Hammered by Losses, Dallas' Breitling Energy Sues Its Former Employees

Things have not been going well for Breitling Energy of late. In the third quarter of 2014 it suffered a reported loss of $759,229 which, hey, may have been a blip, but we can't be sure because that was the last financial report it filed with the Securities and Exchange Commission even though the deadline for its annual report came and went almost three months ago. It's explanation for the delay — that it fired its chief financial officer, switched auditing firms and discovered "significant weaknesses in its disclosure controls and procedures" and that its "internal controls over financial reporting ... was inadequate" — didn't inspire confidence, particularly after a Texas Observer piece revealed in April that the company's CEO, Chris Faulkner, had devoted considerable energy to establishing himself as a go-to talking head for fracking news stories (he dubbed himself the "Frack Master") but devoted very little to actually fracking. Also not inspiring confidence: the trend line tracking the company's recent stock performance:
In a press release issued Thursday, Faulkner, who did not respond to requests for an interview, put a positive spin on the situation. "Our management team has been working tirelessly amidst multiple obstacles including completing our 2013 and 2014 internal audit, a change in our CFO position and external audit firm, lower oil prices and the reality of excessive leverage that entered the exploration and production sector as a whole although the Company maintains no debt, and I greatly appreciate their relentless willingness to overcome such hurdles that we could not predict a year ago," he said.

But Breitling's woes go beyond rock-bottom oil prices. For one, it had some terrible employees, if a slew of lawsuits Breitling filed over the past couple of months are to be believed. Breitling claims ex-CFO Rick Hoover was taking kickbacks; purposefully writing checks from the wrong account, which later bounced; and sneaking into the payroll system to boost his salary from $180,000 to $260,000, then doing it again after being caught. Hoover declined to comment on the suit, which in places was almost poetic: "Despite the assurances and representations Hoover made to Breitling regarding his integrity and competency, Hoover's true character has since been uncovered. Deception and theft are two qualities that Mr. Hoover failed to include on his resume." In another lawsuit, Breitling accuses its former vice president of commodities of "spending exorbitant amounts on dinners, parties, and other similar expenses" and then, after being fired, launching a "campaign to interfere with Breitling's business and tarnish their good name in the industry" by, for example, falsely telling the board of directors that the SEC had raided the company's offices. A third suit accused an employee of one of Breitling's operating partners of attempting to scare off potential investors, on one occasion calling a Breitling client and persuading him to cancel a $70,000 check to the company. Finally, it sued another fired employee for allegedly stealing 1,585,646 in FedEx Reward Program points to buy herself jewelry, gift cards, designer handbags and a $700 cook set, among other things. (These suits raise various questions, like this one: Was anyone paying attention to anything at Breitling. And this one: Really? Suing over FedEx points?)

But wait, there's more! Last Tuesday Breitling's New Jersey-based PR firm, the Stephenson Group, sued the company, accusing Faulkner and associates of trying to screw the firm out of more than a half-million dollars. Judging by the fundamental importance of publicity to Breitling's business model (see the Texas Observer story) — publicity that was facilitated by the Stephenson Group, which says it "negotiated well over 1,000 media opportunities for Faulkner" — this is a big deal for Breitling.

Breitling hired the Stephenson Group in 2010. Under their agreement, the Stephenson Group got paid for its services by directly charging Breitling's American Express card, rather than, say, sending invoices and waiting for payment. For the first four years, the arrangement was satisfactory. Then, according to the suit, in the fall of 2014, the card started being declined. Faulkner repeatedly promised to cover the company's $190,580.39 outstanding balance through a wire transfer, but the suit says the money never materialized. Shortly after the Stephenson Group was again able to charge the AmEx, it learned that Breitling was disputing some $518,378 in charges. The lawsuit quotes Faulkner as blaming the issue on Hoover, whom he fired in February. "That was all idiot rick. He was fired FRIDAY," he wrote to Stephenson Group head Ann Stephenson in an email included in the suit. "I will call Amex and rescind his contest of the charges."

That never happened. In fact, AmEx reversed more than $80,775 in charges. Fearing that AmEx might also reverse the other $438,378, it filed its lawsuit. Dallas County District Judge Dale Tillery issued a temporary restraining order on Tuesday to prevent the charges from being reversed pending a more substantial airing of the facts, which is scheduled for August 7.

Breitling is being represented in the case by Dallas attorney Larry Friedman, who says the proper forum for the Stephenson Group's complaint is with American Express' dispute adjudication process — which, Friedman says, the Stephenson Group agreed to abide by when it charged Breitling's credit card — not the courthouse. Friedman says the PR firm's charges were "excessive," and AmEx, at least for the $80,775, agreed.

Friedman also chides the Stephenson Group for including in its lawsuit, which runs to 374 pages, allegations and information ancillary to its lawsuit, including statements that Breitling is "more than likely insolvent" and gives "all outwards appearances of collapsing" and a reference to a federal court judgment from a separate lawsuit that sanctioned Faulkner for altering data and making false statements in court to avoid turning over his computer during the discovery process.

"It's like the magic act where they want to divert your attention from the real dispute and would like to muddy the waters by calling your attention to other things than their overcharging," Friedman says. "The only issue is whether they overcharged."
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