Dallas Man Arrested at Los Angeles International Airport on $62.6 Million Investment Fraud Scheme
DALLAS—Christopher A. Faulkner, 41, from Dallas, Texas, was arrested Monday, June 18, 2018, at the Los Angeles International Airport by special agents with the Internal Revenue Service-Criminal Division (IRS-CI), Federal Bureau of Investigation (FBI), with assistance from Customs and Border Patrol. Faulkner was arrested on a federal complaint, charging him with securities fraud, mail fraud and money laundering, in connection with a scheme to defraud investors of millions of dollars. The announcement was made today by U.S. Attorney Erin Nealy Cox of the Northern District of Texas.
Faulkner made an appearance Monday in Los Angeles, California before a U.S. Magistrate Judge and will remain in custody pending further court hearings in Dallas, Texas.
According to the filed criminal complaint affidavit, between 2011 and 2016, Faulkner established and controlled several oil and gas companies located in Texas. On April 28, 2016, the IRS-CI and FBI executed search warrants and seized documents and electronic data from Breitling Oil and Gas Inc., Crude Energy, LLC and Patriot Energy, Inc., offices located in Dallas, Texas.
According to the criminal complaint affidavit, as part of the scheme to defraud investors, Faulkner made fraudulent misrepresentations to investors and raised over $62.6 million in investor funds through the sale of working interest units in 16 drilling prospects.
The affidavit alleges Faulkner’s companies marketed the working interest programs using multiple forms of misrepresentations, to include the hyperinflation of reasonable estimated costs to drill and test the well, which resulted in huge undisclosed profits to Faulkner’s companies. Well operators for each of Faulkner’s prospects created a written estimate of costs to drill a well in the form of an “Authority for Expenditure” (“AFE”) and provided these to Faulkner. However, these estimates were never included in the offering materials provided to investors. Instead, examination of emails and Faulkner’s computer, seized from his office, showed he commonly created AFEs in the name of the operator, but grossly inflated the estimated costs.
Additionally, the affidavit claims Faulkner made fraudulent misrepresentations to investors by having oversold many of the programs the company offered, and used inflated reports and production estimates supplied by a third party geologist. An examination of Faulkner’s seized computer and emails, revealed Faulkner was closely affiliated to the third party geologist and increased the already inflated estimates.
The affidavit further alleges that substantially all the investor money was transferred from segregated well accounts into general and operating bank accounts. Faulkner diverted significant amounts of investor funds for his own benefit while investors received minimal returns on their investment.
According to the affidavit, between 2011 and 2013, Breitling received investments totaling $41.4 million. However, the investors received less than $2.4 million of their initial investment. Faulkner, during this same period of time, received approximately $8 million in cash disbursements from Breitling. In addition to these direct cash payments, Faulkner also received at least $1.9 million of additional benefits by virtue of Breitling paying for personal expenses on credit cards and more than $2 million of investor funds on personal expenses in direct charges to its bank accounts.
Additionally, the affidavit states, in 2014 and 2015, Faulkner, by virtue of Crude Energy, LLC and Patriot Energy, Inc., diverted $13.8 million of commingled investor funds by means of $6.1 million in cash disbursements and approximately $7.7 million in personal American Express card charges. Additionally, the companies also paid more than $4 million in personal expenses through its bank accounts.
The complaint alleges Faulkner used the investor money to finance a lavish lifestyle that included high end vehicles, expensive jewelry, clothing, art, home improvements, professional concierge services, and chartered flights.
A federal criminal complaint is a written statement of the essential facts of the offense charged, and must be made under oath before a magistrate judge. A defendant is entitled to the presumption of innocence until proven guilty. The U.S. Attorney’s office has 30 days to present the matter to a grand jury for indictment. The maximum statutory penalty for the charged offenses is 35 years in federal prison and a $750,000 fine.
The investigation is being conducted by the Internal Revenue Service-Criminal Division, Federal Bureau of Investigation and U.S. Postal Inspection Service. Assistant U.S. Attorney Christopher Stokes is in charge of the prosecution.
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