The receiver appointed to unwind Christopher Faulkner's massive securities fraud scheme has sued longtime lawyers at Scheef & Stone LLP, alleging they saw signs as early as 2010 but refused to unveil the scam until it was too late.
Texas Law Firm Played Crucial Role in Faulkner Fraud Scheme
In a 31-page complaint, receiver Thomas L. Taylor III alleges Roger Crabb and Mitch Little, Texas-based Scheef & Stone's partners, were crucial players in Faulkner's fraud by drafting the documents through which Faulkner sold securities in various dubious companies. Mr. Taylor also alledged that the Scheef & Stone attorneys knew that the sales documents excluded significant facts and included out-and-out lies.
"Despite their knowledge of the red flags, which would have tipped off an attorney of reasonable skill and competence to Faulkner's fraud and violations of securities laws, defendants refused to lift the veil on the . . . fraudulent scheme." As a result, he is suing the firm and its two partners for gross negligence, breach of fiduciary duty, and aiding and abetting Faulkner's scheme -- among other things.
Firm Accused of Aiding and Abetting Faulkner Fraud Scheme
According to court documents, despite having no real background in the oil and gas industry, Faulkner portrayed himself as an expert in hydraulic fracturing and referred to himself as the "frack master," a reputation that allowed him to run a wide-ranging securities fraud scheme by selling private securities offerings in Breitling and a handful of closely related companies to unwitting investors for over five years.
The heart of Faulkner's fraud included selling stocks via the fraudulent confidential information memoranda (CIMs) and private placement memoranda (PPMs), a method that enabled him to evade many SEC rules and to get away with having an unlicensed sales force hawk the securities to unwitting investors. Many of those salesmen reached an $8 million settlement with the SEC in July.
Faulkner ultimately raised roughly $150 million and funneled at least $32 million of that to himself. He was sentenced to 12 years in prison after accepting a plea deal with prosecutors, but a Texas federal judge abruptly rejected it at a hearing.
Mr. Taylor alleged that Scheef & Stone's legal work underpinned Faulkner's entire scheme as the firm began working with Faulkner in 2010 and was responsible for most (if not all) of the CIMs and PPMs used as part of the fraud. He maintains that were it not for Scheef & Stone's legal work, the Breitling fraud never would have gotten as big as it did, adding, that the law firm had sufficient evidence and "red flags" to put an end to it, but chose not to do so. According to the filing, Scheef & Stone attorneys also were intimately involved with Breitling's crew of unlicensed securities sales force.
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Dimond Kaplan & Rothstein, P.A. has vast experience with cases related to securities fraud or stockbroker misconduct. The firm has successfully represented numerous securities fraud victims winning cases across the country.
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