Daily Management Review

SEC Claims Millions Bilked from Investors by Texas 'Frack Master'


SEC Claims Millions Bilked from Investors by Texas 'Frack Master'
Texas, US, oilman Chris Faulkner has been accused by the SEC of cheating investors out of $80 million to fund a "debauched" jet-setting lifestyle. Faulkner built a high-profile public persona and raised millions for his oil and gas ventures.
Allegations of a stunning failure of corporate governance at Faulkner's Dallas-based Breitling Energy Corp and other companies he helped to create have been leveled against the entrepreneur in a lawsuit filed by the U.S. Securities and Exchange Commission.
The charges said, Faulkner lured hundreds of U.S. investors to back his firms based upon inflated estimates of the oil and gas that his companies controlled. The SEC alleged that personal expenses for Faulkner, his associates, family and friends were primarily paid by the investments.
In connection with his previous web hosting business, Faulkner, 39, faced a spate of lawsuits in the early 2000s.
During the U.S. shale boom in the last decade, the businessman turned his attention to energy drilling. Prime drilling real estate in regions like Texas, Oklahoma and North Dakota were claimed to be held by his company. The SEC claims that Faulkner racked up millions in credit card charges after raising funds instead of doing any drilling.
For activities starting in 2011Breitling CEO Faulkner, three related companies and seven other people were charged by the SEC in the lawsuit. Offering rosy projections about shale drilling and his own companies' prospects, Faulkner, the self-proclaimed "Frack Master," was frequently featured in the media.
According to the SEC complaint, extravagances including lavish meals, chartered planes, jewelry, strip clubs and female escort services were funded by the investors' cash by Faulkner. The complaint further said that various securities laws were violated along the way by Faulkner, his friends and associates. Investments in more than 20 oil and gas prospects in several states in the US were sold by Breitling and related firms. Fictional drilling costs were booked and prospects' earnings potential were exaggerated by these companies.

The SEC said that solicitations to investors were "replete with material misrepresentations and omissions".
Larry Friedman, a lawyer for Breitling and Faulkner said that the SEC's allegations are "inaccurate and untrue". Friedman said that the companies have not been subject to investor complaints as they raised hundreds of millions of dollars for legitimate ventures.
Faulkner, Breitling and other companies named in the complaint did not respond to separate requests for comment.
When the former auditor quit, the ESC found out that Breitling Energy, Faulkner's publicly traded company, has not filed detailed quarterly or annual financial statements with the agency since 2014 and that was among the primary red flags for the agency.
While it was not clear how much energy Faulkner's companies have produced, Breitling has continued to tout drilling plans.
According to the SEC suit filed in the Northern District of Texas, the CEO personally misappropriated at least $30 million. The law suit further claims that millions on personal activities were then spent by him using the business and personal credit cards. The SCE said that the expenses were not adequately disclosed to the investors and executives and board members at Faulkner's companies did not adequately question the expenses.

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