Embattled Eric Watson is facing legal proceedings yet again - this time in the United States as the agency tasked with protecting investors from market manipulation accuses him of insider trading.
It's November 2017 and Eric Watson is meeting a friend for dinner in Miami.
What was discussed in the balmy city may never be revealed, but the Securities and Exchange Commission (SEC) believes it may have involved talks of an alleged "pump-and-dump" scheme involving an iced tea company and the exploding cryptocurrency craze.
Watson, who is only months free from a London prison cell after being held in contempt during his long-running legal battle with fellow Kiwi Sir Owen Glenn, was charged with insider trading last week by the US regulator alongside two others.
The Herald has reviewed hundreds of pages of American court documents detailing the origin of the case against the former co-owner of Hanover Finance, which left thousands of NZ investors hundreds of millions of dollars short after it collapsed at the start of the global financial crisis.
The allegations against Watson, filed in the United States District Court for the Southern District of New York, famous for its finance and Wall St cases, followed investigations by the Federal Bureau of Investigation (FBI).
Agents were curious after shares in Long Island Iced Tea Corp (LTEA), an obscure business based in Farmingdale in the middle of New York's Long Island, skyrocketed in late December 2017.
Watson, who was a corporate insider and the controlling shareholder of the company, is now accused of tipping Oliver-Barret Lindsay, allegedly a business associate, broker and the friend he enjoyed a meal with in South Florida, about an impending company announcement.
The information, the SEC claims, was that the Nasdaq-listed beverage manufacturer was about to significantly "pivot" to blockchain technology, a system which records cryptocurrency transactions.
Lindsay, a Canadian who primarily resided in the Cayman Islands, in turn then told his Californian mate, Gannon Giguiere, according to the SEC. The pair have a history together, court papers reveal. They have been accused of being co-conspirators in prior market manipulation schemes, while Giguiere is said to use his stock promotion website TheMoneyStreet.com to hype specific shares.
Giguiere, allegedly acting on the LTEA tip, bought 35,000 shares.
A day later - December 21, 2017 - the company's stock exploded when it publicly announced a change of name to Long Blockchain Corp (LBCC) and shift towards "the exploration of and investment in opportunities that leverage the benefits of blockchain technology".
The intraday share price spiked 388 per cent and it closed at US$6.91, an increase of about 183 per cent from the previous day's closing price of US$2.44.
LBCC's trading volume on the day was over 15 million shares - an increase of 1000 per cent.
Then, less than two hours following the announcement, Giguiere sold all his shares. A US$162,500 profit.
Watson, whose liquidated Cullen Group companies owe Inland revenue more than $118m in back taxes and interest, told the Herald via email he had no idea about Lindsay or Giguiere's alleged actions.
"Yes, it appears the SEC has filed a complaint stating that I, as an insider of the company (LBCC) representing a fully disclosed and non tradeable position - along with other aligned shareholders - provided information on behalf and at the behest of the company to LBCC's investment relations firm represented by Mr Oliver [Lindsay]," Watson said.
"This was under a non-disclosure and IR agreement with the recipient."
The SEC is seeking permanent injunctions and civil penalties against Watson, Lindsay and Giguiere and an order permanently prohibiting the Kiwi businessman from serving as an officer or director of any US company.
The former majority owner of the lingerie chain Bendon and Warriors NRL team owner told the Herald he never profited from the stock.
"This is a civil matter and will be dealt with via legal representatives in the US."
Formerly one of New Zealand's wealthiest people, Watson, who is considering writing a book about his life and hopes to sell it to Netflix, earlier claimed to now be impecunious. He said in a UK court statement last year - during his case with Glenn - the "small amount I spend on living is given to me by my mother".
It is also not Watson's first dance with the SEC either.
In 2001, the regulator settled administrative proceedings against Watson for what the SEC said were violations in connection with his trading in McCollam Printers, a publicly traded New Zealand-based issuer.
Lindsay, Giguiere and the FBI's hidden helping hand
Prior to, and during, the alleged LTEA play, Giguiere and Lindsay had already hit the FBI's radar for their alleged involvement in "pump-and-dump" schemes, where investors buy cheap stocks, promote them, and sell when the value shoots up.
One involved Kelvin Medical Inc (KVMD), a purported medical-device business, court documents show.
Between November 29, 2017 and January 26, 2018, the pair and an associate conducted a matched trading scheme in KVMD's stock, the SEC said. They co-ordinated Giguiere's sales of his 1.5 million shares of KVMD to Lindsay, also a small-time short film producer, who was buying the shares in his own brokerage and customer accounts at his Cayman Islands broker-dealer.
Unbeknownst to Giguiere and Lindsay, however, the associate was a witness co-operating with the FBI. The source was recording the trio's phone calls and preserving their encrypted emails and text messages.
The FBI's informant had earlier admitted several years of penny stock fraud to investors and brokered an immunity deal in exchange for information, court papers reveal. Penny stocks, also known as "microcaps", are not listed on a national securities exchange such as Nasdaq and are instead traded over the counter at prices below US$5.
Since at least as early as 2016, the G-men's source also said he was involved in promoting stocks through TheMoneyStreet.com.
Some of the messages between Lindsay, Giguiere and the FBI's man were cited in court documents filed in United States District Court for the Southern District of California.
During a December 2017 phone call, Lindsay even told the informant: "I'm a little hesitant about typing all of these details into this app … You can just imagine if it finds its way somewhere it's fairly incriminating."
Similarly, Lindsay told the witness in a call later that month: "I just mentioned to Gannon that some of these text messages look, just like, really evil. I'd rather just pick up the phone … [W]hen he starts saying, hey, do you think you can you finish it green, I'm like, f*ck!"
By late January 2018, as a result of the KVMD scheme, Giguiere and Lindsay had netted approximately US$1.57m in proceeds and increased the firm's share price from zero to US$1.20, having reportedly reached as high as US$1.37.
Soon thereafter, Giguiere also began promoting KVMD's stock on TheMoneyStreet.com in anticipation of his and Lindsay's sales of their second tranche of 1.5 million KVMD shares into the buying volume generated by the hype.
But Giguiere and Lindsay's plan to liquidate the second tranche was stymied in March 2018 when the SEC suspended trading in KVMD's securities for 10 business days.
In July 2018, both Giguiere and Lindsay were charged by the SEC for their role in manipulative and fraudulent trading schemes.
A year later, both men pleaded guilty to the criminal charges, one count each of conspiracy to commit securities fraud. Litigation against the duo remains before the Californian judiciary, court papers read.
Other schemes linked to Giguiere, alleged by the SEC, include a purported technology company focused on the cannabis industry and a digital media company.
Watson's encrypted messages: 'Smiling?'
Throughout late 2017, court documents read, Lindsay and Watson were also calling each other and sending frequent messages using an encrypted application.
But it was not until evidence was obtained in the KVMD case that FBI agents extended their investigation towards the trading activity of LTEA and Watson.
According to an application for a search warrant in May 2019, the FBI wanted to seize additional material found on Lindsay's iPhone. What agents discovered was a WhatsApp chat between Lindsay and a user identified as "Eric W".
Among other things, the SEC says the pair discussed Watson's plans for LTEA, of which Lindsay was also a shareholder.
Formed in May 2015 through a merger between Long Island Brand Beverages and Cullen Agricultural Corp, owned and controlled by Watson, the company by September 2017 had 30 per cent of its common stock in Watson's hands.
The SEC claims Watson and Lindsay talked about the possibility of a New Zealand company, which Watson had several ties to and doing business in London, completing an initial public offering; and the promotion of another microcap issuer in which Watson held a controlling interest. Watson did not reply to questions about the NZ company from the Herald.
But the company - which is not named in court documents - is described as "a holding company with interests in various financial services" including a foreign exchange brokerage, and it was purportedly "developing proprietary Blockchain technology" and "developing ... a Blockchain-enabled platform."
It was about this time, the SEC alleges, Watson sought to use Lindsay's connections within the microcap industry to promote LTEA.
Shortly thereafter, the SEC says, Lindsay introduced Watson to Giguiere to promote the company on TheMoneyStreet.com. The regulator's case is that Lindsay served as the conduit for communication between Watson and Giguiere, while Giguiere agreed to promote LTEA through his website.
But Giguiere did very little promotion. He was instructed to pause any promotional efforts during the period the company was considering and then preparing for its shift to blockchain technology, court papers read.
Watson, meanwhile, was making suggestions to the chairman of LTEA's board of directors for the company to shift its business, the SEC said. By December 2017, he had convinced the company to make the change to blockchain-related ventures.
Lindsay, Giguiere, and the FBI informant were also exchanging phone calls and encrypted text messages from October 2017 to December 2017. The trio's group text thread was labelled "Daily Updates" - where they discussed their trading plans and Lindsay's conversations with Watson about LTEA.
Court papers show on December 4, 2017, LTEA met with the NZ company, which, according to Watson, was wanting to enter the blockchain space.
The same day Lindsay told Giguiere and the FBI's source he had been "trying to reach the guy behind the deal on Long Island Iced Tea all weekend, and he finally called me back this morning."
Lindsay later specified who his LTEA source was, "Eric", and described him as "the guy who put the deal together." He also said Watson had informed him that "[t]hey may announce an agreement with a blockchain deal."
A few days later, on December 11, the same day LTEA entered into a consulting agreement to evaluate blockchain opportunities, Lindsay called the FBI informant. He said he'd spoken with Watson and requested a shareholder list, which he later received, court papers read.
Lindsay explained the shareholder list would prove Watson had control over the company, increasing confidence in buying LTEA shares. He said he was considering "buy[ing] some more stock while it's down here, while [we] are waiting for this other stuff to materialise".
Watson continued to work with the company to get the blockchain deal to go ahead, according to the SEC's filing. On December 17, Watson then allegedly sent a short message to Lindsay confirming the pivot.
"Tea WILL be BC," he said.
The next day Watson entered into the confidentiality agreement, which, among other things, prohibited him from sharing any information he acquired from LTEA without the company's prior written consent.
He never received any written consent, the SEC claims, and on December 19 he began sharing various drafts of the blockchain announcement with Lindsay.
The company's board of directors had also approved changing LTEA's name and at about 8pm, Watson sent Lindsay a message.
The SEC claims it included a draft of the announcement and was titled: "Long Island Iced Tea Corp. Changing Name to [Long BlockChain Corp.], Shifts Strategic Direction Towards Opportunities in Blockchain Technologies."
The draft explained "[t]he primary focus of the Company will now be the exploration of and investment into opportunities that leverage the benefits of blockchain technology."
Also on December 19, Watson and his New York-based son - who was a consultant for the NZ company - met with LTEA to discuss his purported expertise in blockchain. Watson, who tested positive for Covid-19 last year, did not respond to the Herald's questions about the mention of his son in the court material.
Just before midnight, the SEC alleges, Watson continued to contact Lindsay. This time he sent a revised version of the announcement and a few hours later, Lindsay forwarded it to another colleague.
The following morning Watson's son sent his father the final draft. Watson, the SEC says, dispatched it onto Lindsay.
He wrote: "Smiling?"
Lindsay replied: "Laughing ... good job getting that done."
Watson said: "When the market sees the [NZ company] deal we may have a $50 stock."
Long Island Iced Tea's closing price that day was US2.44.
To the moon: Stock skyrockets
After receiving the final version of the announcement, Lindsay sent it to Giguiere and the FBI's source.
By this time, the SEC alleges, Lindsay had been telling the pair for weeks LTEA would publicise its move to the blockchain business and expected the announcement would cause a spike in the company's share price.
"LTEA is coming back," Lindsay also said in an encrypted message to some six people, court papers read.
But when Giguiere read the final announcement he told Lindsay and the FBI source they would need to be "mindful" about TheMoneyStreet.com's hype of the stock, court papers state.
"The regulators are scrutinising Block an[d] Crypto deals that are being promoted right now," he said.
Seemingly anxious, Giguiere asked Lindsay when the announcement was coming. Lindsay replied: "Should be now … Or post market … I guess we will know shortly."
A couple of hours later, Lindsay updated Giguiere: "He's working on releasing … With legal."
After receiving Lindsay's message, Giguiere placed two market orders to buy 35,000 shares at an average cost of US$2.42 per share, court documents read.
At 8.32am on December 21, LTEA made its blockchain announcement.
It called it a "once-in-a-generation opportunity."
The share price skyrocketed, closing at US$6.91. The stock briefly hit nearly US$10.
Less than two hours following the announcement, Giguiere sold all his shares, realising US$162,500 in what the SEC says was illicit profits.
''Nice pop in LT ... Amazing the hype around crypto ... The story will pull well on TMS ... are we going to continue with marketing for LT?" Giguiere said in messages to Lindsay and the FBI informant.
The FBI believes LT refers to Long Island Iced Tea and TMS to TheMoneyStreet.com.
On the same day, court papers show, another of Lindsay's business associates asked him why he didn't get the tip prior to the announcement. Lindsay replied: "I think I told everyone."
Eventually, LBCC's stock, which traded on the Nasdaq from July 2016 to April 2018, was delisted by the exchange for allegedly making "a series of public statements designed to mislead investors and to take advantage of the general investor interest in bitcoin and blockchain technology."
In February this year, the SEC also revoked its registration of securities without the company admitting or denying the regulator's findings.
In its order, the SEC added: "Its blockchain business never became operational."
