From Texas Lawyer
The U.S. Securities and Exchange Commission has accused executives at a Dallas oil and gas energy company, including the CEO and general counsel, of a “long-lasting and egregious fraud” that included spending investors’ money at gentlemen’s clubs.
In a civil complaint filed June 24 in the U.S. District Court in Dallas, the SEC alleged that Breitling Energy Corp. and eight of its executives were involved over the past five years in a $80 million scheme to mislead investors in oil and gas prospects. According to the SEC, the defendants lied to investors about things like projected costs and the experience of CEO Chris Faulkner — self-dubbed the “Frack Master” for his purported expertise in hydraulic fracturing.
On top of that, the complaint alleges that “Faulkner, assisted by his co-defendants, 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.”
One of the defendants is Jeremy Wagers, 39, the company’s general counsel and chief operating officer. The SEC alleges that Wagers, who previously worked at Vinson & Elkins and Skadden, Arps, Slate, Meagher & Flom, violated reporting, internal controls and proxy provisions of the Exchange Act by lying to auditors and omitting material information from required statements and reports.
According to the SEC, in an attempt to hide Faulkner’s personal spending, Wagers and Faulkner obtained American Express expense credit cards “subordinated” to the account of co-defendant Gilbert Steedley, Breitling Energy’s vice president of capital markets. The complaint alleges that Faulkner referred to this card as his “whore card,” and Wagers used his mainly for gentlemen’s club expenses.
Dallas attorney Lawrence Friedman, who is representing Wagers and Faulkner, says the 63-page complaint is full of “spurious” accusations. It reads “like a Grisham novel” he said, “designed to leave the reader with the impression that these are all bad people who committed fraud.”
Wagers “is just a good lawyer,” Friedman added. “He’s a very smart guy, and lawyers historically and in this instance don’t deal with the finances of a company. [Breitling Energy] had a CFO, and an accounting department that took in the funds, moved the funds and expended the funds. Wagers had nothing to do with the money.”
Friedman said that, even if the defendants spent money at gentlemen’s clubs, there’s nothing wrong with that. “When you’re asking someone to invest two or three million dollars of their money in your project, you have to wine and dine your potential investor,” he said. “Is that any different from other corporations that buy suites at the stadiums and entertain their clients there?”
Friedman, noting the large number of times the term “gentlemen’s club” is used throughout the complaint, says it is “60 pages of fiction” designed to embarrass the defendants rather than enumerate specific statutory violations. “This is not a typical agency complaint, not a complaint written by law enforcement to highlight statutory infractions,” Friedman said.
