How Con Artists Take Advantage of Rising Oil Prices

Businessweek
THE FRACK MASTER’S MASTERCLASS

Christopher Faulkner wooed potential oil investors a decade ago with a jargon-filled prospectus, which he pumped hard when the price of crude started to climb. Expect a proliferation of similar ploys again soon.
By Francesca Maglione

Illustrations by Nichole Shinn
June 30, 2022, 6:00 AM UTC

Scammers have long extracted cash from gullible investors seeking to extract crude from the Earth. A new breed of oilpatch con artist will promise to get you into fracking—injecting fluid at high pressure deep underground to fracture shale and release oil and gas. But in the grand tradition of charlatans throughout history, what they’re really selling is a story. One that people with extra money can’t help believing. A story that’s guaranteed—guaranteed!—to double your investment in just a few months. Federal officials say such swindles can double when oil prices rise sharply. With crude up about 50% this year, prosecutors are bracing for a new wave of cases. Here’s how Christopher Faulkner, a goateed Texan residing in federal prison since last year, pulled off a $70 million shale-driven Ponzi scheme when oil boomed about a decade ago.

1. Wait for a Price Surge Everyone in the US knows, viscerally, when oil prices go up. In 2010, just as the fracking boom got under way, crude started to climb, boosting interest among people who felt that, since they buy gas every week, surely they must understand what drives the industry.

2. Craft an Identity—and Sell It Faulkner called himself “the Frack Master” and bragged about his “diverse background” in the business. He presented himself as an oil expert, claiming academic credentials such as a master’s from the University of North Texas and a Ph.D. from Concordia College, according to court documents.

3. Build a Dream, a Team, and a Company—or Four Over the years, Faulkner claimed involvement in more than 15 oil and gas prospects in North Dakota, Oklahoma, and Texas. As his scam grew, he used at least four puppet companies and enlisted various partners to help carry out the fraud, prosecutors say.

4. Publish Your Prospectus The key here is specificity. The more jargon, impenetrable data, and complex plans, the better. Faulkner included estimates for drilling and expenses alongside details he’d lifted from real operators—but which he inflated to turbocharge the purported investment returns. Finally, he tacked on reports from a geologist with a reputation for exaggerating his findings, then pumped up the numbers even further.

5. Target Your Investor Shale scams thrive in Texas, with its deeply embedded oil culture. Around 2009, Faulkner teamed up with a pair of experienced oil and gas investment brokers who helped with the marketing. They would cold-call potential investors from a list they bought from a “lead-generation company” in Florida. In 2014, Faulkner published a book called *The Fracking Truth* to bolster his image. Then he hit the airwaves, posing as an industry expert on CNBC, CNN, Fox, and—yes—Bloomberg Television.

6. Don’t Forget the Strip Clubs. and the Bentley Faulkner dropped more than $20 million of investors’ money over the years on personal expenses. In 2014 alone he spent almost $1 million at a personal concierge company for “private entertainment,” $380,000 at ultraluxe travel agency In the Know Experiences, $220,000 on private jets, and over $178,000 in New York nightclubs Lavo, Provocateur, and Tao. He called his company-issued American Express account his “whore card”—charging $1 million-plus at bars, in strip clubs, and with escort services. And then there’s the McLaren, two Range Rovers, a Mercedes, a Bentley, and a Jaguar, court documents show.

7. Do It Again. And Again. And Again To keep the momentum going, Faulkner on three occasions started over, with a new company, a new prospectus, and new marketing brochures drowning in falsehoods and unrealistic promises. And at each turn he managed to overcharge his investors and pocket the difference, inflating the numbers by as much as 800%.

8. Don’t get caught Federal agents arrested Faulkner at Los Angeles International Airport in June 2018, charging him with securities fraud and attempted tax evasion. After pleading guilty, he was sentenced last year to a decade and a half at the federal penitentiary in Lompoc, Calif., and ordered to pay $92 million in restitution to investors.

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