Eric Watson: Net closes in insider trading case

Eric Watson is next in the sights of the US Securities and Exchange Commission, after an attempt to dismiss its insider trading complaint against the embattled New Zealand businessman and two others was rejected by US courts.

In mid-2021 the Securities and Exchange Commission (SEC) filed an insider trading complaint against Watson, Oliver-Barret Lindsay and Gannon Giguiere, alleging that Watson - a 30 per cent owner of Long Island Ice Tea (LTEA) - tipped off his co-accused in late 2017 about an imminent pivot of the beverage-maker on to the blockchain.

The SEC claims that after being informed of the imminent rebrand into Long Blockchain, Giguiere immediately bought 35,000 LTEA shares on December 20, 2017 for US$2.44 each.

The following day, less than two hours after the blockchain rebranding became public and drew significant froth from crypto-boosters, Giguiere sold the shares for US$6.91 and generated a $162,500 profit.

Watson has not engaged with the court action. The SEC successfully applied to serve him in absentia by advertising its claim in the New York Times after failing to locate him in his presumed residence in Ibiza.

Watson has previously told the Herald he believes the complaint is without merit as he had not personally profited from any of the transactions in question.

Lindsay settled his part of the complaint in early 2022 and awaits the conclusion of the case to hear what level of regulatory and financial sanctions he will face.

Giguiere filed late last year to dismiss the SEC case, with a key part of his defence being that Watson received no personal or financial benefit from the transaction.

But in a ruling earlier this month US judge Andrew Carter Jr dismissed Giguiere’s motion, and said the SEC had established a quid pro quo relationship between the defendants - particularly between Watson and Lindsay, his broker.

“The court agrees that the [SEC] sufficiently alleges that Lindsay and Watson are friends and that Watson intended to make a gift to Lindsay out of friendship,” Carter said.

The SEC claimed Watson’s observations to his co-accused that LTEA shares would skyrocket - perhaps to US$50 a share - off the back of the planned Blockchain rebrand was “intended to benefit Lindsay by providing him this information so that he could trade stock”.

The SEC told a court this week it would press on with its case against Giguiere, but given it claimed that Watson breached fiduciary duty in passing information to him, it would target the defendants in order.

“The commission has no current plan to move for the entry of a default judgment against Watson, but will be prepared to do so as soon as is practicable after it resolves its case against Giguiere,” a letter from the SEC said.

Watson faces legal war on multiple fronts, with the insider-trading case presenting arguably the least-serious threat.

The collapse of his New Zealand-based Cullen Group in 2019 - following a ruling it owed $112m over tax avoidance - has seen nearly two dozen of his companies placed in administration.

Despite a long-running circus where liquidators claimed Watson was hiding from document-servers, earlier this year, liquidators signalled an intent to bankrupt him after securing in absentia a $57m summary judgment against him personally.

And a titanic struggle with his former business partner Sir Owen Glenn - waged in international courts for more than a decade that has burnt tens of millions in legal bills on both sides - has seen Glenn use court awards in his favour to chase Watson personally around the globe, and his family members in New Zealand and in the United States, seeking $82m.

In late 2020 lawyers acting for Glenn managed to have Watson thrown in prison - a rare outcome in a civil case - for contempt of court after finding he had hidden assets in a “rainy day account” in his mother’s name. Watson served four months in London’s Pentonville prison.