June 20–Christopher Faulkner, who became famous as the media-savvy, crusading “Frack Master,” promoting the oil and gas industry, was arrested Monday and charged with fraud and money laundering in what the government previously described as an $80 million oil investment scam.
The Securities and Exchange Commission effectively shut down Faulkner’s Breitling Energy after suing the company and its executives for fraud in 2016. But this is the first time Faulkner has faced criminal charges for his work as founder, CEO and president of the Dallas-based oil and gas business.
His attorney, Larry Friedman of Friedman & Feiger, said Homeland Security detained Faulkner at Los Angeles International Airport as he was about to board a flight to London for a business trip. The FBI would not comment but an agency spokeswoman confirmed that Faulkner was still in custody in California and would likely be transferred to Dallas in a few days for a detention hearing.
Friedman, who claims the government has no real case against his client, said seizing Faulkner at the airport was unnecessary.
“Chris has always been available,” Friedman said. “He’s not a flight risk. He’s never hidden from the authorities…If they called us, we just would have come in, like we always have.”
A criminal complaint was filed against Faulkner on Friday and was unsealed after his arrest. The 18-page affidavit makes generally the same claims as those in the SEC’s case against Faulkner.
Through the SEC lawsuit, Breitling’s assets were frozen and a receiver was appointed to manage what was left of the company. The unsealed criminal complaint said the IRS and FBI have been investigating Faulkner and his companies since July 2015.
Faulkner was briefly famous as a charismatic oil executive who appeared frequently on TV and in print publications to defend hydraulic fracturing or fracking at a time when that drilling technique was gaining popular but also generated controversy.
Although he named himself “Frack Master” and presented himself as an expert, federal officials said he had no background in the industry.
According to the federal criminal case, Breitling Energy “hyper” inflated estimated costs to drill and complete wells, inflated production estimates, oversold investments in wells and diverted investor funds for Faulkner’s personal use.
In the case of one prospective well called Nighthawk, the well operator calculated its costs at a little more than $2.6 million, the complaint said. Faulkner then created a new document inflating the cost to $25 million, according to federal law enforcement.
“By grossly inflating the estimated costs in the AFEs [Authority for Expenditure], Faulkner ensured huge profits for his companies because there was no possibility that the actual costs of the well would ever approach the grossly inflated estimates represented to the investors,” according to the complaint.
Faulkner also changed geology reports to significantly inflate the projected production of wells, according to court documents. But federal calculations found that even the original geology reports often overestimated production by 10 times or more.
Federal investigators also determined that Breitling oversold investments by nearly 25 percent from 2011 to 2013. That added up to nearly $8.8 million in additional money for the company.
Much of the money generated by Breitling and its affiliated companies, Crude Energy and Patriot Energy, was spent by Faulkner to fund his “lavish lifestyle,” according to the criminal complaint. Federal investigators said that in 2014 and 2015, Crude Energy and Patriot Energy raised $30.5 and those investors received $3.8 million in returns.
Meanwhile, Faulkner took $6.1 million in cash from his companies and spent $7.7 million on his American Express card, he referred to as his “whore card,” according to civil and criminal documents. Those expenses included more than $178,000 at three New York City nightclubs, more than $24,000 at a London burlesque club and more than $23,000 from a Hong Kong tailor.
The SEC lawsuit said Faulkner “brazenly misappropriated at least $30 million of investors’ funds for extravagant personal expenses, including lavish meals and entertainment, international travel, cars, jewelry, gentlemen’s clubs, and personal escorts.”
Since the fall of Breitling, Faulkner has moved from Plano to California. And he’s continued to have run ins with the court, law enforcement and federal regulators.
Faulkner was held in contempt for violating court orders in the SEC lawsuit earlier this year. The judge determined that Faulkner and his firms diverted company assets and failed to produce required documents and corporate representatives.
Attorney Carole Faulkner was also held in contempt for helping her son avoid turning over proceeds from the sale of cloud hosting company RackAlley LLC.
The SEC also filed another lawsuit in September against Faulkner and his new California real estate business. The lawsuit alleged that Faulkner “repackaged” his oil fraud blueprint to start a real estate scheme.
Larry Friedman, Faulkner’s attorney, told The Dallas Morning News at the time, that the real estate lawsuit was just an attempt by the SEC to get Faulkner to settle in the Breitling Energy case.
“They investigated the Breitling companies for 3 1/2 years and came up with nothing,” Friedman said last year.
Faulkner was also arrested last year at Los Angeles International Airport. At the time, he was wanted on a theft warrant from Royse City. A printer there said Faulkner had refused to pay a $3,000 printing bill. That theft case was later dropped.
In Dallas County civil court, Faulkner is also facing numerous lawsuit from investors as well as his former PR firm.
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