Texas businessman Chris Faulkner charmed hundreds of investors and major media companies into believing he had extensive experience in energy markets.
However, it turns out he had more experience with running online porn websites and spending cash on looking flash, putting greenbacks into the G-strings of strippers and escorts, funding lavish vacations instead of funding drilling and fraccing as he claimed.
The SEC alleges that he spent at least $30 million on his lifestyle, money gained from Brietling Energy Corporation and funnelled through a string of front companies.
The corporate regulator said Faulkner racked up the expenses on his American Express card, which he called his “whore card”, and no one at Brietling challenged his expenses.
On Friday the SEC said Faulkner and seven others, including Breitling chief operating officer Jeremy Wagers, defrauded investors out of about $80 million over the course of the past five years.
Faulkner, Breitling’s founder and CEO, told investors their money would be used to drill oil wells, but instead spent it on cars, jewellery and strip clubs, according to the SEC.
The regulator suspended trading in Breitling’s shares, which had gone public in 2013 when he secured control over listed firm Bering Exploration.
Faulkner is alleged to have hired a public relations firm to promote him for television interviews, and he appeared on Fox Business News, CNBC and CNN, but the SEC says it was all a “sophisticated and multilayered scheme” to part unwitting investors and their money to fund his opulent lifestyle.
The SEC says he lied about receiving a master's degree from the University of North Texas and a doctorate from Concordia College, instead he studied biomedical engineering at Southern Methodist University, and had no oil field pedigree at all.
The SEC alleges his only exposure to the oil and gas industry was through website data hosting work he and his prior company, C I Host, performed for oil and gas companies.
CI Host had also previously run a website, BigVideos.com, which carried what it claimed was the “best selection of high-quality adult DVD movies, anime, hentai, fetish and gay titles”, while PornToys.com carried a broad range of sex toys, including penis pumps.
The websites were run by his then future, now former, wife Tamra Freedman, whom he married in 2007 in an episode of reality TV series Platinum Weddings. Freedman has also been named in the suit.
The SEC alleges Brietling inflated the costs of drilling and pocketed the difference, and often used the best production rates from nearby wells as the basis for inflating production estimates for its own wells.
On several occasions, Brietling also sold investors a larger percentage of working interests in a prospect than it actually owned.
Instead of disclosing this fact to investors, Faulkner surreptitiously papered over the overselling by moving investors out of the oversold prospect and into different prospects, advising investors that BOG was exercising its contractual right to reassign investors to comparable prospects.
Breitling’s lawyer, Larry Friedman, said the allegations are not true or accurate.
“The personal accusations about Faulkner are out of place and uncalled for. Entertaining is part of raising investor capital from high net worth individuals,” Friedman said.
He said there had been no investor complaints and said the SEC was acting on a vendetta.
The SEC complaint specifies “more than $1 million for personal travel, expenses for various personal escorts, gentlemen's clubs, nightclubs, and associated expenditures” and a further $40,000 in charges at a Dallas gentlemen's club over a four-day period in July 2014 from Jeremy Wagers
But Faulkner's lawyer said the SEC is ignoring what it takes to wine and dine potential high-roller investors.
"That's just the cost of doing business," Friedman said.
The authorities said Faulkner began the scheme in 2011 with Breitling Oil and Gas Corporation and spread to associated firms Crude Energy and Patriot Energy, set up to act as third party partners and shell companies.
He also allegedly used shell companies to buy up Breitling stock in an attempt to make it look more valuable to other investors in the midst of the oil price crash, including Range Quest Resources.
The company would also reportedly lie about production rates from its wells, on one occasion saying its Red Wolf prospect production was increasing, when it had actually fallen from 85bopd to 18-27bopd.
The SEC says the scheme fell apart in April 2016 when so much cash has been siphoned off that the company could not continue drilling in in Texas, North Dakota, Oklahoma and Illinois.
There are said to be a litany of lawsuits by angry creditors and former employees.
Also charged were former CFO Judson Hoover, co-founder of BOGC Parker Hallan, independent geologist Joseph Simo, COO Beth Handkins, associate Dustin Michael Miller Rodriguez and capital markets vice president Gilbert Steedley.
Miller, Handkins and Steedley have offered to settle the charges, the SEC said.
In 2013 Faulkner was named ‘Industry Leader of the Year’ by the Oil & Gas Awards for the Southwest Region and Oil Executive of the Year in 2013 by the American Energy Research Group, Breitling’s website claimed, among a litany of other awards.
In fact, he later authored a book published in June 2014 called The Fracking Truth, touting himself as the “Frack Master.”
There is no criminal penalty attached to the accusations.
The SEC suspended trading in Breitling stock last Wednesday when it was trading at around two cents.
