Public records published by the Securities and Exchange Commission (SEC) as well as news reports accessed on January 18, 2019 indicate that alleged “Frack Master” Chris Faulkner has settled SEC charges that he defrauded investors in oil and gas companies of more than $80 million.
An SEC complaint filed in 2016 charges Faulkner with distributing false and misleading investment offering materials, misappropriating millions in funds from investors, and attempting to manipulate the stock of Breitling Energy, which was also charged in the complaint and whose trading was suspended. The SEC alleged that Mr. Faulkner commenced his scheme in 2011, when Breitling OIl and Gas Corporation (then privately held) distributed offering materials allegedly containing false statements and omissions. Among other things, the materials allegedly contained the findings of a licensed geologist that were in fact “baseless production projections” that “failed to disclose his affiliation” with Breitling OIl and Gas, according to the SEC. Breitling Oil and Gas would later become Breitling Energy and two other entities affiliated with it, Crude Energy and Patriot Energy. Mr. Faulkner allegedly directed many of the latter companies’ operations, according to the SEC, although investors were under the impression they were led by other individuals. All told, according to the SEC, the three entities raised more than $80 million from its investors in connection with “these deceptive offerings,” at least $30 million of which Mr. Faulkner allegedly misappropriated and directed toward his own personal expenses.
An October 24, 2018 report by CFO states that Mr. Faulkner agreed to pay a sum of $23.8 million to settle the SEC’s charges. He also pleaded guilty to criminal charges including securities fraud, tax evasion, and money laundering. According to a Department of Justice press release issued on October 23, 2018, Mr. Faulkner was arrested in June 2018 at Los Angeles International Airport and later held in custody in Texas. That release notes that Mr. Faulkner admitted to diverting about $23 million to his own personal expenses, including “luxury travel, professional concierge services, maintenance of multiple residences, and at least seven vehicles.” Those cars included a Bently, a Mercedes Benz, and an Aston Martin. In the same period, according to the Department of Justice, the oil and gas companies only paid $6.2 million to its investors. His plea agreement includes restitution to individuals defrauded by the scheme. He also faces as many as 12 years in prison and fines of as much as $350,000.
US Attorney for the Northern District of Texas Erin Nealy Cox said in a statement, “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. Let this case send a message that this type of egregious investor fraud will be prosecuted to the fullest extent of the law.”