless production projections and failed to disclose his affiliation with BOG, according to the SEC report. Simo has also been charged in the scheme.
The SEC alleges that Faulkner established Crude and Patriot to deceive investors through offerings similar to those conducted by BOG. BOG, Crude and Patriot raised more than $80 million from investors as part of these deceptive offerings, the agency claims.
“Chris Faulkner allegedly orchestrated a sophisticated and multilayered scheme using BECC and its affiliated entities as a conduit to access millions of investor dollars,” Shipchandler said. “The financing for Faulkner’s opulent lifestyle came directly at the expense of unwitting investors across the country.”
The SEC also alleges that Faulkner, Wagers and Hoover misrepresented Breitling’s operations in public reports, including statements about the company’s financial performance and its relationship to Crude and Patriot. The agency also accuses Faulkner of engaging in a scheme to manipulate the price of BECC’s stock by placing trades at the end of the day to “mark the close” of the stock.
The SEC also acknowledges that three former officials with Breitling are cooperating with the investigation.
Friedman said Breitling has received no complaints from investors and that any other complaints are coming from competitors in the oil and gas sector who seek the same investment money that Breitling has.
Friedman also said that he thinks the SEC is unfairly targeting Breitling General Counsel Jeremy Wagers, who he describes as “a good person and a good lawyer.”
“Anything Wagers knows is protected by the attorney-client privilege,” he said. “Wagers is just a lawyer and I think he was surprised to see himself included in the charges.”
Crude Oil and Parker Hallam are being defended by Karen Cook. Richard Roper of Thompson & Knight is representing Michael Miller. Neither replied to inquiries seeking comment.
Simo, a 65-year-old Plano-based geologist and petroleum engineer, said in an interview late Friday that he did nothing wrong and he has been cooperating with the SEC.
“I’ve worked hard to get my licenses and to keep my good name and it’s gone now,” he said. “The SEC told me they might fine me $75,000. I told them they might as well fine me $10 million, because the check I would write would bounce just as high.”
“Where things really got screwed up was when I had written reports that said one thing and then what Crude Oil submitted in the books [to investors] was not the same,” Simo said. “When I saw the books after they were sent out, I saw they changed the amount of production I estimated from 400,000 barrels to four million barrels.
“I can tell you this, every single well for Breitling was drilled. Oil was produced and investors were paid,” he said. “Did they over-charge investors? Probably. Is that wrong? Yes. But is it a crime? If the SEC wanted to, it could charge just about every exploration and production company in Texas.”
SEC Senior Counsel Scott Mascianica and SEC Senior Trial Lawyer B. David Fraser of the Fort Worth Regional Office are leading the government’s case. Other SEC officials involved are Ty Martinez and Melvin Warren, who are supervised by SEC Assistant Director of Enforcement Eric Werner.
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