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July 01, 2016 at 05:21 AM
The Securities and Exchange Commission recently charged four companies and eight individuals in an oil and gas fraud orchestrated by a man calling himself the “frack master.”
In addition, the Department of Labor filed a suit requiring fiduciaries of an employee stock ownership plan to restore losses of $5.9 million, and the Nebraska Department of Banking and Finance went after an Omaha investment advisor for misusing client funds.
SEC Charges ‘Frack Master’ in Oil and Gas Scheme
The SEC has 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 Corp. (BECC), has been a recurring guest on CNBC, CNN International, Fox Business News and the BBC, where he discussed oil and gas. Now he has been charged by the SEC 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 agency, the scheme dated back to at least 2011 through privately held Breitling Oil and Gas Corp. (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.
Not only did BOG’s offering materials contain false statements and omissions about Faulkner’s experience, estimates for drilling costs, and how investor funds would be used, they included reports by licensed geologist Joseph Simo that included phony production projections but did not disclose Simo’s 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. Crude and Patriot were created to deceive investors through offerings similar to those conducted by BOG. And even though investors thought Hallam and Miller ran Crude and Patriot, it was Faulkner who directed much of their operations. BOG, Crude and Patriot raised more than $80 million from investors as part of these deceptive offerings.
Of that, Faulkner misappropriated at least $30 million in investor funds for personal expenses, including lavish meals and entertainment, international travel, cars, jewelry, gentlemen’s clubs, and personal escorts. The SEC said that Beth Handkins, a former employee of Crude and Patriot, 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 fraud.
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. At the same time, Faulkner manipulated BECC’s stock price, with the help of former BECC employee Gilbert Steedley, by placing trades at the end of the day to “mark the close” of the stock.
The SEC has charged Faulkner, Hallam, Miller, Simo, Handkins, BOG, Crude and Patriot with violations of antifraud provisions, and charged BECC, Faulkner, Wagers, and Hoover with violations of the antifraud, reporting, recordkeeping and internal controls provisions of the federal securities laws. In addition, the agency charged Faulkner, Wagers and Hoover with lying to auditors, and Faulkner and Hoover with violating certification provisions of the Sarbanes-Oxley Act. Faulkner faces additional fraud charges based on his manipulation of Breitling Energy’s stock, and Steedley was charged with aiding and abetting Faulkner’s manipulative conduct.
Miller, Handkins and Steedley have offered to settle on a bifurcated basis. Each will agree to full injunctive relief, including a conduct-based injunction for Miller; the court will determine appropriate disgorgement and civil penalties at a later date.
The investigation is continuing.
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