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LuxeYard fights back against alleged pump-and-dump scheme [LUXR]

By Dan Lonkevich    Updated 12:30 PM, Mar-14-2014 ET

Amir Mireskandari and Khaled Alattar, the co-founders of online luxury-goods retailer LuxeYard Inc., are fighting back against the group that they claim are responsible for a complicated pump-and-dump scheme that defrauded investors of some $30 million and pushed the company into involuntary bankruptcy.

Mireskandari, Alattar and Los Angeles-based LuxeYard are currently embroiled in a raft of lawsuits including one in a Texas state court in Houston and another in U.S. Bankruptcy Court in Los Angeles in connection with the scheme they say was organized and led by four men with about 20 co-conspirators.

The Texas lawsuit alleges that stock promoter Kevan Casey and financial advisor Frederick Huttner orchestrated a scheme that involved helping LuxeYard go public through a reverse merger and raise money through private placements in order to gain control of shares to be used in a pump and dump that was executed between April and August 2012.

The litigation has also named the Manalapan, N.J.-based law firm of Anslow & Jaclin LLC as a defendant. Last year, the firm settled for an undisclosed amount and went out of business.

Former partner Gregg Jaclin told The Deal that the firm settled to avoid legal fees and that the situation had nothing to do with Anslow & Jaclin’s break-up.

Another defendant is Tobin Smith, a former commentator on Fox Business Network who was fired last year for violating the network’s policy against accepting compensation to recommend stocks.

Others named in the lawsuits include the former shell company Top Gear Inc. and investors and stock promoters [name redacted], [name redacted], Jonathan Camarillo, Jeff Lamont, William Bartlett Jr., Thomas Hudson, Lawrence Isen, David Nagelberg, Lance Baral, Joseph Lee, Mark Trotter, Jeffrey Sater, Tommy Allen, David Bahr, Trevor Ling, Doug Shaw, Robert Klinek and his wife Susan Pack, Lisa Ann Komoroczy, Sean Crowley, Robert Gleckman, and a group of trusts and other investment vehicles they controlled.

[name redacted] was a stockbroker at Southwest Securities Inc. who in 2008 was permanently barred from the securities business by the Securities and Exchange Commission for engaging in market timing trades on behalf of Haidar Capital Management LLC and Haidar Capital Advisors LLC. The bar was upheld by the U.S. Court of Appeals for the 5th Circuit in 2010.

In October, Bahr was sentenced to 18 months in prison and fined $65,000 for agreeing to pay a secret kickback of $750,000 to a stock broker as part of what federal prosecutors said was a pump-and-dump scheme involving the shares of iTrackr Systems Inc.

In 2006, Trotter agreed to pay $1.04 million to settle a lawsuit brought by the Texas attorney general’s office for violating the state’s law against spam e-mail.

The transfer agent Globex Transfer LLC and brokers Apex Clearing Corp., Westor Capital andWilson-Davis & Co. also were named as third-party defendants because they allegedly knew about the fraud and profited from it.

The defendants reject the allegations and argue that the lawsuits have been filed out of bitterness by Mireskandari and Alattar after LuxeYard lost its investors’ money and couldn’t raise new capital.

The case has its origins in Mireskandari’s and Alattar’s efforts to raise capital for the company they co-founded as LY Retail, which operated a flash sales website for luxury goods. Their plan was to capitalize on the popularity of websites such as Gilt Group Inc.’s Gilt.com.

In August 2011, Mireskandari first consulted with his Houston area financial adviser Huttner, who he had known and worked with since 2002.

Huttner introduced Mireskandari to Casey who was also from Houston. Huttner and Casey told Mireskandari they could help him build LY Retail’s business by arranging for it to go public through a reverse merger with a public shell and then raising money through private placements.

Anslow & Jaclin helped Casey and Huttner find the shell Top Gear, which was controlled by about 50 Israeli shareholders who were willing to sell it for $460,171. Casey, Huttner and others named in the lawsuits received LuxeYard shares in the reverse merger.

Casey and Huttner are then alleged to have persuaded Globex to lift the restrictive legend on the shares with a false legal opinion letter from Anslow & Jaclin.

Mike Turner, a representative of Globex, denied LuxeYard’s allegations against the transfer agent. He told The Deal that Globex based its decision to release restrictions on the shares on a registration statement rather than a legal opinion.

The co-conspirators allegedly sold some shares through matched orders, raising $1.5 million which was paid to stock promoter Next Media to begin the first round of the stock promotion.

Next Media and the co-conspirators engaged Smith, who was still a contributor to Fox at the time. Smith received LuxeYard stock which he later sold during the pump, the lawsuits claim.

Isen, another promoter, also received LuxeYard stock for promoting the company on his blog OTC Journal, according to the lawsuits.

The scheme also allegedly involved continued matched orders to maintain trading volume in LuxeYard stock.

Next Media was paid another $3 million, bringing the total spent on the campaign to $4.5 million, to continue the promotion, setting the stage for the dump, according to the lawsuit.

Meanwhile, LuxeYard raised about $5.8 million from private placements of convertible debt, convertible preferred stock and warrants in April and May 2012.

The debt financing in April 2012 raised $2.91 million. The debentures that LuxeYard sold paid a 10% coupon and were convertible into common stock at 30 cents a share. That was a 73.7% discount to the price where LuxeYard shares closed on April 23, 2012, the day before the private placement was completed.

The conversion price also was subject to full-ratchet anti-dilution protection. Those terms called for the conversion price to be lowered to equal the price of any future capital raise at a lower price.

In the private-investment-in-public-equity market, deals with such terms have been referred to as death spiral PIPEs. They can create a potential for dilution of shareholders that can make it difficult for a company to raise more capital in the future.

Just a month later, LuxeYard raised another $2.89 million in the private placement of units that consisted of convertible preferred stock and warrants. The preferred stock paid an 8% dividend and converted into common shares at 35 cents. The warrants converted at 35 cents and 50 cents.

Investors included Pergament Fund Management LLC, Huttner 1999 Partnership Ltd., Next View Partners LLC, Heights Capital Management Inc., Downsview Capital Inc., Kingsbrook Partners LP and Octagon Capital LLC.

Of those, only Huttner 1999 was named as a defendant in any of the lawsuits.

Anslow & Jaclin advised LuxeYard on the private placement of convertible preferred stock.

Mireskandari said in an interview that he won a $1.5 million settlement from Casey and [name redacted] in September 2012 in connection with the first suit he filed in state court in Houston in August 2012.

Later in September 2012, Alattar brought a similar lawsuit also in the Houston court against other participants in the alleged scheme. Mireskandari and LuxeYard have joined that suit as well. The defendants in that case have made a motion to remove the case to federal court, which is pending.

In addition, Mireskandari alleges that the defendants helped push LuxeYard into involuntary bankruptcy proceedings in U.S. Bankruptcy Court in Los Angeles.

“They tried to finance and join an involuntary bankruptcy against LuxeYard,” Mireskandari said in an e-mail. “They wanted to end litigation filed against them, and argued automatic stay and suggestion of bankruptcy to stop the litigation. They also paid for the legal fees and other considerations for third parties for commencing involuntary proceedings against LuxeYard.”

Mireskandari said that those third parties, who were recruited by Philip Ison and Braden Richter, included some “non-legitimate” creditors. They filed two separate involuntary proceeding against LuxeYard. One was dismissed and the second is “about to be dismissed,” Mireskandari said.

Richter is a former CEO of LuxeYard. The company has said he was fired for cause including collaborating with Casey and the pump-and-dump group and theft.

Ison owns warehouse space in Winston-Salem, N.C., that LuxeYard leased to store imported inventory. He is accused in the litigation of stealing inventory from the company.

LuxeYard also is involved in litigation with Richter and Ison in California Superior Court in Los Angeles to recover damages and property. Richter has denied the allegations and claims the charges against him were trumped up by the company, according to his attorney Robert Hirshman.

LuxeYard also is countersuing for damages in the bankruptcy proceeding. The company claims that Casey, [name redacted], Richter and Ison bribed the party that brought the involuntary bankruptcy petition. Ison’s 801 Realty Investments LLC was one of the creditors who brought the petition.

“They tried to derail the second Texas lawsuit by tossing LuxeYard into bankruptcy,” said Brian Keller, a partner with Faubus Keller LP in Houston, who represents Alattar. “We have very good evidence it was based on fraud. We have a witness who says he was bribed to bring the bankruptcy petition to derail the Texas case.”

The witness, Christian Vega, had once worked briefly at LuxeYard. He signed an affidavit last month, claiming that Casey, [name redacted], Richter and Ison used him and lied to him and other creditors of LuxeYard to bring the involuntary bankruptcy to halt the company’s litigation against them.

According Mireskandari, the organizers of the pump and dump of LuxeYard have run the same scheme many times before.

“We are currently investigating and litigating against a group of sophisticated, well organized individuals that continuously apply the same illegal tactics across many microcap companies to defraud investors,” he said in an e-mail.

“We have discovered that in 2012 alone, more than 30,000 investors were defrauded by this syndicate through a dozen ‘pump and dump’ operations. Originally numerous China related entities, and then other companies.

“This group is lot more sophisticated than the ‘boiler room’ guys everyone assumes for pump and dumps,” he said. “Their modus operandi is direct mail, multi-page glossy investment booklets, email marketing, embedding articles, and very coordinated control of the float of a stock.

“They are represented by name brand legal firms, and have the liquidity and knowledge to hide behind nominee accounts. They also employ very sophisticated financial tactics to achieve their goals.

“The Pump & Dump Group consists of the organizers/ring leaders, their immediate associates, attorneys, marketing companies, and brokerage firms that all participate in this process across many stocks.

“Once their actions were revealed through our investigation and litigation, we uncovered a web of organized, criminal behavior with many predicate acts that continues to this date. They are currently undertaking other pump and dumps.”

Mireskandari claimed that nine other companies including Quest Water Global Inc., All Energy Corp., Bering Exploration Inc., China Modern Agricultural Information Inc., China Global Media Inc., China Electronic Holdings Inc., Weikang Bio-Technology Group Co. and Plasma Tech Inc. may have been defrauded by Casey’s pump and dump group.

“The total number of shareholders and dollar amounts duped within 18 months is staggering,” he said.

In the meantime, Mireskandari said he and LuxeYard have complained to regulators and law enforcement.

“We have communicated with the SEC, FBI, U.S. Attorney, Texas Securities Board, Harris County Sheriff, and FINRA on this matter,” he said in an e-mail.

Representatives of the SEC, FBI, U.S. Attorney’s Office in Houston and the Financial Industry Regulatory Authority declined to comment.

David Clouston, a Dallas-based attorney representing [name redacted], [name redacted], Lee and other defendants, said in an e-mail that the original LuxeYard case, brought by Mireskandari, “was settled and funds (equivalent to cost of defense and in part, based on prior discussions, to help capitalize the company) were paid by a group of defendants to LuxeYard.”

Clouston noted, however, that LuxeYard’s former CEO Richter has claimed that the settlement funds were diverted from LuxeYard. Richter swore in a declaration in the bankrupcty proceeding that Mireskandari took control of the settlement money and refused to put it into LuxeYard’s bank account.

Mireskandari denied Richter’s allegation. He said the money was deposited into a LuxeYard account controlled by Richter and was down to about $300,000 when Richter was fired.

Clouston said that before investors provided capital to fund the idea that became LuxeYard, “there was no functioning company, no website, and no revenue. LuxeYard was merely a business plan, by Mireskandari and this Plaintiff, in need of funding.”

Clouston said that after the capital was raised, LuxeYard’s expenses “quickly exceeded all expectations.”

At the same time, the flash-sales website industry declined.

The millions of dollars LuxeYard had raised “evaporated in a few months, as opposed to representing the expenses for the first 12 months as represented to these investors by the Company,” Clouston said. “After additional capital raises (some of my clients participated in these as well) were also burned through despite projections, the Company once again hit up the investors for more money.”

It was then that LuxeYard accepted “death-spiral” financing with a “third party,” Clouston said. That was within nine months of the company’s launch, he said.

“If you look at the trading history for Luxeyard, it is clear that this ‘death-spiral’ financing was a triggering event to the decline,” Clouston said. “My clients have honored their obligations to LuxeYard, are disappointed in the Company’s actions and those of Mireskandari and Plaintiff, and still remain to this day investors in LuxeYard based upon the restricted shares and warrants they hold.”

In addition, Clouston noted that Mireskandari “is now apparently very interested in the ‘litigation’ business,” citing the website for a company Mireskandari founded in January 2013.

The company, Houston-based Ran, Mires, Clark & Associates, describes itself as “a shareholder advocacy group with a focus on shareholders and companies that have been defrauded.” The firm says it detects, analyzes and uncovers fraud and builds “a strategy to mitigate such fraud and recover losses for our clients.”

Attorneys representing Casey and Huttner could not be reached for comment.

An attorney for Sater said he declined comment.

Attorneys for the other named defendants also could not be reached.

Globex’s Turner said the lawsuit is “sour grapes because these guys were looking to raise money and couldn’t so they decided to sue somebody.”

He said that the massive scheme LuxeYard alleges, is not believable.

A representative of Apex declined comment. Wilson-Davis representatives could not be reached for comment.

Westor Capital has been in liquidation since April 2013.

Read more: http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10007951740#ixzz2vxL0M3kV

Shareholder Advocacy Group Mires, Ran, Clark & Associates Announces Investigation of Breitling Energy (BECC)

SEC CHARGES “FRACK MASTER” WITH RUNNING AN $80 MILLION OIL AND GAS FRAUD

Mires, Ran, Clark & Associates: July 12, 2016 8:30 AM

Houston, TX – Mires, Ran, Clark & Associates, a leading shareholder advocacy group,  is investigating potential claims against the management and affiliates of Breitling Energy Corporation (“Breitling” or the “Company”) (BECC), concerning violations of securities laws and breaches of fiduciary duties to the Company’s shareholders.

The investigation focuses on whether the Company and its executives violated federal securities laws with respect to its disclosures concerning the marketing of its stock, operations, market manipulation and financial and operational claims and projections.

Breitling’s management and certain affiliates allegedly distributed marketing material that promoted the stock and included certain projections and facts that were not true.

Information regarding related charges from The Securities and Exchange Commission (SEC) can be found here: https://www.sec.gov/news/pressrelease/2016-130.html

Request more information now by visiting www.MiresRan.com.  There is no cost or obligation to you.

Take Action

If you lost more than $2,000 investing in BECC stock or options and would like to aide in the investigation, please visit www.MiresRan.com.  You can also contact us by calling 713-785-5560 or by sending an e-mail to info@miresran.com.

Mires, Ran, Clark & Associates also encourages anyone with information regarding Breitling’s conduct to contact the group, including whistleblowers, former employees, shareholders, and others.

Mires, Ran & Clark (“MRC”) is a securities investigative firm and specializes in researching fraud in public companies, especially in the Micro cap sector.  MRC’s very seasoned team includes analysts, former law enforcement, and stock trading analysis tools that allow us to detect and uncover various forms of fraud in micro- cap market. Together with Mr. Amir Mireskandari and Mr. Don K. Clark, a former FBI special agent in charge of the New York and Houston field offices, Yuval Ran founded Mires, Ran, Clark & Associates, LLC, which specializes in the investigation, detection, and analysis of stock and investment fraud on behalf of companies, shareholders and entrepreneurs.

To keep track of the latest securities litigation news, follow us on Twitter at www.twitter.com/miresran or on Facebook at www.facebook.com/miresran.

MIRES, RAN, CLARK & ASSOCIATES IS NOT A LAW FIRM AND IS NOT PERMITTED TO ENGAGE IN THE PRACTICE OF LAW. THE EMPLOYEES OF MIRES, RAN, CLARK & ASSOCIATES ARE NOT ACTING AS YOUR ATTORNEY. MIRES, RAN, CLARK & ASSOCIATES DOES NOT GIVE LEGAL ADVICE. THE INFORMATION INCLUDED IN THIS RELEASE IS NOT A SUBSTITUTE FOR THE ADVICE OF A LAWYER. IF YOU ARE SEEKING LEGAL COUNSEL OR REPRESENTATION, YOU SHOULD CONTACT A LICENSED ATTORNEY IN YOUR AREA.

GENERAL INQUIRIES
info@miresran.com

MEDIA RELATIONS
media-relations@ miresran.com

INVESTOR RELATIONS
investor-relations@ miresran.com

 

CORPORATE ADDRESS
2500 West Loop South
Suite 300
Houston, TX
Telephone: 713.785.5560

Shareholder Advocacy Group Mires, Ran, Clark & Associates Announces Investigation of Repro-Med Systems Inc. (REPR)

COMPANY FAILED TO DISCLOSE FDA VIOLATIONS

Mires, Ran, Clark & Associates: July 12, 2016 8:30 AM

Houston, TX – Mires, Ran, Clark & Associates, a leading shareholder advocacy group,  is investigating potential claims against the management and affiliates of Repro-Med Systems Inc. (“Repro” or the “Company”) (REPR), concerning the company’s failure to disclose U.S. Food and Drug Administration (FDA) sanctions.

The investigation focuses on whether the Company and its executives violated rules with respect to its disclosures concerning a number of sanctions it received from the FDA, and other questionable business operations.

REPR and its executives purportedly failed to disclose a number of FDA Warning Letters that the company received in 2016.

Request more information now by visiting www.MiresRan.com.  There is no cost or obligation to you.

 

Take Action

 

If you lost more than $2,000 investing in REPR stock or options and would like to aide in the investigation, please visit www.MiresRan.com.  You can also contact us by calling 713-785-5560 or by sending an e-mail to info@miresran.com.

Mires, Ran & Clark (“MRC”) is a securities investigative firm and specializes in researching fraud in public companies, especially in the Micro cap sector.  MRC’s very seasoned team includes analysts, former law enforcement, and stock trading analysis tools that allow us to detect and uncover various forms of fraud in micro- cap market. Together with Mr. Amir Mireskandari and Mr. Don K. Clark, a former FBI special agent in charge of the New York and Houston field offices, Yuval Ran founded Mires, Ran, Clark & Associates, LLC, which specializes in the investigation, detection, and analysis of stock and investment fraud on behalf of companies, shareholders and entrepreneurs.

To keep track of the latest securities litigation news, follow us on Twitter at www.twitter.com/miresran or on Facebook at www.facebook.com/miresran.

MIRES, RAN, CLARK & ASSOCIATES IS NOT A LAW FIRM AND IS NOT PERMITTED TO ENGAGE IN THE PRACTICE OF LAW. THE EMPLOYEES OF MIRES, RAN, CLARK & ASSOCIATES ARE NOT ACTING AS YOUR ATTORNEY. MIRES, RAN, CLARK & ASSOCIATES DOES NOT GIVE LEGAL ADVICE. THE INFORMATION INCLUDED IN THIS RELEASE IS NOT A SUBSTITUTE FOR THE ADVICE OF A LAWYER. IF YOU ARE SEEKING LEGAL COUNSEL OR REPRESENTATION, YOU SHOULD CONTACT A LICENSED ATTORNEY IN YOUR AREA.

GENERAL INQUIRIES
info@miresran.com

MEDIA RELATIONS
media-relations@ miresran.com

CORPORATE ADDRESS
2500 West Loop South
Suite 300
Houston, TX
Telephone: 713.785.5560

Fracking CEO’s Mass Fraud Funded ‘Lifestyle Of Decadence And Debauchery’

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Dan Sellers

According to the SEC, Breitling Energy Corporation CEO Chris Faulkner and seven others at his company allegedly defrauded investors by giving them misleading information and manipulating Breitling’s stock. The lawsuit, filed in federal court in Dallas, accused Faulkner of misappropriating “at least $30 million in investor funds to maintain a lifestyle of decadence and debauchery.”

Those millions in investor funds allegedly went towards Faulkner’s personal expenses, including international travel, cars, jewelry and opulent meals. The SEC charged that the fracking mogul even obtained what he referred to as a “whore card”—an American Express used exclusively for these “salacious” purchases—to shield his personal spending and expense reimbursements from the rest of the company.

Faulkner allegedly used that card to charge more than $1 million in personal travel, expenses for personal escorts and nights out on the town, according to the suit. In one four-day period in July 2014, the SEC alleged, he spent nearly $40,000 at a single Dallas gentleman’s club.

Larry Friedman, Faulkner’s attorney, told local ABC affiliate WFAA on Friday that his client had done nothing wrong, saying he was “not aware of any complaints by investors.” He said the company was “fully cooperating” with the SEC.

According to the Dallas Morning News, the SEC suspended trading in Breitling stock on Wednesday. TPM’s multiple calls to the company’s Dallas office on Friday afternoon were met with a busy signal.

The unusually media-friendly oil and gas CEO was known for his frequent appearances on cable news, but he’d also emerged as a major conservative donor during his tenure at Breitling. The Texas Observer reported that he gave almost $300,000 to state candidates, putting $87,500 towards Lt. Gov. Dan Patrick’s (R) campaign and $100,000 towards Railroad Commissioner Ryan Sitton’s bid.

Strippers, escorts and false offerings: SEC charges Breitling Energy CEO with running $80M oil and gas fraud

Chris Faulkner, the CEO of Dallas-based Breitling Energy Corporation – who dubbed himself the “Frack Master” on TV because of his expertise in hydraulic fracking – was charged by the SEC today of orchestrating an $80M oil and gas fraud.

Faulkner, a frequent guest on CNBC, CNN International and Fox Business News, where he discusses the oil and gas industry, is being charged with disseminating false and misleading offering materials, misappropriating millions of dollars of investor funds and attempting to manipulate BECC’s stock. He also used those funds to allegedly treat himself to a decadent lifestyle.

Chris Faulkner allegedly orchestrated a sophisticated and multilayered scheme using BECC and its affiliated entities as a conduit to access millions of investor dollars,” said Shamoil Shipchandler, Regional Director of the SEC’s Fort Worth Regional office, in a prepared statement. “The financing for Faulkner’s opulent lifestyle came directly at the expense of unwitting investors across the country.”

According to the Texas Lawbook, which first reported the story, a Dallas lawyer representing the energy firm and Faulkner said his clients “deny emphatically” the allegations. “This reads more like a Grisham novel and less like an SEC complaint,” Larry Friedman told the Texas Lawbook. “It reads like a vendetta. Lots of personal attacks that are uncalled for, especially against a company and an executive that has an otherwise clean record.”

According to the SEC’s complaint, Faulkner started the scheme in 2011 through privately-held Breitling Oil and Gas Corporation and he offered “turnkey” oil and gas working interests. The scheme allegedly continued to Breitling Oil and Gas Corporation’s successor, BECC.

Here are the offenses the SEC alleges Faulkner committed:

  • Breitling Oil and Gas Corporation offering materials contained false statements and omissions about Faulkner’s experience, estimates for drilling costs and how investor funds would be used.
  • Offering materials included reports by licensed geologist Joseph Simo that had baseless production projections and did not disclose his affiliation with Breitling Oil and Gas.
  • Faulkner established Crude Energy LLC and Patriot Energy Inc. to deceive investors through offerings similar to Breitling Oil and Gas.
  • Breitling Oil and Gas, Crude and Patriot raised $80 million from investors because of these untrue offerings.

Also, the SEC alleges Faulkner used at least $30 million of the investors’ funds on personal expenses like lavish meals, international travel, cars, jewelry, gentlemen’s clubs and personal escorts.

Also named in the claim were Beth Handkins and Rick Hoover, as the SEC alleges these two helped Faulkner pull off the fraud. Handkins was a former employee of Crude and Patriot, and Hoover was the former CFO of BreitlingEnergy Corporation. According to a Dallas Business Journal story, Breitling sued Hoover in March of last year after the company fired Hoover.

“In addition,” the release from the SEC reads, “While in the middle of perpetrating this fraud on investors, Faulkner engaged in a scheme to manipulate the price of BECC’s stock, with the assistance of former BECC employee Gilbert Steedley, by placing trades at the end of the day to “mark the close” of the stock.”

The SEC’s investigation is ongoing. A total of eight people and four companies are being charged by the SEC. Here is what they are charging Faulkner with, according to the release:

  • Violations of the antifraud provisions
  • Violations of the antifraud, reporting, record keeping and internal controls provisions of the federal securities laws
  • Lying to auditors
  • Violating certification provisions of the Sarbanes-Oxley Act
  • Additional fraud charges based on his alleged manipulation of Breitling Energy’s stock

Evan Hoopfer is the Dallas Business Journal’s digital reporter.

Manhattan promoter sues hard-partying Texas oilman over unpaid bills 

http://www.nydailynews.com/new-york/nyc-promoter-sues-hard-partying-oilman-unpaid-bills-article-1.2387294

A Manhattan promoter is claiming that Breitling Energy honcho Christopher Faulker (pictured) owes him $241,000.

A Manhattan promoter is claiming that Breitling Energy honcho Christopher Faulker (pictured) owes him $241,000.

(BREITLING ENERGY)

A Manhattan promoter claims a hard-living Texas oilman took him on a wild ride and saddled him with a $241,000 bill.Breitling Energy honcho Chris Faulkner is a short-fused maniac who uses “substances,” gets drunk and picks fights in high-end Manhattan nightclubs and restaurants, Nick Andreottola claimed in court papers.

Faulkner also jets around the world in a private plane with a posse of fellow hard partiers – all on his company’s dime, said Andreottola, who runs a concierge service for big spenders called Status Luxury.

In court papers, Andreottola said he first crossed paths with Faulkner in December 2006.

“Andreottola would very quickly begin to see the lifestyle of excess that Faulkner indulged in, seemingly always through funds of Faulkner’s companies,” the lawsuit states.

But Andreottola went ahead and arranged a booth for the Texan and his party at a swanky Manhattan nightclub called Cain.

“At one point in the evening, the nightclub owner asked Andreottola whether Faulkner and his group were okay because the individuals looked to be in poor shape due to use of certain substances,” the papers state without elaboration.

When Andreottola got Faulkner and his party into a hot Miami nightclub, the oilman’s “drunken and aggressive demeanor” nearly got him kicked out.

When Andreottola arranged for dinner at Nobu in Manhattan, Faulkner “was almost thrown out of this venue because of an argument with the adjacent table that almost escalated to a fight,” the papers state.

At Cipriani, Faulkner “became intoxicated to the point of becoming lost in the bar (which is not large by any means),” the papers state.

The case filed by the Manhattan promoter claims Christopher Faulker (l.) is a short-fused maniac who abuses substances and picks fights in high-end Manhattan nightclubs and restaurants.

The case filed by the Manhattan promoter claims Christopher Faulker (l.) is a short-fused maniac who abuses substances and picks fights in high-end Manhattan nightclubs and restaurants.

(FACEBOOK)

Andreottola also described a chaotic trip he arranged for Faulkner to Mykonos, Ibiza, St. Tropez and other luxurious destinations.

At the last minute Faulkner decided not to go and ordered Andreottola to “babysit the circus,” the papers state.

Faulkner eventually joined the group abroad, but there was a lot of friction between the travelers and Andreottola claims he was “physically threatened” several times.

Andreottola also claims in October 2014 he arranged to get Faulkner and some of his business associates into a “celebrity party” at TAO.

“With a group of twenty people, Faulkner became belligerently drunk within an hour and attempted to start fights,” the papers state. “Because of his behavior, Faulkner’s own security removed him.”

Andreottola said Faulkner was a handful over the nine years he worked for him but generally paid his bills. But since December, Andreottola said he’s been unable to get Faulkner to cough up the cash he owes him. So he’s suing.

The Dallas-based Faulkner is one of the country’s best known advocates of fracking and he’s been dubbed the “Frack Master” due to his frequent appearances on cable news business shows.

Via a spokesman, Faulkner denied Andreottola’s allegations and said the promoter was “stealing funds and billing for services not provided.”

“Mr. Faulkner totally refutes any implicatin that this involves Breitling,” the spokesman said. “This is a personal vendetta against Mr. Faulkner and will be settled in a court of law.”

SECURITIES AND EXCHANGE COMMISSION v. CHRISTOPHER A. FAULKNER, BREITLING ENERGY CORPORATION, BREITLING OIL & GAS CORPORATION, CRUDE ENERGY, LLC, PATRIOT ENERGY, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SECURITIES AND EXCHANGE COMMISSION,

 

Plaintiff,

 

 

CHRISTOPHER A. FAULKNER,

BREITLING ENERGY CORPORATION,

JEREMY S. WAGERS,

JUDSON F. (“RICK”) HOOVER,

PARKER R. HALLAM,

JOSEPH SIMO,

DUSTIN MICHAEL MILLER RODRIGUEZ,

BETH C. HANDKINS,

GILBERT STEEDLEY,

BREITLING OIL & GAS CORPORATION,

CRUDE ENERGY, LLC,

PATRIOT ENERGY, INC.,

Defendants,

and

TAMRA M. FREEDMAN and

JETMIR AHMEDI,

Relief Defendants.

 

Case No.: 3:16-cv-01735-D

Jury Trial Demanded

 

COMPLAINT

Plaintiff Securities and Exchange Commission (the “Commission”) files this Complaint

against Defendants Christopher A. Faulkner, Breitling Energy Corporation, Jeremy S. Wagers,

Esq., Judson F. “Rick” Hoover, Parker R. Hallam, Joseph Simo, Dustin Michael Miller

Rodriguez, Beth C. Handkins, Gilbert Steedley, Breitling Oil & Gas Corporation, Crude Energy,

LLC, and Patriot Energy, Inc. (collectively “Defendants”) and Tamra M. Freedman and Jetmir

Ahmedi (collectively “Relief Defendants”), and alleges as follows:

 

INTRODUCTION

 

Chris Faulkner and his co-Defendants have defrauded investors out of approximately $80

million through the sale of oil-and-gas working interest investments over the course of at least

the last five years. Faulkner and his co-Defendants duped hundreds of people out of millions of

dollars by intentionally and repeatedly lying about several aspects of the investments, including

the relationships between and among the Defendants, Faulkner’s industry experience, the nature

and operation of the investments, the estimated costs to drill and complete the prospects, the use

of investor proceeds, and the projected oil and gas production that investors could expect. Once

in receipt of investor funds, 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.

The Defendants, as a result of their conduct, violated numerous federal securities laws, including

the antifraud, reporting, and books and records provisions. The Commission brings this action in

the interest of protecting the public from any further fraudulent activity and to hold Defendants

accountable for their roles in this long-lasting and egregious fraud.

 

SUMMARY

  1. Since at least 2011, Chris Faulkner has orchestrated a massive, multi-pronged,

and fraudulent scheme that has defrauded hundreds of investors across the country out of

approximately $80 million invested in oil-and-gas investments sold by companies he owns and

controls (the “Faulkner Scheme”). Faulkner – who has appeared on CNBC, CNN International,

Fox Business News, and the BBC to discuss oil-and-gas topics, and who hosted a weekly radio

talk show in Dallas – has misappropriated at least $30 million in investor funds to maintain a

lifestyle of decadence and debauchery.

 

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 2

 

 

  1. To perpetrate his fraudulent scheme, Faulkner used at least four entities that he

controlled, including publicly-traded Breitling Energy Corporation (ticker: “BECC”). He also

enlisted scores of other individuals to help perpetuate the Faulkner Scheme, including the seven

other individual defendants in this case that actively defrauded, or otherwise participated in

schemes to defraud, investors.

 

  1. The Faulkner Scheme involved the unregistered and fraudulent offer and sale by

Faulkner-controlled entities of working interest investments (“investments”) in more than 20 oiland-gas

prospects in several states. Faulkner conducted three versions of this core fraud, using

Breitling Oil and Gas Corporation (“BOG”), Crude Energy, LLC (“Crude”), and Patriot Energy,

Inc. (“Patriot”) to offer the investments. Faulkner drafted confidential information memoranda

(“CIMs”) and marketing brochures provided to prospective investors in BOG, Crude, and Patriot

offerings that were replete with material misrepresentations and omissions. Dustin Michael

Miller Rodriguez (“Miller”) helped perpetrate the fraud in all three iterations, while Parker

Hallam did so with BOG and Crude. In these capacities, they directed the firms’ sales efforts.

 

  1. As soon as BOG began offering investments in oil-and-gas prospects, Faulkner

misrepresented his education, experience, and background. He claimed to have earned master’s

and doctorate degrees from universities, which he had not. He represented that he had extensive

and diverse experience “in all aspects of oil and gas operations,” when he had no such

experience. In fact, his only exposure to the oil-and-gas industry was through website data

hosting work he and his prior company, C I Host, performed for oil-and-gas companies. Yet, he

promoted himself as an expert in the oil-and-gas industry, even branding himself as the “Frack

Master.” He also paid a public relations firm to promote him and to book appearances on

television and radio shows.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 3

 

  1. The heart of the Faulkner Scheme, however, involved knowingly lying to

investors about how much it would likely cost to drill and complete the wells and how much the

investments would likely earn. Faulkner received estimates for drilling and completion costs –

known as Authority for Expenditures or “AFEs” – from operators that actually drilled and

completed oil-and-gas wells for BOG, Crude, and Patriot offerings. Instead of including these

estimates in the offering materials, Faulkner baselessly and grossly inflated these estimates and

included his bloated figures in the offering documents provided to investors. BOG, Crude, and

Patriot then tied the price of the investments to these claimed estimated costs, and sold the

investments on a lump sum or “turnkey” basis to investors. Because BOG, Crude, and Patriot

kept the difference between the total amount of money they raised from investors on each

offering and the actual costs of drilling and completing the well, this gross inflation of AFEs by

Faulkner ensured that he and the entity Defendants would pocket millions of dollars in illicit

profits from unwitting investors.

 

  1. As part of the offering materials, Faulkner included reports authored by licensed

petroleum geologist Joseph Simo that recommended drilling wells on the prospects and often

included oil-and-gas production projections. Faulkner, Simo, BOG, and Crude portrayed Simo

as an independent, unaffiliated third party, despite the fact he was associated with Faulkner and

his various entities. In projecting production on the prospects, Simo started with the historical

production from the best performing wells within a certain proximity to the proposed drilling

location and used those figures as a baseline, assuming without any basis that the BOG prospects

would perform as well as the best performing wells during the prior decades. Not only did

Faulkner, Simo, and BOG fail to disclose Simo’s affiliation with BOG or his flawed

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 4

 

methodology for projecting production, but they also routinely failed to disclose Simo’s track

record of consistently and grossly overestimating production.

 

  1. But even Simo’s inflated projections were not good enough for Faulkner, who on

numerous occasions took Simo’s numbers, indiscriminately increased them, and then included

the increased projections in reports purportedly signed by Simo. These reports were then

provided to investors in the offering materials. By exaggerating these already overstated

projections, Faulkner made investing in the prospects more enticing to investors, which

consequently made selling working interests in the projects easier for Hallam, Miller, and the

sales staff. But investors had virtually no chance of ever receiving returns anywhere near these

levels, a fact Defendants did not disclose.

 

  1. After duping investors to obtain their funds, Faulkner misappropriated a

significant portion to live extravagantly and excessively. He repeatedly requested Beth

Handkins, a Faulkner associate who controlled all relevant bank accounts of BOG, Crude, and

later Patriot, to: (i) make millions of dollars in payments for charges on Faulkner’s personal

American Express (“Amex”) cards; and (ii) cut him checks for unsupported expense

reimbursements and phony service fees. Throughout the various phases of the Faulkner Scheme,

Handkins consistently diverted funds to Faulkner at his behest and without regard for the

intended use of the funds.

 

  1. The Faulkner Scheme evolved in December 2013 when Faulkner obtained control

of a public company (Bering Exploration, ticker: BRX) through a transaction he orchestrated

with the assistance of Defendant Jeremy Wagers, a Texas attorney who joined BOG in 2012.

Although Faulkner, Wagers, and others portrayed BECC as an exploration and production

(“E&P”) company that would acquire and develop prospects in Texas, Oklahoma, and North

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 5

 

Dakota, neither BECC nor its officers possessed experience in traditional E&P operations. But

this was not Faulkner’s plan for BECC.

 

  1. At the same time as he created BECC, Faulkner established Crude to emulate

BOG and act as BECC’s covert sales arm. Faulkner inserted Hallam, Miller, and Handkins as

Crude’s officers, and transitioned nearly all of BOG’s employees and sales staff over to Crude.

Crude then offered and sold unregistered oil-and-gas investments based on similarly embellished

cost estimates disguised as legitimate AFEs. Faulkner drafted Crude’s offering materials, which

contained similar misrepresentations to the ones in BOG’s, but failed to disclose his affiliation or

involvement with Crude. Instead, the representations in Crude’s offering materials were

attributed to Miller and Hallam, who reviewed and approved the materials before they were sent

to investors. Moreover, Crude never disclosed to its investors that the prospects it offered were

subject to continuous drilling provisions and interlocked obligations involving other prospects.

As a result, Crude investors never knew they could lose their entire investment in a given

prospect if certain payment and completion milestones with other Crude prospects were not met.

 

  1. From December 2013 through April 2015, Faulkner repeatedly requested

Handkins to transfer funds from Crude to BECC. Without asking what the funds were for or

why Crude needed to send the money, Handkins initiated practically all of these transfers,

ultimately sending $36 million (or 94 percent of all funds raised by Crude) to BECC. Faulkner

and Wagers told Handkins there were no problems with the transfers because the entities were

“consolidated.” Hallam approved many of these transfers, and initiated some himself.

 

  1. From the time BECC went public, Faulkner asked Handkins to make more than

$18 million in payments on his Amex cards. Through his conduct, Faulkner knowingly violated

virtually every provision of BECC’s expense reimbursement policy, which was approved and

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 6

 

initiated by BECC’s board of directors in December 2013. In addition to the personal benefits he

received as a result of payments on his Amex cards, Faulkner also obtained millions of dollars in

reimbursements for expenses he purportedly incurred on behalf of the company. Faulkner often

submitted reimbursement requests without supporting documentation, and typically lied that his

purely personal expenditures were for business purposes. These reimbursements were approved

indiscriminately by Wagers or Judson F. “Rick” Hoover, BECC’s Chief Financial Officer

(“CFO”). Sometimes Faulkner submitted reimbursement requests for charges he incurred on his

Amex cards, allowing him to double-dip and receive payments for charges already paid for with

company funds.

 

  1. To further conceal personal spending and expense reimbursements from BECC,

Faulkner and Wagers conceived the idea of obtaining Amex cards in their names that were

subordinated to the Amex account of Defendant Gilbert Steedley, BECC’s Vice President of

Capital Markets. Faulkner used this card – which he referred to as his “whore card” – to charge

more than $1 million for personal travel, expenses for various personal escorts, gentlemen’s

clubs, nightclubs, and associated expenditures. Wagers used his card predominantly for

gentlemen’s club expenses, including nearly $40,000 in charges at a Dallas gentlemen’s club

over a four-day period in July 2014. Faulkner requested that Handkins pay these credit card

charges using company funds. She complied, meaning that virtually every dollar of payment on

the “whore card” and for Wagers’ salacious expenses was made using investor funds.

 

  1. As part of the BECC phase of the Faulkner Scheme, Faulkner, Wagers, and

Hoover signed several public reports filed with the Commission that contained materially false

and misleading statements. Among other things, BECC misrepresented or failed to disclose: (i)

BECC’s relationship with, and total financial dependence on, Crude; (ii) Faulkner’s direction and

 

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COMPLAINT Page 7

 

influence over Crude’s operations, and the personal financial benefits he received directly and

indirectly from Crude; (iii) a business model that was identical to BOG’s turnkey model with

Crude serving as the sales arm; (iv) its results of operations; and (v) that it had sufficient internal

controls and “sound counter-balancing mechanisms to ensure the continued accountability of

[Faulkner] to the Board.” Faulkner, Wagers, and Hoover also made similar false and misleading

statements to the company’s auditors. Moreover, by virtue of the overtly deficient and

fraudulent expense reimbursement requests and their blatant disregard for devising and

maintaining internal controls, Faulkner, Wagers, and Hoover caused BECC to fail to accurately

keep and maintain its books and records.

 

  1. In late 2014, BECC’s stock price was negatively impacted like others in the

industry because of a drop in oil prices. To counteract this, Faulkner deployed the next phase of

the Faulkner Scheme by attempting to manipulate BECC’s stock price and trading volume.

During a three-month window from December 2014 through February 2015, Faulkner engaged

in heavy daily trading in BECC’s stock through at least two nominee accounts in the names of

Steedley and Range Quest Resources (a private entity Faulkner owned and controlled). To fund

this trading, Faulkner routed hundreds of thousands of dollars from BECC to these two nominee

accounts. These transfers were sourced by investor funds provided to Crude. He “marked the

close” on BECC’s stock by initiating hundreds of small lot orders at or near the close of normal

trading hours, oftentimes establishing the day’s highest trading price at the end of the day.

Faulkner’s trading was done in an attempt to manipulate BECC’s stock price and trading

volume, and helped create the false impression that investors unaffiliated with the company were

trading in the stock.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 8

 

  1. In March 2015, the Faulkner Scheme transitioned again. This time, Faulkner

moved his oil-and-gas sales arm from Crude to Patriot after he had a falling out with Hallam. He

shut down Crude’s offices, renamed another shell company he controlled (Simple Solutions) as

Patriot, installed Miller as its President and sole director/officer, and seamlessly continued sales

operations without Hallam. Faulkner and Handkins set up new bank accounts styled as “Simple

Solutions d/b/a Crude Energy” to intercept incoming checks intended for investments in Crude’s

offerings. Faulkner and Wagers also directed Miller to assign all of Crude’s oil-and-gas working

interests to Patriot. Patriot took over as BECC’s covert sales arm by engaging in unregistered

offerings of oil-and-gas investments. Patriot offering materials – drafted by Faulkner, and

attributed to and signed by Miller – include substantively identical misrepresentations as Crude’s

offering documents. At Faulkner’s request and with Miller’s approval, Handkins transferred

millions of dollars from Patriot’s investors to BECC and hundreds of thousands of dollars

directly to Faulkner for personal expenses.

 

  1. Faulkner’s repeated and extensive misappropriation of investor funds finally

derailed his scheme in April 2016. Even though Patriot had raised exponentially more funds

than needed to drill, test, and complete its prospects, Faulkner siphoned off so much money that

Patriot could no longer fund the drilling and completion of its prospects. This was problematic

not only for the Patriot prospects, but also for the BOG and Crude prospects for which Patriot

was responsible to make ongoing expense payments. As a result, numerous prospects have been

shut-in or have had liens placed on them. Moreover, because the Patriot prospects were subject

to the same continuous drilling and interlocked obligations as Crude, at least half of the Patriot

prospects sold to investors have reverted back to the original landowner, leaving these investors

with no interest in the prospects in which they invested.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 9

 

  1. As a result of all of this conduct, BOG, Crude, and Patriot have fraudulently sold

approximately $80 million in oil-and-gas investments in more than 20 oil-and-gas

offerings/prospects to hundreds of investors across the country. And, as a result of this

fraudulent conduct, Faulkner has misappropriated at least $30 million in investor funds through

payments made for personal expenses on his Amex cards and via funds paid directly to entities

he owned and controlled.

 

  1. By engaging in this fraud, the Defendants have variously committed numerous

violations of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. 77a et seq.] and the

Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. 78a et seq.], as set forth in more

detail below. These include violations of the: (i) antifraud provisions, (ii) securities registration

provisions, (iii) reporting provisions, (iv) books and records and internal control provisions, (v)

certification provisions, (vi) proxy provisions, and (vii) beneficial ownership reporting

provisions.

 

  1. In the interest of protecting the public from any further fraudulent activity and

harm, the Commission brings this action against the Defendants and the Relief Defendants

variously seeking: (i) permanent injunctive relief; (ii) disgorgement of ill-gotten gains; (iii)

accrued prejudgment interest on those ill-gotten gains; (iv) civil monetary penalties; (v) officerand-director

bars; and (vi) a penny stock bar.

 

JURISDICTION AND VENUE

  1. This case centers around offers and sales of fractionalized working interests in

oil-and-gas prospects to investors, as well as purchases and sales of stock in a corporation

registered with the Commission under Section 12(g) of the Exchange Act [15 U.S.C.  78l(g)].

Pursuant to the definitions of the term “security” in Section 2(a)(1) of the Securities Act [15

 

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COMPLAINT Page 10

 

U.S.C.  77b] and Section 3(a)(10) of the Exchange Act [15 U.S.C.  78c], interests in oil-andgas

rights and stock are securities. Thus, the Court has jurisdiction over this action pursuant to

Section 20(b) of the Securities Act [15 U.S.C.  77t(b)] and Sections 21(d), 21(e), and 27 of the

Exchange Act [15 U.S.C.  78u(d), 78u(e), and 78(aa)].

 

  1. Venue is proper because a substantial part of the events or omissions giving rise

to the claims occurred within the Northern District of Texas, Dallas Division. Defendants

BECC, BOG, Crude, and Patriot maintain[ed] their principal places of business in Dallas, Texas,

and all individual defendants worked in the Dallas offices of one or more of these four entity

defendants. Further, several of the defendants reside in Dallas County. All of these locations are

within the Dallas Division of the Northern District of Texas.

 

DEFENDANTS

  1. Christopher A. Faulkner, age 39, resides in Dallas, Texas. He currently serves

as the President, Chief Executive Officer (“CEO”), and Chairman of the Board of Directors of

BECC, and is the beneficial owner of more than 10 percent of BECC’s common stock. Faulkner

co-founded BOG and served as its President until December 2013. Faulkner also controlled and

directed the actions of Crude and Patriot. Prior to orchestrating the Faulkner Scheme, Faulkner

founded and ran a website data hosting company named C I Host.

 

  1. Breitling Energy Corporation (“BECC”) is a corporation organized in Nevada

with its principal place of business in Dallas, Texas. BECC was formed through a December

2013 asset-for-stock transaction involving BOG, Breitling Royalties Corporation (“BRG”), and

Bering Exploration (OTC ticker: BERX). Faulkner, Hallam, and Miller beneficially own

approximately 90 percent of BECC’s stock through their ownership in BOG and BRC. BECC is

registered with the Commission under Section 12(g) of the Exchange Act. On September 4,

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 11

 

2015, BECC issued a Form 8-K, signed by Faulkner, acknowledging that its “financial

statements for the annual periods ended December 31, 2013 and 2012 and the interim quarterly

periods ended September 30, 2014, June 30, 2014, and March 31, 2014 should not be relied upon

due to errors in the recording of oil and gas assets, revenue interests and drilling activities that

were discovered during our preparation for our audit of the financial statements for the year

ended December 31, 2014.” BECC has failed to: (i) file required annual and quarterly reports

since the third quarter of 2014, (ii) amend its annual reports for 2012 and 2013, and (iii) amend

its quarterly reports for the first three quarters of 2014.

 

  1. Jeremy S. Wagers, Esq., age 39, resides in Dallas, Texas. Wagers is a licensed

Texas attorney, and has been since 2002. Wagers currently serves as General Counsel (“GC”)

and Chief Operating Officer (“COO”) of BECC, and has since BECC’s inception in December

  1. Previously, Wagers served as GC and Chief Compliance Officer (“CCO”) of BOG from

December 2012 to December 2013. Before joining BOG, he spent nine years working for two

high-profile law firms in Houston, Texas, and nine months working for another oil-and-gas

company.

  1. Judson F. (“Rick”) Hoover, age 58, resides in Highland Village, Texas. Hoover

is a Certified Public Accountant (“CPA”) licensed by the Colorado Board of Accountancy in

  1. He was BECC’s Chief Financial Officer (“CFO”) from February 2014 to February 2015.

 

  1. Parker R. Hallam, age 35, resides in Dallas, Texas. Hallam co-founded

Defendant BOG, serving as its COO and co-heading its sales efforts with Miller from inception

until December 2013. From December 2013 through March 2015, Hallam served as the

President and a managing member of Crude. Hallam beneficially owns more than 10 percent of

BECC’s common stock.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 12

 

  1. Joseph Simo, age 64, resides in Plano, Texas. Simo is the founder and sole

owner of Simo Energy, LLC, a Dallas-based firm that purportedly provided independent, thirdparty

petroleum geology services to BOG, BECC, Crude, and Patriot. During the period when

BOG offered and sold oil-and-gas investments, Simo signed documents purporting to be BOG’s

Vice President of Exploration. He later served as BECC’s President for Upstream Operations.

Simo is a petroleum geologist licensed by the Texas Board of Professional Geoscientists.

 

  1. Dustin Michael Miller Rodriguez (“Miller”), age 41, resides in Dallas, Texas.

Miller co-founded BOG with Faulkner and Hallam, serving as its Chief Investment Officer

(“CIO”) and co-heading its sales division with Hallam from inception through December 2013.

From December 2013 through March 2015, Miller served as Chief Investment Officer (“CIO”)

and a managing member of Crude. In March 2015, Miller became the President and sole

Director of Patriot. Miller beneficially owns more than 10 percent of BECC’s common stock.

From April 2009 to July 2009, Miller was a registered representative associated with a brokerdealer

registered with the Commission. He is not currently registered with the Commission or

associated with a broker-dealer registered with the Commission.

 

  1. Beth C. Handkins, age 41, resides in Waxahachie, Texas. From December 2013

through March 2015, Handkins was identified in Crude’s offering materials and elsewhere as

Crude’s COO. From March 2015 through March 2016, Handkins served in the same capacity

for Patriot. Handkins controlled the bank accounts for BOG, Crude, Patriot, and BECC.

  1. Gilbert R. Steedley, age 51, resides in Bronxville, New York. From December

2013 through September 2015, Steedley served as BECC’s Vice President of Capital Markets.

  1. Breitling Oil & Gas Corporation (“BOG”) is a limited liability company that

was originally organized in Oklahoma in 2004 under the name Southwest Energy Exploration,

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 13

 

LLC. In July 2010, Faulkner – who controlled Southwest Energy – changed the name to BOG

when he, Hallam, and Miller co-founded oil-and-gas operations in Dallas, Texas. BOG

maintained its principal place of business in Dallas, Texas until December 2013 when it was part

of the transaction that birthed BECC. BOG remains in existence and is one of two primary

entities through which Faulkner, Hallam, and Miller own stock in BECC. Faulkner, Hallam, and

Miller each own one-third of BOG. Neither BOG nor its securities are registered with the

Commission.

 

  1. Crude Energy, LLC (“Crude”) is a limited liability company organized in

Nevada with its principal place of business in Dallas, Texas. Faulkner originally organized the

entity as a Wyoming limited liability company in July 2008 under the name Enhanced Funding,

LLC. In June 2013, Faulkner changed the name to Crude. Hallam is Crude’s President, and

Hallam and Miller are Crude’s managing members. From late 2013 through April 2015, Crude

served as the sales arm for BECC to sell working interests in oil-and-gas prospects to investors.

Neither Crude nor its securities are registered with the Commission.

 

  1. Patriot Energy, Inc. (“Patriot”) is a corporation organized in North Dakota with

its principal place of business in Dallas, Texas. Faulkner originally organized the entity in June

2008 under the name Simple Solutions, Inc., but changed the name to Patriot Energy in March

  1. Miller is Patriot’s President and its sole Director. From March 2015 through May 2016,

Patriot served as the sales arm for BECC to sell working interests in oil-and-gas prospects to

investors. Neither Patriot nor its securities are registered with the Commission.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 14

 

RELIEF DEFENDANTS

 

  1. Tamra M. Freedman, age 37, resides in Sherman Oaks, California. Freedman is

Faulkner’s ex-wife. During the relevant time period, Freedman received more than $1.8 million

in funds from BOG and BECC.

 

  1. Jetmir Ahmedi, age 39, resides in Dallas, Texas. Ahmedi, who is Faulkner’s

close friend, received more than $487,000 from BOG and BECC during the relevant period.

 

RELATED ENTITY

 

  1. Breitling Royalties Corporation (“BRC”) is a corporation organized in Texas

with its principal place of business in Dallas. Faulkner, Hallam, and Miller each own one-third

of BRC. BRC maintained its principal place of business in Dallas, Texas until December 2013

when it was part of the transaction that birthed BECC. BRC remains in existence and is one of

two primary entities through which Faulkner, Hallam, and Miller own stock in BECC. Neither

BRC nor its securities are registered with the Commission.

 

STATEMENT OF FACTS

 

  1. Prior to 2009, Faulkner was the founder and chief executive of a variety of

businesses, including C I Host, a website data hosting company. Prior to 2009, he had never

managed, run, operated, or even worked in an oil-and-gas business, and only had tangential

exposure to the industry through his data hosting business.

 

  1. In or around 2009, Faulkner met with Hallam and Miller, two individuals with

experience selling oil-and-gas investments, to discuss starting an oil-and-gas company. In or

around 2010, Faulkner, Hallam, and Miller started BOG in Dallas, Texas. Faulkner took a shell

company he controlled, which was originally organized in Oklahoma in 2004 under the name

Southwest Energy Exploration, LLC, and changed its name to BOG. Faulkner then appointed

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 15

 

himself President of BOG, and Hallam and Miller as Chief Operating Officer (“COO”) and

Chief Investment Officer (“CIO”), respectively. In these roles, Hallam and Miller headed

BOG’s sales activities.

 

  1. BOG started its operations at least as early as 2011 when it began offering and

selling unregistered investments – in the form of working interests in oil and gas prospects in

Texas, Oklahoma, and North Dakota – to investors across the country on a turnkey basis. In this

turnkey arrangement, investors made lump-sum payments to BOG for a fractionalized working

interest in an oil-and-gas prospect. BOG represented to investors that these lump-sum payments

were directly tied to the estimated costs to drill, test, and complete the prospects. In return, BOG

agreed to assume the risk of any cost overruns without requiring any additional contributions

from investors. BOG offered and sold these turnkey investments through a combination of coldcalling

prospective investors from purchased lead lists and through general advertising of

investment opportunities on its website.

 

  1. From January 2011 through December 2013, BOG offered and sold more than

$43 million in investments in oil-and-gas working interests in the following prospects

(collectively the “BOG Offerings”), none of which were registered with the Commission:

Offering Date Listed on CIM1 Units Offered Turnkey Unit

 

Price

Total BOG

Offering

 

Woodring #1 1/1/2011 12 units $109,155 $1,319,700

Big Tex 3 Well 5/4/2011 10 units $115,000 $1,150,000

Buffalo Run #1H 6/20/2011 10 units $210,000 $2,100,000

Golden Ridge 2 Well 8/25/2011 12 units $258,000 $3,096,000

Warrior 12/1/2011 100 units $41,488 $4,148,800

Big Caesar 2 Well 12/1/2011 10 units $410,000 $4,100,000

Big Caesar #1H 5/1/2012 10 units $205,000 $2,050,000

Goodbird #1H 5/1/2012 10 units $250,000 $2,500,000

Pumpkin Ridge 2 Well 8/1/2012 10 units $410,000 $4,100,000

Bighorn 2 Well 11/1/2012 10 units $410,000 $4,100,000

Bison Hill #1H 3/1/2013 10 units $210,000 $2,100,000

 

BOG offered and sold the offerings for months after the dates listed on the CIMs. For example, even

though the Buffalo Run #1H CIM was dated June 20, 2011, sales began in July 2011 and continued through at least October 2011.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 16

Leafwing #1H 3/1/2013 100 units $30,000 $3,000,000

Arbuckle #1H 4/1/2013 10 units $250,000 $2,500,000

Eagle Eye #1H 8/15/2013 10 units $250,000 $2,500,000

Nighthawk 10/1/2013 10 units $200,000 $2,000,000

 

  1. For the BOG Offerings, Faulkner drafted, edited, and/or approved, and had

authority over, all of the written offering materials that BOG provided to prospective investors,

which included a CIM, a marketing brochure, and a subscription agreement.

 

  1. In offering materials for the BOG Offerings, Faulkner marketed himself as having

a “diverse background in the oil and gas industry” with “extensive past experience in all aspects

of oil and gas operations. . .” He further promoted himself, through appearances on radio

programs and television shows, as an expert in “fracking” – hydraulic fracturing, the process of

drilling and injecting fluid into the ground at a high pressure to fracture shale rocks to release

natural gas. In fact, he later authored a book published in June 2014 called “The Fracking

Truth,” touting himself as the “Frack Master.” As mentioned above, when he started BOG in

2010, Faulkner’s limited exposure to the oil-and-gas industry was through the web hosting work

C I Host performed for oil-and-gas companies.

 

  1. In BOG’s offering documents and on its website, Faulkner and BOG also misled

investors about Faulkner’s education, claiming he earned a master’s degree in information

science from the University of North Texas and a doctorate degree from Concordia College.

Neither representation was true.

 

  1. In addition to misrepresentations about Faulkner’s education, experience, and

background, Faulkner, Hallam, and Miller operated BOG contrary to numerous representations

in the offering documents BOG provided to investors, including: (i) BOG’s use of investor

funds; and (ii) geological reports and production projections supplied by Simo, a purportedly

independent and third-party geologist.

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 17

 

Misrepresentations in BOG’s offering documents about use of investor funds.

 

  1. In AFEs included in BOG’s offering materials, BOG and Faulkner provided

detailed line-item estimates of costs that it claimed it reasonably expected to incur in drilling and

completing the prospects. BOG tied the purchase price for the working interest units directly to

the estimated costs of the prospects. For example, if a prospect was estimated to cost $5 million

to drill, test, and complete, BOG would offer investments in one percent of that prospect for

$50,000 (1% x $5 million).

 

  1. BOG’s offering documents repeatedly tied together and cross-referenced BOG’s

estimated costs, the AFEs, and the purchase price of a working interest unit. For example,

BOG’s CIM for its Buffalo Run offering included the following representations:

Section of CIM Representations Regarding Estimated Costs and the AFE

 

Cover Page

“The purchase price for the Units represents the Units’ share of estimated Drilling

and Testing Costs and Completion and Equipping Costs associated with the Well.”

 

Application of Proceeds

“This figure represents the Units’ share of the actual cost of the land leases,

geophysical, legal, and title and the estimated [costs] for the Well…”

 

Pricing

“Each Participant shall be responsible for paying his share of all estimated Drilling

and Testing Costs and Completion and Equipping Costs incurred during

Operations. The Company’s estimate of the aggregate costs likely to be incurred

can be found as part of [the AFE] attached to this Memorandum.”

 

Compensation / Pricing of Units

“The purchase price for the Units represents the Units’ share of fixed Drilling and

Testing Costs and fixed Completion and Equipping Costs associated with the Well.

The purchase price was established by the Company, and represents the estimated

costs which the Company is expected to incur for Drilling and Testing Costs and

Completion and Equipping Costs.”

 

Definitions

“AFE shall mean the estimate of expenses which are reasonably expected to be

incurred during Operations. The AFE is attached to the Memorandum as part of

Exhibit B and sets forth the Company’s estimates of Drilling and Testing Costs

and Completion and Equipping Costs.”

 

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COMPLAINT Page 18

 

  1. BOG also expressly represented to investors that it would not collect any

management fees or fees for overhead and organization costs. As a result, the only two ways

BOG would be compensated from its offerings were: (i) via a “Back-In After Payout” (BIAP)

revenue sharing arrangement, and (ii) through amounts it raised in excess of the costs it

“reasonably expected to incur.” BOG’s BIAP revenue sharing was only triggered after investors

received a 100-percent return of their principal investment, which never occurred on any of the

prospects which were the subject of the BOG Offerings. In fact, none of BOG’s prospects even

came close to returning 100 percent of investors’ principal. As a result, the only way BOG made

money on any of its offerings was when the amounts it raised from investors (i.e., the costs it

“reasonably expected to incur” as evidenced by the AFEs) exceeded the actual costs of drilling,

testing, and completing the well. So, Faulkner decided to rig the process.

 

  1. Well operators for the BOG prospects created AFEs and provided them to BOG

and Faulkner as part of being hired to operate a new well; however the operators’ AFEs were

never included in BOG offering documents provided to prospective investors. Instead, Faulkner

either: (i) significantly inflated the line items in the AFEs provided by the well operators, or (ii)

simply concocted exorbitant line estimates. Faulkner and BOG then included these doctored

and/or baseless AFEs in BOG’s offering documents, representing that they were estimates of

costs BOG reasonably expected to incur for drilling, testing, and completing the wells.

 

  1. By grossly inflating the estimated costs in the AFEs, Faulkner ensured huge

profits for BOG because there was no possibility that the actual costs would ever approach the

grossly inflated estimated costs represented to investors in BOG’s CIMs.

 

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COMPLAINT Page 19

 

  1. For the BOG Offerings in which Faulkner received AFEs from well operators

before the date on the CIM, such as the Woodring #1, the Big Tex 3 Well, the Warrior, and the

Buffalo Run #1H, Faulkner drastically marked up the operators’ estimates.

 

  1. For BOG offerings where Faulkner did not receive an AFE from well operators

prior to the date on the CIMs, such as the Big Caesar #1H, the Goodbird, and the Nighthawk, a

comparison of Faulkner’s AFEs to those provided to BOG by the well operators shortly after the

date of the CIMs highlights the absurdity of Faulkner’s estimates. Faulkner’s AFE for the

Goodbird prospect, for example, was more than 18 times the operator’s actual AFE.

 

  1. Incredibly, Faulkner re-used AFEs from prior offerings, even though they were

for prospects that were in different locations and for wells that were to be drilled to different

depths. For example, the Big Caesar, Pumpkin Ridge, and Bighorn prospects included identical

AFEs despite involving prospects with different operators, prospect locations, and proposed

drilling depths.

 

  1. Even though BOG and Faulkner knew some or all of these actual costs before

BOG offered a new prospect, Faulkner marked these up as well. For example, Faulkner knew

that the land for the Buffalo Run prospect would cost approximately $80,000 for BOG’s 12.5

percent interest ($640,000 for the total cost of the land) before BOG ever offered the prospect to

investors. Ten days before the date listed on the CIM, the operator sent BOG and Faulkner an

AFE totaling $7,194,000. However, in the Buffalo Run CIM, Faulkner listed the “reasonably

expected” costs for Geology, Geophysical, Acreage and Legal Title alone at $8,185,432, which

was more than the operator’s entire AFE. In fact, in some of BOG’s offering materials –

including for the Warrior, Big Horn 2, and Big Caesar 2 – BOG represented that the AFEs

 

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COMPLAINT Page 20

 

included the actual cost of “land leases, geophysical, legal and title expenses.” This was never

the case.

 

BOG sold interests it did not own.

 

  1. On several occasions, BOG sold to investors a larger percentage of working

interests in a prospect than BOG actually owned. Instead of disclosing this fact to investors,

BOG and Faulkner surreptitiously papered over the overselling by moving investors out of the

oversold prospect and into different prospects, advising investors that BOG was exercising its

contractual right to reassign investors to comparable prospects. BOG often placed investors in

substitute prospects in different states with different operators, providing materially different

ownership interests than what investors had bargained for. BOG’s indiscriminate reassignment

of investors to different wells or prospects than the ones in which they had invested was not

authorized by or disclosed in the offering materials, and was false, deceptive, and misleading.

 

  1. Additionally, on multiple occasions BOG sold interests in prospects it did not

even own. For example, BOG offered units representing a 5-percent working interest in the

Bison Hill prospect, even though BOG actually acquired less than 3.5 percent from the operator.

This practice resulted in investors receiving a diluted share of working interest than what they

had bargained for and what BOG represented they would receive.

BOG failed to segregate investor funds.

 

  1. In the CIMs for the BOG Offerings, BOG and Faulkner represented that investor

funds would be deposited into segregated bank accounts in the name of the particular offering or

prospect, and that payments for drilling, testing, and completing costs would be paid from these

segregated bank accounts. Keeping the funds segregated provided a level of assurance to

investors that their funds would be available to drill, test, and complete their prospect, and not

 

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COMPLAINT Page 21

 

for something else. However, BOG’s representations in this regard were false. Handkins –

typically at Faulkner’s request – transferred investor funds into a commingled BOG operating

account shortly after receipt. Handkins then paid costs associated with multiple prospects using

this BOG operating account. The result was that BOG often had difficulty paying bills on its

prospects, and later lost investors’ interests in prospects when it failed to pay bills. This

mismanagement is all the more egregious and shocking in light of the fact that BOG raised

exponentially more money than it needed to drill and complete the prospects.

 

  1. As a result of all of these things, BOG and Faulkner misled investors about the

expected costs of the prospects, how their funds would be safeguarded and used, and often

provided investors with working interests in materially different prospects than the ones that

BOG represented investors would receive. They also failed to disclose to investors the impact of

these things on their potential investment returns. Hallam and Miller disseminated BOG’s

materially misleading offering materials for each of the BOG Offerings and reiterated these

misrepresentations as part of their own sales efforts to investors.

 

Simo’s geologist reports.

  1. BOG and Faulkner represented in the CIMs that BOG “relie[d] upon the Dallasbased

firm of Simo Energy, LLC and its principal, Mr. Joe Simo, for their expertise in petroleum

energy.” BOG, Faulkner, and Simo conspired to make it appear that Simo was an independent

third-party providing geology services on an objective basis, even though he was neither

independent nor unaffiliated. In fact, Simo signed documents on behalf of BOG as its Vice

President of Exploration. Nonetheless, offering documents for BOG Offerings included geology

reports signed by Simo, on Simo Energy letterhead, recommending that BOG drill the prospects.

 

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COMPLAINT Page 22

 

  1. Additionally, Simo’s reports typically included projections for oil and gas well

production. Faulkner and BOG took those well projections and created a table showing

projected investment returns that they included in BOG’s offering documents. The problem is

that Simo’s projections for BOG prospects were calculated using a rudimentary and flawed

methodology: he took historical production of the best performing wells within a predetermined

proximity of the proposed drilling location and assumed those figures as the baseline for his

projections. Using this methodology, Simo assumed – without a reasonable basis – that BOG

would perform as well as the best performing wells of prior decades.

 

  1. Faulkner, Hallam, Miller, and BOG’s sales staff also used Simo’s projections to

entice investors to invest in BOG’s offerings. However, they failed to disclose that Simo’s

projections were consistently, and abysmally, overstated; actual production on the wells was

often less than 10 percent of Simo’s projections.

 

  1. In spite of the fact that Simo routinely overestimated production projections,

Faulkner was not satisfied. He frequently and unilaterally increased Simo’s figures by 100

percent or more on several occasions without notifying Simo or disclosing this change to

investors. Faulkner included these unilateral adjustments on Simo Energy letterhead, included

Simo’s signature, and incorporated these overinflated projections in offering materials sent to

investors. For example, on the Big Horn prospect, Faulkner unilaterally changed Simo’s

production projections from a range of 1,000 to 3,000 barrels of oil per day (“BOPD”) to a range

of 5,000 to 7,000 BOPD.

 

  1. Based on the activities detailed above, BOG, Faulkner, and Simo intentionally

misled investors about various aspects of Simo’s geology reports. And Hallam and Miller, who

 

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COMPLAINT Page 23

 

knew about the poor performance of prior prospects but continued to offer and sell newer

prospects, were at least negligent in not disclosing the prior results to investors.

BOG sales staff and commissions.

 

  1. While Faulkner coordinated all of BOG’s operations and managed much of the

business, Hallam and Miller led the sales efforts and managed BOG’s sales staff. Hallam,

Miller, and the salespeople disseminated the materially misleading offering materials for the

BOG Offerings and reiterated these misrepresentations as part of their sales efforts to investors.

According to BOG’s (and later Crude’s and Patriot’s) CIMs, only company officers (specifically

Hallam and Miller) would offer and sell working interests to investors, and no one would receive

transaction-based compensation. This was a lie.

 

  1. Although Hallam and Miller did offer and sell these investments to investors, the

sales staff received millions of dollars in transaction-based compensation. The salespeople

generally cold-called investors from lead lists or followed up on investor contact in response to

BOG’s, Crude’s, and Patriot’s public advertising of their offerings. Contrary to representations

in the CIMs however, the salespeople typically received up to 10-percent commissions on every

dollar they helped bring in the door for their integral role in the sales process, including advising

prospective investors on the merits of particular investments using the false and misleading

offering materials detailed above.

 

  1. Moreover, in connection with their sales pitches as part of the unregistered

offerings, BOG’s salespeople failed to sufficiently determine the accreditation status of

investors. The salespeople relied on investors to effectively self-accredit themselves by posing

general questions about their accreditation status and by having investors complete a

 

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COMPLAINT Page 24

 

questionnaire. At no point did the salespeople, or anyone else at BOG, attempt to independently

verify a potential investor’s accreditation status.

 

Faulkner’s misappropriated BOG investor funds.

 

  1. After investors sent funds to BOG to invest in one of its offerings, Faulkner

misappropriated a significant portion of these funds in at least two ways: (i) direct payments to

Amex for expenses Faulkner incurred on Amex cards he used; and (ii) checks issued to him or

entities he controlled for unsupported expense reimbursements and phony service fees.

 

  1. Faulkner used his Amex cards for some BOG-related expenses such as

advertising and lead fees, but he also used them extensively for lavish personal expenditures.

Without segregating personal expenditures or providing any statements detailing his charges,

Faulkner repeatedly requested Handkins to pay his Amex bills in their entirety. As a result,

between 2011 and 2013, BOG paid almost $8.6 million directly to Amex for charges incurred by

Faulkner on his credit cards.

 

  1. In 2013 alone, Faulkner and Relief Defendant Tamra Freedman, Faulkner’s wife

at the time, charged approximately charged approximately $7 million on Amex cards Faulkner

used. Faulkner claimed that all of these charges were legitimate business expenses without

providing documents identifying the nature of the expenditures. Without questioning Faulkner

about the request or asking for documentation supporting the supposed business expenses,

Handkins paid the outstanding balances on the cards using BOG funds. Many of the charges

were personal, including tens of thousands of dollars in charges to his personal concierge,

gentlemen’s clubs, and assorted high-end fashion stores.

 

  1. In addition to these direct payments to Amex, between 2011 and 2013, Faulkner

sought scores of payments from BOG for personal expenses through claimed expense

 

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COMPLAINT Page 25

 

reimbursements and phony service fees. Even though he often failed to provide any supporting

documentation for these claimed business expenses or services, Handkins issued checks or made

wires totaling approximately $7.8 million directly from BOG to him personally or to entities he

controlled during this time period.

 

  1. As a result of the conduct and activities described above related to BOG:
  2. Faulkner and BOG defrauded investors;
  3. Hallam and Miller managed sales staff and sold investments to investors

relying upon misrepresentations and omissions in BOG’s offering

materials;

  1. Handkins made practically all of the monetary transfers, many without any

supporting documentation; and

  1. Simo created geology reports using a baseless methodology and

misrepresented his affiliation with BOG and Faulkner.

Transition from BOG to BECC and Crude

 

  1. In late 2012, Faulkner began the process of taking BOG and BRC public. He

hired Wagers, a Texas lawyer, who joined BOG as its GC and CCO. Faulkner also hired Hoover

to assist BOG in the transition to becoming a public company.

 

  1. In December 2013, BOG and BRC – two entities owned and controlled by

Faulkner, Hallam, and Miller – acquired Bering, a company traded on the OTC Link market as

“BRX.” This acquisition was accomplished through an asset transfer agreement whereby BOG

and BRC acquired 92.5% of Bering’s stock, in exchange for a portion of BOG’s and BRC’s

assets. Faulkner, Hallam, and Miller became beneficial owners of 92.5 percent of BECC’s

common stock, which they held indirectly through their ownership in BOG and BRC.

 

  1. Faulkner and Wagers changed the name of the public entity to Breitling Energy

Corporation and its ticker symbol to “BECC.” Faulkner became BECC’s President, CEO, and

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT       Page 26

 

Chairman of the Board of Directors, while Wagers became its GC and COO. In February 2014,

Hoover formally became BECC’s CFO. Although Hoover and Wagers had some experience in

public companies, Faulkner had never worked for a public company before.

 

  1. In preparing to become public, BECC also engaged a public accounting firm to

audit its financial statements, which included results of operations for BOG and BRC. Faulkner,

Wagers, and Hoover lied to the auditors with an eye towards obtaining a clean audit opinion for

BECC. These lies are discussed in more detail below.

 

  1. BECC portrayed itself in public filings, on its website, and otherwise as E&P

company that would acquire and develop oil-and-gas prospects in Texas, Oklahoma, and North

Dakota. Despite these representations, none of BECC’s management had any experience

conducting traditional E&P operations, which was material because they were competing with

established, billion-dollar E&P companies for the right to drill and operate wells.

Faulkner starts up Crude.

 

  1. In 2013, in anticipation of the asset transfer transaction that formed BECC,

Faulkner changed the name of a private Wyoming shell company he controlled from Enhanced

Funding, LLC to Crude. He then installed Hallam and Miller as Crude’s two managing

members, with Hallam acting as Crude’s President and Miller as its CIO. In November 2013,

Hallam converted Crude into a Texas limited liability company. And while legal documents

identified Hallam and Miller as Crude’s managing members, Faulkner directed and controlled

Crude’s operations. Faulkner signed Crude’s office lease, and owned or leased all of Crude’s

furniture and operating assets. Further, Faulkner transferred nearly all of BOG’s sales staff and

employees, including Handkins, to Crude. Handkins’ primary responsibility was to control

 

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COMPLAINT Page 27

 

Crude’s bank accounts, and she was identified in her emails and certain offering materials as

Crude’s COO.

  1. Faulkner designed Crude to operate exactly like BOG, offering and selling

investments – in the form of working interest units – to investors based on inflated “estimated”

costs disguised as legitimate AFEs. Faulkner and Wagers designed and organized Crude to

operate as BECC’s covert sales arm and primary funding source. Crude also became responsible

for making ongoing expense payments on BOG’s prospects.

 

  1. In February 2014, BECC agreed to pay approximately $2.4 million for the right to

drill eight wells on 3,680 acres of land in Sterling County, Texas (the “Farmout Agreement”).

Under the terms of this Farmout Agreement, BECC had the right to develop leases and earn

acreage for each well drilled, but such rights were contingent upon certain continuous drilling

and completion obligations. BECC had to drill a well every six months, and it would not acquire

title to the well until it drilled to sufficient depth to test for completion. If BECC failed to

comply with these obligations, the agreement would terminate, BECC would lose its interest in

any prospects that were not completed in accordance with the agreement (including those drilled

but not completed), and BECC’s rights the property would revert back to the landowner.

 

  1. Once Faulkner acquired rights to the properties under the Farmout Agreement on

BECC’s behalf, Wagers drafted a series of documents that ostensibly obligated Crude to pay

BECC millions of dollars. First, BECC entered into an agreement with Crude (the “Crude

ASA”), pursuant to which Crude agreed to pay BECC: (i) $100,000 per month, (ii) $150,000 per

prospect delivered to Crude, and (iii) a 20 percent carried interest in each prospect, regardless of

the amount of the prospect resold by Crude to investors. In exchange for these fees, BECC

purported to provide Crude with access to its client lists and prospects.

 

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COMPLAINT Page 28

 

 

  1. Wagers also created a series of assignments that obligated Crude to purchase

certain prospects associated with the Farmout Agreement (the Red Wolf, White Wolf, and Blue

Wolf prospects) from BECC at exorbitant premiums over what it paid for the prospects. Wagers

presented the assignments to Hallam, represented that signing the assignments was in Crude’s

best interests, and instructed Hallam to sign them on Crude’s behalf – even though Wagers was

BECC’s COO and GC. Hallam did not read or review the assignments before signing them.

 

  1. This arrangement, which appeared to paper millions of dollars of undisclosed

contractual obligations for Crude, was a sham. In reality, these documents were attempts by

Faulkner and Wagers to disguise the actual relationship between Crude and BECC: Crude

operated as BECC’s undisclosed, consolidated subsidiary and covert sales arm.

 

  1. Between December 2013 and April 2015, Crude raised more than $38 million

from hundreds of investors. Most of these funds were associated with Crude’s primary working

interest offerings that were the subject of the assignments detailed in the paragraphs above,

including Crude’s Red Wolf, White Wolf, Blue Wolf, and Cottonwood offerings Handkins, as

the controller of Crude’s bank accounts, transferred more than $36 million of these funds (more

than 94%) to BECC2 at Faulkner’s request. Hallam and Miller, Crude’s managing members and

executives, were aware of these transfers and that they were not associated with specific prospect

expenditures or the purported Crude ASA. In fact, on multiple occasions, Hallam provided

additional authorization for Handkins to make the transfers.

 

  1. Almost all of BECC’s incoming funds between December 2013 and March 2015

came from Crude investors. A significant majority of these funds were used by BECC to

Notably, BECC continued to use operating bank accounts in the names of BOG and BRC as its primary

operating accounts during this time.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 29

continue paying Faulkner’s personal expenses through expense reimbursements and direct

payments to Faulkner’s Amex cards.

  1. Additionally, from time to time, Crude also made direct payments on Faulkner’s

Amex cards. Between January 12, 2015 and February 24, 2015 alone, Handkins made hundreds

of thousands of dollars in payments to Amex directly out of Crude’s bank accounts for charges

made by Faulkner. Hallam knew about these payments and even authorized them from time to

time.

 

Crude’s Misrepresentations to Investors

 

  1. Similar to BOG, Crude offered and sold working interests in oil-and-gas prospects

to investors on a turnkey basis. And Faulkner drafted, edited, and/or approved, Crude’s offering

materials – which included CIMs, marketing brochures, and subscription agreements – despite

the fact that the CIMs omitted any mention of him or his affiliation with Crude. Hallam and

Miller reviewed the offering materials and were aware that the statements therein were

attributable to them and omitted any mention of Faulkner’s involvement in the company.

Hallam signed marketing brochures for each offering as Crude’s CEO, and Hallam, Miller, and

Handkins were identified in the brochures as Crude’s executives. While the BOG offering

materials listed BECC as the operator for the wells/prospects, it did not disclose Crude’s actual

relationship with BECC.

 

  1. Moreover, Crude’s CIMs contained misrepresentations and omissions similar to

those in BOG’s CIMs, including the use of AFEs that purported to reflect “likely” costs that

Crude expected to incur in drilling, testing, and completing each prospect. Crude claimed in its

offering materials that it drafted the AFEs; however as with BOG, Faulkner actually drafted

them. BECC, listed as the operator of record for the prospects offered to investors, hired a

 

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COMPLAINT Page 30

 

 

contract operator for Crude’s projects. Given that BECC and Crude were not actually drilling

the wells, which they had no experience or expertise to do, they had no reasonable or informed

basis to estimate the likely costs that would be incurred to drill and complete the wells. None of

these facts were disclosed to investors in Crude’s CIMs.

 

  1. The contract operator on Crude’s prospects provided Faulkner and Simo, serving

as BECC’s President of Upstream Operations, with AFEs containing estimates of the costs to

drill and complete the wells. Faulkner again disregarded those estimates and created his own

AFEs that he ultimately included in Crude’s offering documents. As with BOG, Faulkner’s

estimates were typically 3-4 times the operator’s estimates.

 

  1. Crude also misrepresented to investors that their funds would be deposited into a

segregated bank account, and used to pay the “estimated” costs to drill, test, and complete

specific prospects. Handkins commingled investor funds in Crude’s operating account shortly

after they were deposited. Handkins then used the Crude operating account to pay expenses and,

more often, funnel funds to BECC at Faulkner’s request. Even though Handkins managed the

Crude investor lists and tracked the amount of money coming in from investors for each

prospect, she made the transfers without regard for the intended use of the funds as represented

to Crude’s investors.

 

  1. Hallam and Miller approved this practice for the duration of Crude’s operations

without any checks or balances. In fact, Hallam initiated some of these transfers from Crude to

BECC, knowing that they were not tied to specific prospects. This arrangement, like the one

previously with BOG, gave Faulkner access to millions of dollars of investor funds. As with

BOG, these funds were typically diverted to pay Faulkner’s Amex bills or issue Faulkner

millions of dollars in checks. As a result, even though Hallam and Miller fully sold – and often

 

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COMPLAINT Page 31

 

 

 

 

 

 

 

oversold – Crude’s prospects at levels well above the legitimate projected costs included in the

well operators’ AFEs, Crude often struggled to provide the operators with sufficient funds to

drill and complete the prospects.

 

  1. Crude’s offering materials included Simo’s geologist reports, which advocated

drilling the various prospects. Although Faulkner did not include specific production projections

in Crude’s offering documents, Crude and Simo continued to represent that a third-party

geologist (not BECC, where Simo served as its President of Upstream Operations) provided an

independent recommendation that Crude should drill and develop the prospects.

 

  1. Crude also failed to disclose that properties it offered and sold to investors, which

were part of the Farmout Agreement, were subject to ongoing obligations that could result in

investor funds being lost (the “Farmout Agreement Provisions”). For example, if BECC failed to

comply with the continuous drilling provision, any well that had not yet been completed would

revert back to the party from whom BECC bought the interest. Since Crude was selling

prospects subject to the Farmout Agreement, this meant that Crude’s investors were subject to an

undisclosed risk that their interests could disappear not only if certain milestones were not met

on their prospect, but also entirely due to actions on a wholly unrelated prospect.

Faulkner misappropriated investor funds through BECC.

  1. On the same day in December 2013 that Faulkner and Wagers engineered the

asset-for-stock transaction by and between BOG, BRC, and Bering, BECC’s board of directors

approved a company policy for expense reimbursements that purported to apply to all BECC

employees. Purporting to establish standards for properly documenting and accounting for

various expenses incurred on the company’s behalf, the policy included the following highlights:

  1. BECC will not reimburse expenses without proper documentation;

 

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COMPLAINT Page 32

 

  1. Employees are expected to be “conservative” in their spending;
  2. BECC will not reimburse for personal expenses, even on business trips;

and

  1. Hotel and travel expenses are to be booked as “economical” as possible,

with strict limits on meal ($45/day) and lodging (only those “necessary”

consistent with IRS rates) reimbursements.

 

Faulkner and Hoover, as CEO and CFO, were specifically identified as the only persons

with authority to exempt BECC employees from the policy. But this put the fox in charge of the

hen house.

 

  1. Faulkner violated virtually every provision of this policy. He pilfered $5.3

million directly from BECC by submitting unsupported expense reimbursement requests.

Faulkner typically submitted reimbursement requests without receipts or supporting

documentation. Furthermore, Faulkner falsified the reimbursement requests by claiming that his

personal expenses were for business purposes, creatively describing the purpose for many

expenses as simply “Business Purpose.” Despite this lack of support, and readily apparent red

flags associated with Faulkner’s reimbursement requests, Hoover and Wagers approved these

without any regard for the company’s reimbursement policy. As a result of Hoover’s and

Wagers’s blatant disregard for the company’s internal controls, BECC repeatedly made

payments to Faulkner wholly unrelated to the company’s business. Hoover would ultimately

classify these Faulkner payments in BECC’s general ledger as “marketing” and “advertising”

expenses when they were neither, and in reality served one purpose: to sustain Faulkner’s lavish

lifestyle.

 

  1. In addition to Faulkner’s expense reimbursements, Faulkner continued pilfering

investor funds by repeatedly requesting Handkins to make payments on Amex cards Faulkner

 

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COMPLAINT Page 33

 

used. From the time BECC went public in December 2013, Handkins made more than $18

million in payments to Amex on these cards.

 

  1. As with Faulkner’s expenditures while he was at BOG, a significant portion of

Faulkner’s Amex card charges were personal. In 2014 alone, Handkins made payments directly

to Amex for overwhelming personal expenditures on cards Faulkner used, including, among

others: (i) more than $950,000 to Status Luxury Group, Faulkner’s personal concierge company,

for private entertainment; (ii) approximately $480,000 to In the Know Experience, a

travel/lifestyle company; (iii) more than $220,000 for private jet carriers; (iv) approximately

$190,000 to three New York nightclubs; and (v) more than $100,000 to Amazon. Worse,

numerous charges on the Amex cards were the source of Faulkner’s expense reimbursement

requests. This “double dipping” enabled Faulkner to receive a check as “reimbursement” and

also have the credit card charge paid for by the company.

 

  1. In addition to the direct payments for Faulkner’s Amex charges, Faulkner and

Wagers conceived a new method to use investor funds for their own personal benefit. Faulkner

and Wagers asked Steedley to allow them to use Amex cards that were associated with

Steedley’s existing Amex Platinum account, promising that all charges on the card would be

paid. This arrangement allowed Faulkner and Wagers to use these subordinate cards for personal

charges while concealing from company employees and auditors that they (not Steedley) were

the reasons for the charges. Faulkner used this card – which he referred to as his “whore card” –

to charge more than $1 million solely for travel and expenses for various women, gentlemen’s

clubs, nightclubs, and associated salacious expenditures. For example, during a two-month

period in 2014, Faulkner incurred more than $1 million in charges on lavish hotels, travel and

entertainment expenses for assorted women and female escorts, and various other entertainment

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 34

 

expenses. Using investor funds transferred from Crude, BECC paid for virtually all of the

transactions on Faulkner’s “whore card.”

 

  1. Although Wagers charged less frequent and smaller expenditures than Faulkner,

he still accumulated tens of thousands of dollars in personal expenditures that were ultimately

paid by BECC. Wagers used his card predominantly for gentlemen’s club expenses, including

nearly $40,000 in charges at a Dallas gentlemen’s club over a four-day period in July 2014. As

with his own card, Faulkner instructed Handkins to make payments using investor funds on the

Steedley-Wagers card as well.

 

  1. Additionally, Faulkner funneled funds to Relief Defendants Tamra Freedman and

Jetmir Ahmedi. Between March 2014 and June 2015, Faulkner directed the transfer of

approximately $482,000 to Ahmedi, one of Faulkner’s close friends who was a frequent

participant in trips and parties bankrolled by Faulkner using investor funds. Additionally, in

2014 (prior to their divorce), Faulkner transferred at least $2.5 million to accounts in Freedman’s

name. While some of these funds were ultimately returned to Faulkner’s accounts at a later date,

more than $1.8 million of these funds were never returned. Freedman also received a personal

benefit from many of the charges on Faulkner’s Amex cards, which were paid for by Handkins

paid out of BOG, Crude, and Patriot bank accounts. Freedman and Ahmedi have no legitimate

claims to these funds they received, or from which they otherwise benefitted directly or

indirectly.

 

BECC’s public misrepresentations.

 

  1. Similar to the misrepresentations and omissions in BOG and Crude offering

materials, BECC’s public filings – which were reviewed and signed by Faulkner, Hoover, and

Wagers – are replete with misrepresentations and/or omissions on material issues.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 35

 

  1. In BECC’s initial Form 8-K filed on December 9, 2013 and signed by Faulkner,

BECC first disclosed that it entered into the Crude ASA whereby Crude would pay BECC

certain administrative fees. Later, in BECC’s Form 10-K filed on March 31, 2014 – signed and

certified by Faulkner and Hoover, and signed by Wagers – BECC claimed that “from time to

time” it may offer working interests and royalties to Crude. These disclosures were false.

  1. The Form 8-K and Form 10-K both treated Crude as a party that may occasionally

transact with BECC. Although the public reports create the impression that the arrangement

between BECC and Crude could generate millions of dollars in fees for BECC, BECC did not

sell prospects to Crude; it used Crude as its covert sales arm. BECC actually consolidated

Crude’s results of operations in its general ledger, a fact never disclosed to the public in BECC’s

filings or to investors in Crude’s offerings. The only disclosure BECC made about consolidation

in its 2013 Form 10-K omitted any discussion of Crude. Moreover, BECC never revealed

Faulkner’s involvement and influence over Crude’s operations. In fact, BECC’s outside auditor

would later conclude that “Crude is so intertwined with Breitling that it is near impossible for

Crude to act as a standalone and separate company.” BECC’s misrepresentations about its

relationship with Crude were incorporated by reference in the subsequent Forms 10-Q that

BECC filed, because they included representations that the financial statements “should be read

in conjunction with” BECC’s most recently filed Form 10-K. BECC further clouded the public’s

understanding of its business model in Forms 8-K it filed on November 12, 2014 and December

4, 2014 (both signed by Faulkner). In those filings, BECC claimed its “Asset Management

Division” divested a portion of its working interests “through strategic industry relationships,” a

phrase that Faulkner and BECC used to describe its purported agreements with Crude and later

Patriot. Faulkner, Hoover, and Wagers knew or were severely reckless in not knowing that these

 

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COMPLAINT Page 36

 

reports were false. Faulkner and Wagers repeatedly told Crude (and later Patriot) employees that

entities were consolidated. Furthermore, Hoover consolidated the entities’ results of operations

in BECC’s general ledger.

 

  1. Additionally, BECC issued Forms 8-K dated May 15, 2014, August 13, 2014, and

November 14, 2014, all signed by Faulkner. In each of these reports, the company claimed

significant financial success as the result of increased third party interests in the company’s

working interests and royalty prospects and the company’s “de-risking” of operating positions by

selling them to third parties. At no point in any of these reports does BECC disclose that these

sales were taking place via a consolidated entity (Crude) to investors through fraudulent

offerings and with offering materials drafted by BECC’s President and CEO.

  1. Additionally in its 2013 Form 10-K, BECC specifically and emphatically

distanced its business model from the turnkey model used by BOG, stating “[BOG] acquired

their oil and gas assets in connection with a business model that differs substantially from that of

[BECC] or an ordinary oil and gas exploration and production company.” However, BOG’s

business model was BECC’s business model with the added layer that BECC used Crude (and

later Patriot) to sell the turnkey investments. Faulkner, Hoover, and Wagers all knew or were

severely reckless in not knowing that BECC was using Crude as its covert sales arm, using the

BOG business model.

 

  1. Furthermore, in a February 2014 Form 8-K issued by BECC and signed by

Faulkner, BECC disclosed its results of operations for 2011 and 2012, which actually covered

the period before BECC existed and thus incorporated BOG’s and BRC’s results of operations.

This report perpetuated a lie littered throughout BOG’s offering materials, stating that “BOG

bases the price at which it sells its working interests under the turnkey drilling agreement on its

 

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COMPLAINT Page 37

 

estimates of the costs . . . and is based upon the historical cost to complete those activities.” As

discussed extensively above, BOG’s cost estimates, represented to investors in AFEs in offering

documents, were not “based on the historical cost to complete those activities,” but were based

on fraudulently inflated figures devised by Faulkner. Faulkner knew or was severely reckless in

not knowing that this representation was categorically false as he was responsible for contriving

the bloated AFEs in BOG’s offerings without any reference to historical costs.

 

  1. Further, each of BECC’s 2014 quarterly reports on Forms 10-Q – signed and

certified by Faulkner and Hoover – included a brief description of BECC’s Results of

Operations. In these reports for the first three quarters of 2014, BECC claimed that its expenses

increased “primarily” due to costs associated with becoming a public company, and costs

associated with developing inventory for sales. Although BECC may have incurred additional

expenses in these areas, the primary reason for the increases was the uncontrolled and unchecked

personal spending by Faulkner – BECC’s President, CEO, and Chairman – which he

accomplished with the help of Hoover, Wagers, and Handkins. BECC also issued Forms 8-K

dated August 13, 2014 and November 14, 2014, signed by Faulkner, wherein it described its

quarterly results. In these reports, BECC reiterated its claims that increases in expenses were

due to “marketing expenses,” without any mention that these expenses were almost wholly

payments to Faulkner.

 

  1. More than half of BECC’s increases in expenditures for the first three quarters of

2014 ($9.6 million of $18 million) came from purported marketing expenses. And 91 percent of

these so-called marketing expenses during this period were actually payments to: (i) Amex for

Faulkner’s bills, or (ii) Faulkner directly. In total, at least $0.25 of every $1.00 that BECC spent

during the first nine months of 2014 was for Faulkner’s personal benefit. BECC failed to

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 38

 

disclose this material information in its public filings. Faulkner, and Hoover knew or were

severely reckless in not knowing that these representations were false. Hoover was responsible

for categorizing the expenses in the company’s general ledger, enabling him access to the real

(and undisclosed) reason BECC’s expenses continued to increase.

 

  1. On April 30, 2014, BECC issued a proxy statement signed by Wagers which

included the following misrepresentations and omissions: (a) BECC reiterated its

misrepresentations about its relationship with Crude, identifying Crude as a related party because

of Hallam’s and Miller’s ownership but failing to mention, among others things, Faulkner’s

influence and control over Crude or Crude’s consolidation with BECC; and (b) contrary to the

seemingly unfettered ability that Faulkner had to pilfer company resources and investor funds,

BECC claimed that it “has in place sound counter-balancing mechanisms to ensure the continued

accountability of the [CEO] to the Board.” Moreover, BECC’s proxy statement made the

company’s only disclosure, to this day, about the compensation it paid to Faulkner: for the last

three weeks of December 2013, BECC purportedly did not pay Faulkner any salary. Wagers

knew or was severely reckless in not knowing that these statements in this proxy statement were

false and misleading or that the proxy statement contained material omissions. Wagers was

intimately familiar with BECC’s relationship with Crude, including Crude’s consolidation with

BECC. And by virtue of his approvals Faulkner’s expense reimbursement requests, Wagers

knew that BECC did not have sound counter-balancing mechanisms to ensure the continued

accountability of Faulkner to the Board.

 

  1. In addition to misrepresentations about the company’s financial performance and

relationship with Crude, BECC also misrepresented the performance of certain prospects where

it was involved. On September 25, 2014, BECC issued a Form 8-K signed by Faulkner,

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 39

 

attaching a press release that purported to update investors on the performance of the Parramore

#1 prospect, sold by Crude as the Red Wolf prospect. The report correctly stated that initial

production on the prospect was 85 BOPD. However, the report failed to disclose that after the

initial 24 hour period, production plummeted. Without mentioning that production had fallen

into the 18-27 BOPD range at the end of August, BECC stated that “during the last nine days, oil

and gas production has steadily increased…A continued increase in oil and gas production is

anticipated.” Although oil production had increased from late August, BECC and Crude

investors had no idea that the production had dropped so precipitously after the initial 24-hour

period, and that current production was a fraction of the initial production mentioned in the

release.

 

  1. In March 2015, BECC engaged an accounting firm to act as its outside auditor.

As part of the new auditor’s review of BECC’s quarterly results of operations, the firm’s

engagement partner questioned Wagers about the relationship between BECC and Crude. The

auditor concluded Crude should be consolidated with BECC based on the following:

 

  1. BECC participated business; in the formation of Crude to facilitate BECC’s
  2. BECC makes the most impactful decisions for Crude, including the pricing of the working interests;
  3. BECC benefits economically because the pricing is established in such a way that Crude breaks even; and
  4. Crude’s only source of prospects to offer to investors come from BECC.

 

The auditor also concluded that “Crude is so intertwined with Breitling that it is near

impossible for Crude to act as a standalone and separate company.” None of this information

was ever disclosed in public reports or otherwise to investors.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 40

 

  1. However, on September 4, 2015, BECC issued a Form 8-K signed by Faulkner,

acknowledging that none of the financial reports it filed after its merger with Bering Exploration

should be relied upon “due to errors in the recording of oil and gas assets, revenue interests and

drilling activities . . .” It also disclosed that it failed to properly implement its internal controls

over financial reporting in 2012, 2013, and 2014, and that it had ineffective disclosure controls

and procedures in 2013 and 2014. BECC represented that it was “still in the process of

determining the extent of the errors” and that it would file amended Forms 10-K and 10-Q for

each of the affected periods “as soon as practicable,” acknowledging the possibility that further

misstatements of its financial statements could occur if these failures were not remediated. To

date, BECC has neither amended these filings nor filed quarterly and annual reports on an ongoing

basis as it is required to do.

 

BECC’s misrepresentations and lies to auditors.

 

  1. As noted in Paragraph 75 above, BOG sought and obtained an unqualified audit

report in 2013 as part of its efforts to become publicly-traded BECC. In connection with the

auditor’s work, Hoover, Wagers and Faulkner lied to the auditor about various aspects of BOG’s

past and BECC’s future operations, including: (i) the relationship between BECC and Crude; (ii)

BECC’s use of turnkey deals; and (iii) representations about Faulkner’s expense reimbursements.

Relationship between BECC and Crude.

 

  1. During the audit of BECC’s 2011, 2012, and 2013 financial statements – which

reflected BOG’s financials through the first week of December 2013 – BECC’s initial auditor

discussed the Crude ASA with Hoover and Wagers, and stated that there was the potential under

GAAP (generally accepted accounting principles) that Crude’s operations would need to be

consolidated with BECC’s for financial reporting purposes.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 41

 

  1. In response to this query from the auditors, Hoover and Wagers lied to the

auditors about the relationship between the two entities. Hoover told the auditors that “[t]he

agreements and legal work was structured early on to assure there was a clear delineation

between” the two entities. Wagers similarly told the auditors that Crude had very little to do

with the future of BECC. As detailed above, both of these statements were false, and Hoover

and Wagers were at least negligent in making these statements.

BECC’s use of turnkey deals.

 

  1. In January 2014, the auditors pressed BECC about whether it was going to

continue offering turnkey deals to investors. The audit engagement partner stated that it was his

understanding that BECC would not be doing turnkey deals “because it creates several large

issues, which also creates several audit issues.”

 

  1. Wagers responded to the engagement partner, stating that “[t]here will be no new

turnkey contracts.” Wagers was at least negligent in failing to disclose that BECC used Crude to

sell turnkey offerings to investors, based on his intimate knowledge of BECC’s relationship with

Crude.

 

Representations about Faulkner’s expense reimbursements.

 

  1. BECC’s auditors could not find supporting documentation for a number of

transactions, including a significant number of expense reimbursements for Faulkner. As a

result, the auditor determined that it needed Faulkner to represent that such expenses were for

business expenses as part of its audit of BECC’s financial statements.

 

  1. Faulkner signed a letter prepared by the auditor, representing that the millions of

dollars he received from BOG were expense reimbursements for the benefit of BECC. As

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 42

 

detailed above, Faulkner knew this representation was false and he was, at the very least,

negligent in making this misrepresentation.

 

Faulkner manipulated the market in BECC’s stock by “marking the close.”

 

  1. In late 2014, BECC’s stock price suffered like that of many legitimate oil

companies, dropping 36.7 percent from October 1, 2014 to November 28, 2014.

 

  1. To counteract this drop, Faulkner initiated a scheme in December 2014 to

manipulate BECC’s stock by executing purchase orders at or near the close of normal trading

hours to influence the closing price – a practice known as “marking the close.” From December

2014 through February 2015, Faulkner heavily traded BECC through at least two nominee

accounts: (i) a TD Ameritrade (“TDA”) account in the name of Defendant Steedley (“Steedley

Account”); and (ii) a TDA account in the name of Range Quest Resources, an entity he owned

and controlled (“RQ Account”).

 

  1. Faulkner made a concerted effort to conceal his trading. He convinced Steedley

to let him trade in the Steedley Account. Steedley complied because Faulkner promised him

BECC stock and the trading was intended to sustain the stock and create the appearance of active

trading. In addition to convincing Steedley to let him use the Steedley Account, Faulkner

opened up the RQ Account with a brokerage application that omitted his affiliation with BECC.

In fact, on the portion of the application for his employment, Faulkner listed his position as the

sole officer and CEO of Crude.

 

  1. Next, Faulkner ensured that he could trade without using his own funds. For the

Steedley Account, Faulkner directed the transfer of more than $200,000 into the account via a

series of wires and transfers with funds that can be traced back to investors. Faulkner utilized a

similar approach for the RQ Account.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 43

 

  1. Faulkner traded every trading day during this three-month period from December

2014 through February 2015 through thousands of limit orders, which accounted for

approximately 25% of BECC’s trading volume during this period. Faulkner’s trading was so

extensive that he alone accounted for more than 25% of BECC’s trading volume on at least half

of the days during this time period, and often accounted for more than 40%.

 

  1. As part of this high volume trading, Faulkner established a pattern of executing

numerous buy orders shortly before the closing bell. In fact, between December 4, 2014 and

January 30, 2015, Faulkner marked the close of BECC’s stock at least 24 times, setting the

intraday trading high on at least six occasions with his last-minute trades.

 

  1. Faulkner’s trades were done in an economically disadvantageous manner, plainly

indicating his intent to manipulate the market for BECC’s stock. For example, in December

2014, TDA compliance personnel noted the following about the Steedley Account: “[o]ver the

past week, the client has established a pattern of uneconomical (and possibly manipulative)

trading in BECC. Client paying $9.99 commission on orders up to $1000 on a low volume

security with an average of $80K.” Ultimately, Faulkner paid thousands of dollars in

commissions for various small lot trades he made throughout the day and to mark the close.

More than half of his trades were for 1,000 shares or less, and more than a quarter were for 500

shares or less. Faulkner’s trading artificially sustained and increased BECC’s stock price.

 

  1. From December 1, 2014 through March 2, 2015, BECC’s stock price increased

$0.02/share (a 4.2% increase), even though oil dropped 28% during this time frame.

Additionally, companies in the energy sector typically saw stock price decreases during this time

period. The Russell 2000 Energy Index dropped 3.07%, and legitimate oil-and-gas E&P

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 44

 

companies suffered significant price drops. Given the magnitude, timing, and prevalence of

Faulkner’s trades, Faulkner’s trading helped sustain and increase BECC’s stock price.

  1. In conjunction with these trades, Faulkner, as an officer of BECC, failed to file

forms with the Commission reflecting changes in his beneficial ownership of BECC’s stock, as

required by Section 16 of the Exchange Act.

 

  1. Faulkner continued this pattern of trading until TDA shut down the Steedley and

Range Quest accounts in early March 2015 for suspicious trading in BECC’s stock.

Transition from Crude to Patriot.

 

  1. In early 2015, Hallam and Faulkner began to quarrel. Even though Faulkner

relied on Crude to fund BECC – and, in turn, his lavish lifestyle – Faulkner punished Hallam’s

perceived insubordination by once again pivoting the Faulkner Scheme. In late March 2015,

while Hallam was out of town, Faulkner coordinated the startup of a new entity – Patriot – to

take Crude’s place. Faulkner changed the name of another shell company he owned (Simple

Solutions, Inc.) to Patriot, and installed Miller as its President and its sole director, shareholder,

and officer. Since Faulkner controlled the Crude lease and its computers and servers, he moved

almost all of this to a new suite he leased for Patriot’s offices and instructed the Crude

employees that they would now work for Patriot. Upon Hallam’s return, he saw that Crude had

been effectively shut down.

 

  1. Faulkner and Handkins then set up new bank accounts styled as “Simple

Solutions d/b/a Crude Energy” so that Patriot could intercept incoming checks from Crude

investors who had invested in Crude offerings, and deposit them into an account that Patriot and

Miller – and not Hallam – controlled. Faulkner and Wagers then directed Miller, who was an

officer and a managing member of Crude, to assign all of Crude’s interests to Patriot to allow

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 45

 

operations to continue seamlessly without Hallam. Patriot also became responsible for making

ongoing expense payments for BOG’s and Crude’s prospects.

 

  1. Patriot ultimately took over Crude’s sales staff and executed a nearly identical

Administrative Services Agreement with BECC as the Crude ASA, albeit with significantly

increased fees ($300,000 per month and $250,000 per prospect) (the “Patriot ASA”). Since

April 2015, Patriot has played Crude’s role, serving as BECC’s covert sales arm via unregistered

offerings of oil-and-gas investments and utilizing nearly indistinguishable offering materials

drafted, edited, or approved by Faulkner. Patriot’s offering materials, signed by and attributed to

Miller, include similar misrepresentations as those in Crude’s offering documents.

 

  1. Patriot and Faulkner revised the AFE definition in the Patriot offering documents,

but it was substantively the same. As a result, investors were unable to assess what portion of

their investment would actually be used for prospect-related expenses.

 

  1. And incredibly, even though he was Patriot’s President and sole director, Miller

never reviewed or edited Patriot’s CIMs even though the statements therein were attributed

solely to him. Miller and the salespeople sent these Faulkner-drafted offering materials to

investors and used them in selling the Patriot prospects.

 

  1. Patriot also took over Crude’s role as the primary money source for BECC and

Faulkner. Handkins, who Faulkner transitioned from Crude to Patriot, continued managing

investor lists and controlled Patriot’s bank accounts. At Faulkner’s request and with Miller’s

knowledge, Handkins continued the pattern established at Crude and transferred millions of

dollars of Patriot investor funds to BECC without regard for any specific prospect expenditure.

She also made more than $500,000 in Amex payments for Faulkner’s personal Amex cards, and

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 46

 

more than $365,000 in additional payments to entities controlled by Faulkner. Handkins

continued this conduct until her resignation in March 2016.

 

  1. Meanwhile, BECC doubled down on its misrepresentations about the relationship

between BECC and Crude by regurgitating similar falsehoods about its relationship with Patriot.

In a May 1, 2015 Form 8-K signed by Faulkner, BECC disclosed the Patriot ASA and, similar to

its disclosure about the Crude ASA, claimed that Patriot would pay BECC hundreds of

thousands of dollars per month and per prospect. As with Crude, these statements were

misleading. Patriot replaced Crude as BECC’s sales arm in or around March 2015, and Patriot’s

operations – like Crude’s – were consolidated with BECC. This consolidation created the

misleading impression that Patriot could purchase services from, and generate millions of dollars

in fees for, BECC. The Form 8-K also claimed that Miller “controlled” Patriot, which was at

best false or misleading given Faulkner’s control over Patriot’s operations and Faulkner’s

drafting of Patriot’s offering materials. And BECC affirmed its purported “strategic

relationship” with Patriot in a June 25, 2015 Form 8-K signed by Faulkner.

  1. Patriot offered working interests in four different prospects – the Blue Wolf, the

Thoroughbred, the Cole, and the Black Bear. Remarkably, although Patriot raised millions of

dollars from investors at a significant premium to the operator-provided AFEs, the operators for

the prospects never received sufficient funds to put any of the Patriot prospects into production

status. For example, investors sent Patriot approximately $3.3 million for its Thoroughbred

offering. According to the operator AFE for the prospect, it would take less than $1.3 million to

complete the prospect. However, Patriot and BECC remitted only $760,000 in payments to the

operator, the bare minimum to drill the prospect and comply with the Farmout Agreement’s

continuous drilling provisions. The rest of the investor funds were commingled with other

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 47

 

Patriot investors’ funds and then used for expenses completely unrelated to the Thoroughbred.

Thus, despite raising millions of dollars more than the actual costs, neither Patriot nor BECC

provided sufficient funds to complete the prospect and put it into production.

  1. In April 2016, with money running out, BECC failed to comply with the

continuous drilling provision of the Farmout Agreement. As a result, portions of the land

associated with the Farmout Agreement have reverted back to the landowner. Additionally, the

landowner is seeking the return of multiple prospects that have not been completed in accordance

with the Farmout Agreement, including the Thoroughbred. As previously discussed above,

neither Crude nor Patriot (nor Hallam and Miller) disclosed the Farmout Agreement, the

continuous drilling provisions contained therein, or the risk that investors would lose their entire

interest if these provisions were not satisfied.

 

FIRST CLAIM FOR RELIEF

Violations of the Antifraud Provisions of the Securities Act

 

Section 17(a) of the Securities Act [15 U.S.C.  77q(a)]

 

[against Defendants Christopher A. Faulkner, Parker Hallam,

 

Dustin Michael Miller Rodriguez, Joseph Simo,

 

Beth Handkins, Breitling Oil & Gas Corporation,

Crude Energy, LLC, and Patriot Energy, Inc.]

 

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the conduct described herein, Faulkner, Hallam, Miller, Simo,

Handkins, BOG, Crude, and Patriot, directly or indirectly, singly or in concert, in the offer or

sale of securities, by use of the means or instrumentalities of interstate commerce or of the mails,

knowingly or with severe recklessness, employed devices, schemes, or artifices to defraud.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 48

 

  1. By engaging in the conduct described herein, Faulkner, Hallam, Miller, Simo,

BOG, Crude, and Patriot, directly or indirectly, singly or in concert, in the offer or sale of

securities, by use of the means or instrumentalities of interstate commerce or of the mails, and at

least negligently, obtained money or property by means of untrue statements of material fact or

omitted to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading.

  1. By engaging in the conduct described above, Faulkner, Hallam, Miller, Simo,

Handkins, BOG, Crude, and Patriot, directly or indirectly, singly or in concert, in the offer or

sale of securities, by use of the means or instrumentalities of interstate commerce or of the mails,

and at least negligently, engaged in transactions, practices, and/or courses of business which

operate as a fraud or deceit upon purchasers, prospective purchasers, and other persons.

  1. By engaging in this conduct, Faulkner, Hallam, Miller, Simo, BOG, Crude, and

Patriot violated, and unless enjoined will continue to violate, Sections 17(a)(1), 17(a)(2), and

17(a)(3) of the Securities Act [15 U.S.C.  77q(a)].

  1. By engaging in this conduct, Handkins violated, and unless enjoined will continue

to violate, Sections 17(a)(1) and 17(a)(3) of the Securities Act [15 U.S.C.  77q(a)(1) and

77q(a)(3)]

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 49

 

SECOND CLAIM FOR RELIEF

 

Violations of Antifraud Provisions of the Exchange Act

 

Section 10(b) [15 U.S.C.  78j(b)] and Rule 10b-5 [17 C.F.R.  240.10b-5]

 

[against Defendants Christopher A. Faulkner, Breitling Energy Corporation,

Jeremy Wagers, Judson F. “Rick” Hoover, Parker Hallam,

Dustin Michael Miller Rodriguez, Joseph Simo, Beth Handkins,

Breitling Oil & Gas Corporation, Crude Energy, LLC, and Patriot Energy, Inc;

 

aiding-and-abetting by Defendant Gilbert Steedley]

 

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the foregoing misconduct, Faulkner, BECC, Wagers, Hoover,

Hallam, Miller, Simo, BOG, Crude, and Patriot, in connection with the purchase or sale of

securities, by use of means or instrumentalities of interstate commerce or of the mails, or of any

facility of any national securities exchange, directly or indirectly: (i) employed devices, schemes,

or artifices to defraud; (ii) made untrue statements of material facts and omitted to state material

facts necessary in order to make the statements made, in light of the circumstances under which

they were made, not misleading; and (iii) engaged in acts, practices, and courses of business

which operate as a fraud or deceit upon persons, including purchasers or sellers of securities.

  1. By engaging in the foregoing misconduct, Handkins, in connection with the

purchase or sale of securities, by use of means or instrumentalities of interstate commerce or of

the mails, or of any facility of any national securities exchange, directly or indirectly: (i)

employed devices, schemes, or artifices to defraud; and (iii) engaged in acts, practices, and

courses of business which operate as a fraud or deceit upon persons, including purchasers or

sellers of securities.

  1. Faulkner, BECC, Wagers, Hoover, Hallam, Miller, Simo, Handkins, BOG, Crude,

and Patriot engaged in the above-referenced conduct knowingly or with severe recklessness.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 50

 

  1. By engaging in the foregoing misconduct, Steedley knowingly or recklessly aided

and abetted, pursuant to Section 20(e) of the Exchange Act, Faulkner’s fraudulent and

manipulative purchases of BECC stock, which by use of means or instrumentalities of interstate

commerce or of the mails, or of any facility of any national securities exchange, directly or

indirectly: (i) employed devices, schemes, or artifices to defraud; and (iii) engaged in acts,

practices, and courses of business which operate as a fraud or deceit upon persons, including

purchasers or sellers of securities.

  1. By engaging in this conduct, Faulkner, BECC, Wagers, Hoover, Hallam, Miller,

Simo, BOG, Crude, and Patriot violated, and unless enjoined will continue to violate, Section

10(b) of the Exchange Act [15 U.S.C.  78j(b)] and Rules 10b-5(a), 10b-5(b), and 10b-5(c)

thereunder [17 C.F.R.  240.10b-5].

  1. By engaging in this conduct, Handkins violated, and unless enjoined will continue

to violate, Section 10(b) of the Exchange Act [15 U.S.C.  78j(b)] and Rules 10b-5(a) and 10b­

5(c) thereunder [17 C.F.R.  240.10b-5(a), 240.10b-5(c)].

  1. By engaging in this conduct, Steedley aided and abetted, and unless enjoined will

continue to aid-and-abet, violations of Section 10(b) of the Exchange Act [15 U.S.C.  78j(b)]

and Rules 10b-5(a) and 10b-5(c) thereunder [17 C.F.R.  240.10b-5(a), 240.10b-5(c)].

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 51

 

THIRD CLAIM FOR RELIEF

 

Violations of the Securities Registration Provisions of the Securities Act

 

Section 5 [15 U.S.C.  77e]

 

[against Defendants Christopher A. Faulkner, Parker Hallam,

Dustin Michael Miller Rodriguez, Breitling Oil & Gas Corporation,

Crude Energy, LLC, and Patriot Energy, Inc.]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By their conduct as alleged above, Faulkner, Hallam, Miller, BOG, Crude, and

Patriot, directly or indirectly, singly or in concert with others, (i) made use of the means or

instruments of transportation or communication in interstate commerce or of the mails to sell,

through the use or medium of written contracts, offering documents, or otherwise, securities as to

which no registration statement was in effect; (ii) for the purpose of sale or delivery after sale,

carried or caused to be carried through the mails or in interstate commerce, by any means or

instruments of transportation, securities as to which no registration statement was in effect; or

(iii) made use of any means or instruments of transportation or communication in interstate

commerce or of the mails to offer to sell, through the use or medium of written contracts,

offering documents, or otherwise, securities as to which no registration statement had been filed.

  1. By engaging in this conduct, Faulkner, Hallam, Miller, BOG, Crude, and Patriot

have violated, and unless enjoined, will continue to violate Section 5 of the Securities Act [15

U.S.C.  77e].

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 52

 

FOURTH CLAIM FOR RELIEF

 

Violations of Reporting Provisions of the Exchange Act

 

Section 13(a), and Rules 12b-20, 13a-1, 13a-11, 13a-13

 

[15 U.S.C.  78m(a) and 17 C.F.R.  240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13 ]

 

[against Defendant Breitling Energy Corporation; aided-and-abetted by

Defendants Christopher Faulkner, Jeremy Wagers, and Judson F. “Rick” Hoover]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the foregoing misconduct, BECC, whose securities are registered

pursuant to Section 12 of the Exchange Act [15 U.S.C.  78l], failed to file annual, quarterly, and

periodic reports (on Forms 10-K, 10-Q, and 8-K) with the Commission that were true and

correct, and failed to include material information in its required statements and reports as was

necessary to make the statements made, in light of the circumstances under which they were

made, not misleading.

  1. By engaging in the foregoing misconduct, BECC violated, and unless enjoined

will continue to violate, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and

13a-13 thereunder [17 C.F.R.  240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].

  1. Faulkner, Wagers, and Hoover, pursuant to Section 20(e) of the Exchange Act,

knowingly or recklessly provided substantial assistance to BECC in its violations of Section

13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder [17 C.F.R.

240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].

  1. By reason of the foregoing, Faulkner, Wagers, and Hoover aided and abetted

BECC’s violations and, unless restrained and enjoined, will continue to aid and abet such

violations, of Section 13(a) of the Exchange Act [15 U.S.C.  78m(a)] and Rules 12b-20, 13a-1,

13a-11, and 13a-13 [17 C.F.R.  240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13].

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 53

 

FIFTH CLAIM FOR RELIEF

 

Violations of the Books and Records and Internal Controls Provisions of the Exchange Act

Section 13(b)(2)(A) and 13(b)(2)(B) [15 U.S.C.  78m(b)(2)(A) and 78m(b)(2)(B)]

[against Defendant Breitling Energy Corporation; aided-and-abetted by

Defendants Christopher Faulkner, Jeremy Wagers, and Judson F. “Rick” Hoover]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the foregoing misconduct, BECC, whose securities were

registered pursuant to Section 12 of the Exchange Act [15 U.S.C.  78l]:

  1. failed to make and keep books, records, and accounts, which, in

reasonable detail, accurately and fairly reflected the transactions and

disposition of its assets; and

  1. failed to devise and maintain a system of internal controls sufficient to

provide reasonable assurances that: (i) transactions were recorded as

necessary to permit preparation of financial statements in conformity with

GAAP or any other criteria applicable to such statements, and (ii) to

maintain accountability of assets.

  1. By engaging in the foregoing misconduct, BECC violated and, unless enjoined,

will continue to violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act [15 U.S.C.

78m(b)(2)(A) and 78m(b)(2)(B)].

  1. Faulkner, Wagers, and Hoover knowingly or recklessly provided substantial

assistance to Defendant BECC in its failure to make and keep books, records, and accounts

which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of the

assets of Defendant BECC.

  1. By reason of the foregoing, Faulkner, Wagers, and Hoover aided and abetted,

pursuant to Section 20(e) of the Exchange Act, BECC’s violations and, unless restrained and

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT       Page 54

 

enjoined, will continue to aid and abet such violations of Section 13(b)(2)(A) of the Exchange

Act [15 U.S.C.  78m(b)(2)(A)].

  1. Faulkner, Wagers, and Hoover knowingly or recklessly provided substantial

assistance to Defendant BECC in its failure to devise and maintain a sufficient system of internal

accounting controls.

  1. By reason of the foregoing, Faulkner, Wagers, and Hoover aided and abetted,

pursuant to Section 20(e) of the Exchange Act, BECC’s violations and, unless restrained or

enjoined, will continue to aid and abet such violations of Section 13(b)(2)(B) of the Exchange

Act [15 U.S.C.  78m(b)(2)(B)].

SIXTH CLAIM FOR RELIEF

Circumventing or Failing to Implement Internal Controls under Exchange Act

 

Section 13(b)(5) [15 U.S.C.  78m(b)(5)] and Rule 13b2-1 [17 C.F.R.  240.13b2-1]

 

[against Defendants Christopher Faulkner, Jeremy Wagers, and Judson F. “Rick” Hoover]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the foregoing misconduct, Faulkner, Wagers, and Hoover, as

officers of BECC: (i) knowingly circumvented or knowingly failed to implement a system of

internal accounting controls; or (ii) knowingly falsified, or caused to be falsified, BECC’s books,

records, and/or accounts of BECC.

  1. As a result of their conduct, Faulkner, Wagers, and Hoover violated and, unless

enjoined, will continue to violate Section 13(b)(5) [15 U.S.C.  78m(b)(5)] of the Exchange Act

and Rule 13b2-1 thereunder [17 C.F.R.  240.13b2-1] by, directly or indirectly, falsifying or

causing to be falsified, the books, records, or accounts of Defendant BECC, subject to Section

13(b)(2)(A) of the Exchange Act [15 U.S.C.  78m(b)(2)(A)].

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 55

 

SEVENTH CLAIM FOR RELIEF

 

Misrepresentations and Misconduct in Connection with

 

the Preparation of Required Reports

 

Exchange Act Rule 13b2-2 [17 C.F.R.  240.13b2-2]

 

[against Defendants Christopher Faulkner, Jeremy Wagers, and Judson F. “Rick” Hoover]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. By engaging in the foregoing misconduct, Faulkner, Wagers, and Hoover, officers

of BECC, violated Exchange Act Rule 13b2-2(a) [17 C.F.R.  240.13b2-2(a)] by, directly or

indirectly, making, or causing to be made, materially false or misleading statements, or omitting

to state, or causing another person to omit to state, material facts necessary in order to make

statements made, in light of the circumstances under which such statements were made, not

misleading, to an accountant in connection with (i) an audit, review, or examination of the

financial statements of Defendant required to be made pursuant to Commission rules, or (ii) the

preparation or filing of documents or reports required to be filed with the Commission.

  1. By engaging in the foregoing misconduct, Faulkner, Wagers, and Hoover, officers

of BECC, violated Exchange Act Rule 13b2-2(b) [17 C.F.R.  240.13b2-2(b)] by directly or

indirectly taking action, or directing another to take action, to coerce, manipulate, mislead, or

fraudulently influence an independent public or certified public accountant engaged in the

performance of an audit or review of the financial statements of BECC required to be filed with

the Commission while they knew or should have known that such action(s), if successful, could

result in rendering BECC’s financial statements materially misleading.

  1. As a result of their conduct, Faulkner, Wagers, and Hoover violated and, unless

enjoined will continue to violate, Exchange Act Rule 13b2 [17 C.F.R.  240.13b2-2].

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 56

 

EIGHTH CLAIM FOR RELIEF

 

Violations of Certification Rules of the Exchange Act

 

Exchange Act Rule 13a-14 [17 C.F.R.  240.13a-14]

 

[against Defendants Christopher Faulkner and Judson F. “Rick” Hoover]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. On the following dates, acting under Section 302 of the Sarbanes-Oxley Act of

2002 and Exchange Act Rule 13a-14, Faulkner and Hoover certified Forms 10-K and 10-Q on

behalf of BECC: March 31, 2014 (2013 Form 10-K), May 14, 2014 (Form 10-Q for Q1-2014),

August 13, 2014 (10-Q for Q2-2014), and November 13, 2014 (10-Q for Q3-2014).

  1. Specifically, Faulkner and Hoover certified that they had reviewed these reports

and that, based on their respective knowledge, the reports did not contain any untrue statements

of a material fact or omit to state a material fact necessary to make the statements made, in light

of the circumstances under which they were made, not misleading; and, based on their

knowledge, the financial statements and other financial information included in the reports, fairly

presented in all material respects the financial condition, results of operations, and cash flows of

BECC of, and for, the periods presented in the reports.

  1. At the time that Faulkner and Hoover issued these certifications they knew or

were severely reckless in not knowing that the reports they certified contained untrue statements

of material facts and/or omitted to state material facts necessary to make the statements made

therein, in light of the circumstances under which they were made, not misleading.

  1. By reason of the foregoing, Faulkner and Hoover violated, and unless enjoined

will continue to violate, Exchange Act Rule 13a-14 [17 C.F.R.  240.13a-14] promulgated under

Section 302 of the Sarbanes-Oxley Act of 2002.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 57

 

NINTH CLAIM FOR RELIEF

 

Proxy Violations of the Exchange Act

 

Section 14(a) and Rule 14a-9 [15 U.S.C.  78n(a) and 17 C.F.R.  240.14a-9]

 

[against Defendants Breitling Energy Corporation and Jeremy Wagers]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. On April 30, 2014, BECC filed a definitive proxy statement, despite knowing that

representations or disclosures contained within the proxy statement, at the time and in light of the

circumstances in which they were made, were false and misleading with respect to material facts,

or omitted to state material facts necessary in order to make the representations or disclosures not

false or misleading or necessary to correct statements which were false or misleading. Wagers

signed the proxy statement despite knowing that these statements were false or misleading, or

that they contained omissions of material facts necessary in order to make the statements therein

not false or misleading or necessary to correct any statement which was false and misleading.

  1. BECC and Wagers, by use of the mails or any means or instrumentality of

interstate commerce or of any facility of a national securities exchange or otherwise, in

contravention of such rules and regulations as the Commission has prescribed as necessary or

appropriate for the public interest or for the protection of investors, have: (a) solicited or

permitted the use of its name to solicit any proxy or consent or authorization in respect of any of

BECC, a security registered pursuant to Section 12 of the Exchange Act; or (b) solicited by

means of any proxy statement, a form of proxy, notice of meeting or other communication,

written or oral, containing any statement which, at the time and in light of the circumstances in

which it was made, was false or misleading with respect to any material fact, or which omitted to

state any material fact necessary in order to make the statements therein not false or misleading

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 58

 

or necessary to correct any statement in any earlier communication with respect to the

solicitation of a proxy for the same meeting or subject matter which has become false or

misleading.

  1. By reason of the foregoing, BECC and Wagers have violated, and unless enjoined

will continue to violate, Section 14(a) of the Exchange Act [15 U.S.C.  78n(a)] and Rule 14a-9

[17 C.F.R.  240.14a-19].

TENTH CLAIM FOR RELIEF

Violation of the Beneficial Ownership Reporting Requirements of the Exchange Act

 

Section 16(a) and Rule 16a-3 [15 U.S.C.  78p(a) and 17 C.F.R.  240.16a-3]

 

[against Defendant Christopher Faulkner]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. The common stock of BECC is registered with the Commission under Section

12(g) of the Exchange Act and is quoted on the OTC Link, operated by OTC Markets Group,

Inc.

  1. During all relevant time periods, Faulkner, directly or indirectly, beneficially

owned more than 10 percent of the issued and outstanding shares of stock in BECC, and met the

definition of a “person” as defined in Rule 16(a)(1) of the Exchange Act [17 C.F.R.  240.16a-1]

as to trading in BECC securities.

  1. Section 16(a) of the Exchange Act [15 U.S.C. 78p(a)] mandates that officers,

directors, and persons that directly or indirectly beneficially own more than 10 percent of any

class of any registered security periodically file statements with the Commission regarding

changes in their ownership of that security.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 59

 

  1. Faulkner, directly or indirectly, beneficially owned more than 10 percent of the

issued and outstanding shares of stock in BECC.

  1. Faulkner was required to file Forms 4 with the Commission when there was a

change in his beneficial ownership of BECC stock during a month.

  1. By engaging in the conduct described above, Faulkner did not file statements with

the Commission to report changes in his direct or indirect beneficial ownership of BECC stock,

as required by Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.

  1. By engaging in the conduct described above, Faulkner violated, and unless

enjoined will continue to violate, Section 16(a) of the Exchange Act [15 U.S.C.  78p(a)] and

Rule 16a-3 thereunder [17 C.F.R.  240.16a-3].

ELEVENTH CLAIM FOR RELIEF

 

Equitable claim against Relief Defendants

 

[against Relief Defendants Tamra M. Freedman and Jetmir Ahmedi]

  1. The Commission repeats and re-alleges Paragraphs 1 through 137 of this

Complaint, as if fully set forth herein.

  1. Tamra M. Freedman and Jetmir Ahmedi, directly or indirectly, received funds or

benefitted from the use of funds, which are proceeds of the unlawful activity alleged above.

They obtained funds and property, directly or indirectly, from Faulkner that were obtained by

him as a result of the securities law violations described herein.

  1. Freedman and Ahmedi have no legitimate claims to such funds received, or from

which they otherwise benefitted from, directly or indirectly.

  1. The Commission is entitled to an order, pursuant to common law equitable

principles – such as disgorgement, unjust enrichment, and constructive trust – and pursuant to

Section 21(d)(5) of the Exchange Act [15 U.S.C.  78u(d)(5)], requiring Freedman and Ahmedi

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT Page 60

 

 

to disgorge all of the proceeds they received, either directly or indirectly, from Faulkner that he

derived from the illegal activities described above.

  1. As a result of the conduct described above, Defendants Freedman and Ahmedi

should disgorge their ill-gotten gains, plus prejudgment interest thereon.

PRAYER FOR RELIEF

For these reasons, the Commission respectfully asks the Court to enter a final judgment:

  1. permanently enjoining Christopher A. Faulkner from:
  2. violating Sections 5 and 17(a) of the Securities Act and Sections 10(b),

13(b)(5), and 16(a) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1,

13b2-2, and 16a-3 thereunder, and from aiding-and-abetting violations of

Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and

Rules 13a-1, 13a-11, 13a-13, and 12b-20 thereunder; and

  1. participating, directly or indirectly, including, but not limited to, through

any entity owned or controlled by him, in the issuance, purchase, offer, or

sale of any unregistered securities, provided however that such injunction

shall not prevent him from purchasing or selling securities for his own

personal account.

  1. permanently enjoining Breitling Energy Corporation from violating Sections

10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules

10b-5, 13a-1, 13a-11, 13a-13, 12b-20, and 14a-9 thereunder.

  1. permanently enjoining Jeremy S. Wagers from:
  2. violating Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5,

13b2-1, 13b2-2, and 14a-9 thereunder, and from aiding-and-abetting

violations of Section 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange

Act and Rules 13a-1, 13a-11, 13a-13, and 12b-20 thereunder; and

  1. participating, directly or indirectly, including, but not limited to, through

any entity owned or controlled by him, in the issuance, purchase, offer, or

sale of any unregistered securities, provided however that such injunction

shall not prevent him from purchasing or selling securities for his own

personal account.

  1. permanently enjoining Judson F. “Rick” Hoover from violating Section 10(b) of

the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and

from aiding-and-abetting violations of Sections 13(a), 13(b)(2)(A), and

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT       Page 61

 

13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13, and 12b-20

thereunder.

  1. permanently enjoining Parker R. Hallam from:
  2. violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of

the Exchange Act and Rule 10b-5 thereunder; and

  1. participating, directly or indirectly, including, but not limited to, through

any entity owned or controlled by him, in the issuance, purchase, offer, or

sale of any unregistered securities, provided however that such injunction

shall not prevent him from purchasing or selling securities for his own

personal account.

  1. permanently enjoining Joseph Simo from violating Section 17(a) of the Securities

Act and Section 10(b) of the Exchange Act and Rules 10b-5 thereunder.

  1. permanently enjoining Dustin Michael Miller Rodriguez from:
  2. violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of

the Exchange Act and Rule 10b-5 thereunder; and

  1. participating, directly or indirectly, including, but not limited to, through

any entity owned or controlled by him, in the issuance, purchase, offer, or

sale of any unregistered securities, provided however that such injunction

shall not prevent him from purchasing or selling securities for his own

personal account.

  1. permanently enjoining Beth Handkins from violating Sections 17(a)(1) and

17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rules

10b-5(a) and 10b-5(c) thereunder.

  1. permanently enjoining Gilbert Steedley from aiding-and-abetting violations of

Section 10(b) of the Exchange Act and Rules 10b-5(a) and 10b5-(c) thereunder.

  1. permanently enjoining Breitling Oil & Gas Corporation from violating Sections 5

and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule

10b-5 thereunder.

  1. permanently enjoining Crude Energy, LLC from violating Sections 5 and 17(a) of

the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5

thereunder.

  1. permanently enjoining Patriot Energy, Inc. from violating Sections 5 and 17(a) of

the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5

thereunder.

 

SEC v. Christopher A. Faulkner, et al.

COMPLAINT       Page 62

SunEdison Shareholders Push for Official Bankruptcy Committee

 By Peg Brickley

Shareholders of SunEdison Inc. are trying to elbow their way to a seat at the bargaining table in the solar power developer’s bankruptcy case, an effort the company says is “entirely unlikely” to pay off.

SunEdison plunged into chapter 11 bankruptcy in April, with questions swirling about its cash handling, management and general financial health. Stock that fetched prices as high as $33 per share dropped along with the solar power company’s reputation as a fast-growing financial innovator. It is a penny stock now, having shed more than 99% of its value over the past year.

Shareholders, including true believers in the message that alternative energy can help heal the planet, wrote to Judge Stuart Bernstein, asking not to be written off, which is what usually happens to equity stakeholders in bankruptcy. SunEdison’s shareholders are looking for help to repair the damage done to their savings by the company’s financial tailspin.

The judge issued an order asking for arguments on the appropriateness of an official committee of shareholders in the bankruptcy.

SunEdison and its official creditors committee’s response was that the pile of debt confronting SunEdison is so high–$8 billion–that there is no chance of leftover value for shareholders and no point to naming an equity committee.

“Fully aware of the financial hardship” SunEdison’s failure imposed on shareholders, the company’s lawyers pointed to “numerous indicators” that creditors are going to take a beating in the bankruptcy. Under the rules of chapter 11, shareholders of a failed company get nothing unless debts are paid in full.

Lawyers for the creditors committee noted in a court filing that SunEdison’s debt is trading at levels below par, a sign the market doesn’t think SunEdison will be able to pay its bills.

Shareholders say they need a voice in the negotiations that will determine who gets paid in SunEdison’s bankruptcy. An official committee, with lawyers and financial advisers paid by SunEdison, would ensure shareholders won’t be overlooked.

Unsecured creditors have an official committee, bondholders have an unofficial committee, and major lenders have lawyers in the bankruptcy courtroom, as well as the hallways where the deals are cut. Shareholders have SunEdison, which faces multiple investigations, and its management, whose members have been targeted in lawsuits calling into question their adherence to their duties as corporate officers. Shareholders say that isn’t good enough.

“Management has demonstrated that they will not look out for our interests,” said Wayne Greenwald, a New York lawyer representing 268 individuals who collectively own more than 13 million shares of SunEdison stock.

Shareholders take little comfort in assurances from SunEdison and others that all that can be done is being done to preserve value, he said. “Their value, sure. What about my value? People are perfectly willing to give away what isn’t theirs,” Mr. Greenwald said.

Six weeks into the chapter 11 case, creditors are still digging for value in SunEdison, inquiring into the worth of an array of alternative energy projects, and the company’s cash-handling practices, among other things. The company has yet to file its audited financial report for 2015, and the detailed asset and liability schedules required in bankruptcy aren’t yet due.

With so much uncertainty about the true state of SunEdison’s financial affairs, shareholders say they can rely only on what is in the court documents. That information shows assets greater than debts, and, according to Mr. Greenwald, shareholders can rely only on the information they have been given to make their case for a committee.

Big question marks hang over SunEdison’s finances, Mr. Greenwald said, noting that “we believe there is a puzzle to be solved, that can be solved and we have been provided with no reason to think otherwise.”

Judge Bernstein is set to take up the question of an equity committee Tuesday in the U.S. Bankruptcy Court in Manhattan.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com )

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

June 03, 2016 15:57 ET (19:57 GMT)

Former TV Commentator Settles Penny Stock Fraud Charges

https://www.sec.gov/news/pressrelease/2016-60.html
FOR IMMEDIATE RELEASE
2016-60

Washington D.C., March 29, 2016 —The Securities and Exchange Commission today announced that a former market analyst and TV news commentator has agreed to settle charges that he and his company fraudulently promoted a penny stock to investors.

The SEC alleges that Tobin Smith and NBT Group Inc. were paid to prepare and disseminate e-mails, online blogs, articles, and other communications touting the stock of IceWEB Inc., a data storage company.  Smith and NBT did not fully disclose their compensation to investors, who did not have the benefit of knowing that part of their pay was tied to a sustained increase in IceWEB’s share price.  The promotional material also contained false and misleading statements intended to artificially increase the trading volume and share price of IceWEB’s stock.

Smith and NBT agreed to be barred from involvement in any future penny stock offerings and must pay disgorgement of $165,900 plus $16,893 in interest.  Smith also must pay a $75,000 penalty.

“Smith and NBT claimed IceWEB was a ‘perfect tech stock’ in order to manipulate the market and enrich themselves with illicit stock promoter fees,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the District of Columbia:

  • Smith entered into two separate agreements on NBT’s behalf to promote IceWEB and its stock in exchange for $330,000 in cash and IceWEB stock.
  • NBT could earn incentive fees of more than $250,000 if the marketing campaigns succeeded in increasing share price.
  • Smith and NBT only disclosed some of their compensation and never informed investors that they would earn incentive fees if the stock price increased above a certain amount.
  • Smith and NBT falsely stated in communications to subscribers that Smith discovered IceWEB when he was “searching for a solution” to his own company’s “rapidly growing cloud data storage problem.”
  • In fact, Smith only “found” IceWEB after he was retained to promote the company.  He did not actually use IceWEB for NBT data storage.
  • Smith and NBT also falsely touted that IceWEB “provides the cheapest storage box and more important the lowest cost/highest performance solution to”  public and private data storage centers including “Amazon cloud drive, Dropbox, Evernote, iCloud, Microsoft SkyDrive, Google Drive,  SugarSync” and Facebook.
  • Smith did not know whether any of these companies were actually IceWEB customers.
  • Smith touted he could “easily make the case” for “10X Return — $200 million valuation” on IceWEB given “what has been already paid for its competitors.”
  • But Smith made these projections despite being well aware of IceWEB’s poor financial condition and knowing that no company was contemplating a purchase of IceWEB.

The SEC’s complaint charges Smith and NBT with violating the anti-touting and anti-fraud provisions of Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  Smith and NBT neither admitted nor denied the allegations in the settlement, which is subject to court approval.

 

The SEC’s investigation was conducted by Yolanda Ochoa and Finola H. Manvelian and trial counsel are John Berry and Karen Matteson in the Los Angeles office.

*   *   *

An investor alert prepared by the SEC’s Office of Investor Education and Advocacy cautions investors that they may receive stock promotions from sources that seem independent and unbiased, but the stock promoters aren’t revealing that a company is paying them to tout its stock.

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Volunteering for Involuntaries: Vey!

Volunteering for Involuntaries Vey dplic.jpg

Involuntary bankruptcy petitions may be the nuclear weapon in the commercial debtor-creditor collections arsenal. Like its military counterpart, it devastates. An alleged debtor may be crippled economically, where it was viable before the involuntary petition was filed.

To limit abuse of involuntary petitions, the Bankruptcy Code imposes onerous penalties on petitioning creditors with failing petitions. Those penalties include:

(A) costs; or

(B) a reasonable attorney’s fee; or against any petitioner that filed the petition in bad faith,

for –

(C) any damages approximately caused by such filing; or

(D) punitive damages.2

A creditor can get burned playing with explosives.

First Defense ­- Who Qualifies?

The best defense to involuntary petitions may be the petitioning creditors themselves. Generally, petitioning creditors must have claims that are “not contingent as to liability or subject of bona fide dispute as to liability or amount.”3 It’s hard to imagine an alleged commercial debtor who can’t argue “we don’t owe you that” or “we don’t owe you that much.”

The best way to avoid that response is obtaining a judgment. But, if you have a judgment, why pursue an involuntary bankruptcy? You should be helping yourself, not all creditors!4

One approach for determining whether a claim is subject to a “bona fide” dispute is the “reverse summary judgment” standard.5 Using this approach, a court would not grant summary judgment to the claimant on their claim in a regular civil action,6 subject to a bona fide dispute.

If a petitioning creditor’s claim is subject to a bona fide dispute, they are disqualified as a petitioner. If an involuntary lacks the necessary petitioning creditors,7 the petition fails8 and is dismissed. The court then assesses damages against the petitioners.

The Second Circuit’s Recent Warning

Last week the U.S. Court of Appeals for the Second Circuit affirmed a bankruptcy court dismissing an involuntary petition and awarding $315,000 in damages against the petitioning creditors.9 The bankruptcy court withheld punitive damages because it believed the $315,000 award to be example enough.

The bankruptcy court found those petitioning creditors’ claims subject to bona fide disputes. The court saw the already pending “plethora of ongoing litigation,” in other courts and the debtor’s factual showing questioning their involvement in the transaction at issue generating the dispute. The bankruptcy court also concluded that abstaining its jurisdiction10 was proper. The pending litigation regarding the same issues was already progressing in other forums.

Significant here is that damages were granted despite the court abstaining its jurisdiction. Frequently, when cases are dismissed, based on abstention, damages are not granted.11

The Second Circuit affirming the damage award shows that the “abstention” refuge for dismissed involuntary petitioners may be gone. Involuntary petitioners should be doubly sure of their claims and standing before engaging in “kamikaze” collections strategies. The tables of financial embarrassment may get turned.

An Alternative Strategy

First, why would a creditor with a judgment pursue an involuntary bankruptcy case? Judgment creditors can enforce their judgment ahead of other creditors. A bankruptcy case forces a debtor’s universe of creditors to share its assets. Voluntarily sharing with other junior creditors lacks business sense, absent other factors.

Creditors like bankruptcy cases because an independent trustee is imposed to marshal and control the debtor’s assets and protect creditor interests.12 That’s great. However, the involuntary petition must first succeed.13

State courts offer creditor protections too. Before filing an involuntary, it’s worthwhile to investigate state law alternatives.14 Some state remedies include imposing receivers on a judgment debtor’s assets. Similarly, when a debtor is fraudulently transferring assets before a judgment is entered, a receiver can be imposed as a pre-judgment remedy. These approaches avoid the risks of an involuntary petition. Plus, they afford those creditors the ability to settle with the debtor without notifying the debtor’s other creditors or obtaining court approval with notice to creditors.15

Involuntary bankruptcy petitions have their place in creditors’ quivers. For self-preservation, creditors need to be careful and judicious in using them.

As always, we’d love to hear your comments and experiences.

___________________________________________________________________

1 A “bad faith” involuntary includes using an involuntary petition to facilitate other litigation.

2 11 U.S.C. § 303(I).

3 11 U.S.C. § 303(b)(1).

4 We’ll discuss your alternative later.

5 B.D.W. Associates, Inc. v. Busy Beaver Bldg. Centers, Inc. 865 F.2d 65, 66 (3rd Cir.1989), In re Busick, 831 F.2d 745 (7th Cir.1987)

6 ‘If there is a genuine issue of a material fact that bears upon the debtor’s liability, … then the petition must be dismissed . . .so long as the factual questions are “substantial.” In re Tobacco Road Associates, LP, 2007 WL 966507 (E.D.Pa.).

7 Usually three. See 11 U.S.C. § 303(b)(1).

8 The petition can be supplemented with joining creditors who remedy the loss. However, they must be qualified petitioners.

9 In re TPG Troy, LLC, ­­­ —F.3d—­­­­, 2015 WL 4220619 (2nd Cir.)(“Troy“).

10 Pursuant to 11 U.S.C. § 305(a)(1),

11 There is a dispute among the districts whether an award under 11 U.S.C. § 303(i) can be granted when a case is dismissed based on abstention. For example, Koffman v. Osteoimplant Technology, Inc., 182 B.R. 115, 121 (D. Md. 1995) says no award can be granted. Troy apparently disagrees.

12 See, 11 U.S.C. § 701.

13 An interim trustee can be appointed while the involuntary petition is pending to protect the estate. See, 11 U.S.C. § 303(g).

14 These remedies are also available in federal courts. See, Fed.R.Civ.P. 69.

15 See, Fed.R.Bankr.P. 1017(a)

Wayne M. GreenwaldWayne M. Greenwald
Phone: 212-983-1922 & 888-496-1553 (Toll Free)
Fax: 212-983-1965
E-mail Me

Mires, Ran, and Clark (MRC) Targets Pension Advance Loan Companies Who Prey On Retired Public Employees and Military Veterans

Initial investigation Focused on the Lending and Funding Practices of Voyager Financial

Houston, TX – June 16, 2015 – Mires, Ran, Clark & Associates (MRC) is targeting its vast investigative resources onto a number Pension Advance Loan Companies who prey on retired public employees and military veterans in the State of Texas. “Retired military and the elderly are often targeted by such high interest rate lenders,” according to Don Clark, former SAC of Houston FBI Office and Chairman of MRC. Federal laws prohibit the assignment of U.S. Government pensions and disability benefits.

Mires, Ran, & Clark will be conducting due diligence into the cost and interest rates charged by these predatory lenders/brokers. “There is a large disparity between the effective cost of capital military veterans and pensioner pay, versus the stated or advertising amounts charged by these pension advance companies,” according to Amir Mireskandari, CEO of MRC.

The first company to be targeted for its lending/funding practices Voyager Financial.

Voyager Financial approaches people who are in need of available funds and have an income stream from a pension fund or similar source. Voyager Financial offer individuals their services as financial brokers to get access to the pensioners and military veterans guaranteed income. MRC was retained by a Texas based law firm to provide due diligence in the cost and lending practices of Voyager Financial in a case pertaining to Mr. Paul Martinez, a disabled United States military veteran.

Although pension advances closely resemble loans, however, the companies offering these financial instruments  often insist that they are not loans — and thus sidestep state and federal lending regulations regarding military pensions. The Federal Truth in Lending Act, for example, requires that lenders disclose to consumers an effective interest rate for each transaction, but most of the pension-advance companies examined by the GAO did not properly disclose this information. “Without such disclosure, consumers considering pension-advance offers often do not realize the exorbitant cost of their borrowing, that in many cases can reach more than 100%,” according to Amir Mireskanari, CEO of MRC.

Mires, Ran, Clark and Associates
2500 West Loop South, Suite 300
Houston, TX 77027
info@miresran.com
MiresRan.com