Kiwi Eric Watson files US$10m counterclaim against SEC in insider trading case

Eric Watson, seen here on Instagram in Ibiza from where he has been drafting emails to US courts contesting insider trading complaints, is seeking US$10m in damages from the Securities and Exchange Commission.

Embattled businessman Eric Watson has finally directly engaged with United States regulator the Securities and Exchange Commission (SEC) over insider trading claims and filed a self-written counter-brief alleging improper conduct and negligence and seeking US$10 million ($16.89m) in damages.

This follows the SEC laying a complaint against Watson and two United States-based businessmen in July 2021 alleging insider trading had occurred when Watson’s beverage-maker Long Island Ice Tea rebranded - during a fevered period of bitcoin hype in late 2017 - as Long Island Blockchain.

The claim did not allege Watson had personally financially benefited from the transactions in question, but that information passed on by him was used by the other two defendants to buy shares before the name-change announcement and sell them shortly afterwards to obtain profits of US$160,000.

Both of Watson’s co-defendants have settled with the SEC.

The regulator was unable to find and serve Watson in the Spanish party island of Ibiza where he was said to be living, but had successfully applied to US courts to have him served in absentia by advertising its claim in the international edition of the New York Times.

The SEC had indicated to the court it would be seeking judgement in default.

On July 8 - nearly three years after the action was first filed - Watson made his first filing of substance in the case, emailing a five-page document described as a “complaint/counterclaim” which sought to have the proceedings against him dismissed.

He distanced himself from his co-defendants, claimed new evidence had been obtained showing the case against him was “based on incomplete or inaccurate information”, and reiterated he had not personally profited from the transactions in question.

“The SEC’s claim of some esoteric benefits I have gained are nonsensical and designed simply to bring a high-profile claim against a well-known individual on the assumption that such frivolous, bullying tactics would result in a settlement to their favour and career enhancement for the SEC officers making this bet with taxpayer money,” Watson claimed.

Watson alleged the SEC’s inability to find him to serve documents amounted to negligence and improper conduct, earlier attempts to serve him were for an address he had never resided at, and they had failed to attempt email or telephone contact.

Watson’s filing provided a residential address that appears to have him living at the luxury Ibiza Royal Apartments complex.

Watson said the SEC action had “caused significant reputational damage, resulting in the loss of multiple business deals valued at millions of dollars,” and accused the market regulator of “releasing misleading information to the New Zealand media” which “exacerbated the reputation damage and financial losses suffered by me”.

The SEC has made no comment to date to the New Zealand Herald, a state of affairs repeated this week when asked questions about Watson’s counterclaim. In a recent letter to the court it said it anticipated it would seek to have Watson’s counterclaim dismissed.

Watson himself, contacted through the email address he used to contact the court, also did not respond to questions.

Watson and the SEC have been requested by the courts to attend a teleconference on Tuesday to discuss the counterclaim.

Watson’s business and legal challenges have deepened over the past decade in parallel legal struggles in both the United Kingdom and New Zealand.

His former business partner Sir Owen Glenn spent tens of millions of dollars in a titanic legal struggle with Watson, emerging victorious in his quest to claim $82m in awarded damages. That saw Watson jailed for four months for contempt in late 2020 after he was found to have hidden assets from creditors in a “Rainy Day account.”

Contemporaneously in New Zealand, Inland Revenue undertook a decade-long campaign alleging tax avoidance over Watson’s financial relocation in 2002 - via the Cayman Islands - to the United Kingdom. In 2019 the High Court ruled Watson’s companies owed $112m in back-taxes and interest.

Liquidators subsequently appointed by Inland Revenue over Watson’s companies also launched their own proceedings. A $57m summary judgment was lodged against him last year - again in absentia - with bankruptcy proceedings subsequently lodged.