HOUSTON (AP) — A Texas energy company CEO dubbed the "frack master" is charged with defrauding investors of about $80 million, including misappropriating at least $30 million for personal expenses, including private jets and gentlemen's clubs, to "maintain a lifestyle of decadence and debauchery," according to a lawsuit filed Friday by federal regulators.
In its lawsuit, the Securities and Exchange Commission accuses Chris Faulkner, CEO of Dallas-based Breitling Energy Corp., of orchestrating a scheme in which he and others misled investors about oil-and-gas working interests sold by Breitling Energy and three affiliated companies.
The lawsuit, filed in Dallas federal court, also alleges Faulkner manipulated Breitling Energy's stock price after it began falling in late 2014, when oil prices started dropping.
"Chris Faulkner allegedly orchestrated a sophisticated and multilayered scheme using (Breitling Energy) and its affiliated entities as a conduit to access millions of investor dollars," Shamoil T. Shipchandler, regional director of the SEC's Fort Worth office, said in a statement. "The financing for Faulkner's opulent lifestyle came directly at the expense of unwitting investors across the country."
The SEC said Faulkner, who hasn't been criminally charged, used investors' funds to pay for extravagant charges on his credit cards, including more than $950,000 to Status Luxury Group, Faulkner's personal concierge company, for private entertainment, and more than $220,000 for private jet carriers.
Faulkner also used one company card, which he dubbed his "whore card," to charge more than $1 million for personal travel, expenses for personal escorts and gentlemen's clubs, including spending nearly $40,000 at one Dallas club over four days in July 2014, the SEC said in its lawsuit.
"Faulkner ... has misappropriated at least $30 million in investor funds to maintain a lifestyle of decadence and debauchery," the SEC said in its lawsuit.
Larry Friedman, Faulkner's attorney, said the SEC's allegations "are not accurate and they're not true."
Friedman said part of Faulkner's efforts to woo investors included spending money on lavish meals, including paying for $1,300 bottles of wine and $200 steaks.
"That's the cost of doing business when you're raising millions of dollars from these investors, and the interesting thing is the investors have no complaint," Friedman said. "They got their project, they got their returns, and they're happy. It's some bureaucrat that doesn't like the idea that somebody ordered a $200 steak."
Friedman denied Faulkner ever used investor funds to pay for strip clubs and escorts or that he misled investors or that he manipulated his company's stock price.
Friedman alleged Breitling Energy's competitors are behind the lawsuit, claiming they are envious of Faulkner's high profile and many appearances as an expert in hydraulic fracturing, or fracking, on various cable news networks.
"Everybody is competing for the same dollars, and this gives the competitors an edge to say, 'The SEC is looking into this company and they're not looking into my company,'" he said.
Breitling Energy will continue operating while the lawsuit is pending, Friedman said.
In its lawsuit, the SEC charged Faulkner with violations of antifraud, reporting, record-keeping and internal controls provisions of federal securities laws. It also accused him of lying to auditors and violating certification provisions of the Sarbanes-Oxley Act, a law that reshaped corporate oversight after accounting scandals in 2001-2002 at Enron, WorldCom and other major corporations. Faulkner is also accused of fraud violations related to stock manipulation.
Seven current and ex-employees of Breitling Energy and Faulkner's affiliated companies are also accused by the SEC of various violations.
Follow Juan A. Lozano on Twitter at www.twitter.com/juanlozano70