SEC charges Breitling Energy, CEO Faulkner, general counsel in fraud case

Chris Faulkner, CEO of Breitling Energy, is a vocal advocate of hydraulic fracturing.( Marie D. De Jesus / Houston Chronicle )
Chris Faulkner, CEO of Breitling Energy. ( Marie D. De Jesus / Houston Chronicle )

By Mark Curriden of The Texas Lawbook

The U.S. Securities and Exchange Commission 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 alleged that Faulkner masterminded an elaborate $80 million oil and gas fraud that included Breitling, three other affiliated energy companies – Crude Energy, Patriot Energy  and Breitling Oil and Gas – 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.

Faulkner,  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 charged in a 63-page complaint filed Friday in federal court in Dallas. Faulkner was dubbed “frack master” by the media because of his advocacy of the industry, according to Breitling Energy’s web site.

“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 charged. “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, and its  co-owners Parker Hallam and Michael Miller, Breitling Energy General Counsel Jeremy Wagers and Breitling Energy chief financial officer Rick Hoover with assisting Faulkner in the alleged fraud. The federal agency suspended trading in Breitling Energy securities for 10 business days.

Larry Friedman, a Dallas lawyer representing Breitling and Faulkner, said his clients “denies 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.”

The company has received no complaints from investors, he said, 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 the SEC is unfairly targeting Breitling General Counsel Jeremy Wagers, who he describes as “a good person and a good lawyer.”

Crude Energy and Hallam are being defended by Karen Cook. Richard Roper of Thompson & Knight is representing Michael Miller. They did not respond to requests for comment.

SEC Regional Director Shamoil Shipchandler alleged in a statement 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 complaint. Simo, a 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 its gone now,” he said.

SEC alleged 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 claimed.

“Chris Faulkner allegedly orchestrated a sophisticated and multi-layered 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 acknowledged that three former officials with Breitling are cooperating with the investigation.

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