DALLAS (CN)- Self-proclaimed “Frack Master” Christopher Faulkner was ordered to pay $23.8 million and sentenced to 12 years in prison on Tuesday after the famous Texan pleaded guilty to using his oil and gas companies to defraud hundreds of investors across the country as part of a settlement deal.
Faulkner, the former CEO of Breitling Energy, is famed in the oil and gas industry for his several high-profile media appearances in which he explained and defended fracking practices. He pleaded guilty on Tuesday to securities fraud, money laundering and tax evasion, settling a lawsuit brought by the Securities and Exchange Commission in 2016.
Over the course of five years, Faulkner raised approximately $80 million through a multi-pronged scheme that began in 2011. He employed cold-callers to offer turnkey oil and gas working interests to investors in several states through companies he controlled, including Breitling Oil and Gas Corporation, Crude Energy and Patriot Energy.
Faulkner misrepresented his level of education to investors by claiming to have master’s and doctorate degrees that he did not earn, according to the complaint filed by the Securities and Exchange Commission.
Additionally, he told prospective investors that he had extensive knowledge about the oil and gas industries. Faulkner’s only prior experience with oil and gas, however, was through website hosting work he had performed for companies in the industry.
“Faulkner first proclaimed himself the ‘Frack Master’ in order to deceive investors about his expertise and steal millions of dollars to fund his lifestyle, and the SEC put an early end to his second effort to defraud investors in a real estate scheme,” said Shamoil Shipchandler, director of the SEC’s Fort Worth Regional Office, in a statement.
At the heart of the scheme were bloated estimates that Faulkner and his co-defendants provided to investors, according to the SEC. After claiming innocence for years, Faulkner admitted that he lied to investors about the actual cost of drilling operations in order to inflate the price of investments.
This allowed him to pocket millions of dollars, which he used for “extravagant” expenses such as international travel, cars and personal escorts.
"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," said Erin Nealy Cox, U.S. Attorney for the Northern District of Texas, in a statement. "Let this case send a message that this type of egregious investor fraud will prosecuted to the fullest extent of the law."
Jim Verdonik, a securities lawyer with Ward and Smith PA of North Carolina, said fraud of this nature is common.
“$80 million is a nice chunk, but it was over the course of five years. This event would not stack up against the top 10 securities fraud cases we have seen,” he said.
He said the problem of securities fraud is not caused by a lack of securities regulation.
“Unfortunately, we usually find out that fraudulent activity is occurring long after the money is gone,” Verdonik said. “The law does not need to change, but the best thing would be to allocate more funds to identifying fraud early on.”
Verdonik said the best way to avoid becoming a victim of securities fraud is to hire a good adviser.
“Don’t just listen to the person who is selling you things or telling you that something is risk free,” he said.
The SEC declined to comment beyond the press release.
Faulkner could not be reached for comment Tuesday. He is currently housed in federal prison outside of Dallas.
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