The Fraud Examiner

A Look at the Frack Master: How to Practice Self Defense When Investing

“Buyer beware” is a common refrain we’ve all heard before, and it sums up American society’s stance on responsibility in commercial transactions. The onus is on individual consumers to do their due diligence and ensure they know what they’re buying and from whom. It makes sense; if someone can’t be bothered to think before doling out their hard-earned money, why should we bail them out when they make unwise purchases?

Unfortunately, fraudsters are good liars and the average individual isn’t equipped to uncover a predator’s deceptions. They set up convincing facades of legitimate businesses, behind which they conduct fraudulent transactions for personal gain. It can be difficult to discern the professionals from the professional criminals.

The Frack Master

Consider Chris Faulkner, the self-proclaimed “frack master” and industry expert who appeared on reputable news outlets around the country to offer opinions on oil and gas exploration and production. Faulkner is the head of Breitling Energy and a clutch of related companies that sold investment shares of fracking endeavors.

Faulkner positioned himself well in the oil and gas industry as the CEO and co-founder of Breitling Energy. He published a book titled The Fracking Truth and spoke on a panel about the “Economics of Energy Exploration” at the 49th Annual Texas Legislative Conference (where former first lady Laura Bush was the keynote speaker). He appeared on various news programs as an industry expert, including BBCCNNFox, and CNBC as well as local and industry-specific programs.

The frack master won Industry Leader of the Year for the Southwest Region in 2013 from the Oil & Gas Awards, the Oil Executive of the Year in 2013 from the American Energy Research Group, and was included in the “Dallas Who’s Who in Energy” in 2012 and 2013. From this position he attracted hundreds of investors who purchased millions of dollars’ worth of shares in his offerings.

Chris Faulkner was also a college dropout with a string of entrepreneurial ventures — but no oil and gas experience to his name — along with a host of civil lawsuits against him when he started Breitling Energy. He claimed to have an honorary doctorate from Concordia College in California, but there is no record of such a degree (there’s actually no Concordia College in California). After a journalist pointed out the discrepancy, he stopped claiming specific degrees on public bios but says he studied biomedical engineering, business, and mathematics at various universities.

The Company

Faulkner founded Breitling, and its subsequent, related companies, with the goal of selling investments in the up-and-coming fracking industry. Breitling received the 2013 Aggreko Award for Excellence in Environmental Stewardship from the Oil & Gas Awards for the Gulf Coast Region; the 2013 E&P Company of the Year by the Oil & Gas Awards for the Southwest Region; and was named “Best Independent Oil & Gas Company” by World Finance Magazine in 2011, 2012, and 2013.

The Strategy

All these accolades and accomplishments attracted investors, and Breitling sold them interests in fracking operations based on two primary factors:

  1. Cost estimates to drill and operate fracking wells, provided by experienced practitioners
  2. Production estimates for each well, provided by an independent petroleum geologist

According to SEC allegations, after Faulkner received cost estimates from operators, he inflated the numbers before passing them along to his sales leaders. Investors overpaid (sometimes by as much as 18 times the actual cost) for their shares of fracking operations based on these inflated estimates. Faulkner and his team then pocketed the excess investment money before paying the legitimate (lower) drilling and operating costs.

Joseph Simo, the “independent” petroleum geologist who provided production estimates, was in fact a full-time employee at Breitling who signed paperwork on the company’s behalf as the Vice President of Exploration. Simo routinely overestimated how much oil the Breitling wells would produce; on average the wells produced only 10 percent of what he estimated. Not only did investors overpay at the beginning of their investment, but they also received significantly lower returns than they rightly expected.

The SEC allegations also claim that, in addition to these primary misrepresentations, Breitling and Faulkner assured investors that their funds would be segregated into accounts for their specific investment site and only used in that capacity. However, after investor funds were received, Faulkner instructed Beth Handkins, a Breitling employee who controlled the company accounts, to move the funds into a general account from which Breitling paid operating costs and Faulkner’s exorbitant personal expenses (through both his inflated expense reports and payments directly to his credit card).

By April 2016, Faulkner and his co-conspirators had misappropriated so much money from Breitling that they couldn’t afford to drill anymore, even though they were taking in substantially more money from investors than they needed to operate. In total, the SEC estimates that Faulkner and his team fraudulently sold $80 million in misrepresented investments. Of that, they misappropriated at least $30 million to pay for personal travel, escort services, and other extravagances.

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