The US Securities and Exchange Commission (SEC) has charged three people, including former NZ Warriors owner Eric Watson, with insider trading.
In a press release, the SEC said it had laid the charges after an announcement by the formerly Nasdaq-listed Long Blockchain Company, previously known as Long Island Iced Tea Co (LTEA), that it would “pivot” to blockchain, which caused its stock to “soar”.
Watson, the release said, helped convince the company to shift its focus from beverages to blockchain and signed a confidentiality agreement not to disclose its business plans, but tipped off his friend and broker, Oliver-Barret Lindsay, including sharing a draft press release with him.
The SEC alleges Lindsay then passed the information to another man, Gannon Giguiere, on Dec 21, 2017.
Giguiere within hours purchased 35,000 shares in the Delaware-registered company.
After the release was issued the next day shares in the company rose more than 380% on increased trading volume before closing at US$6.91, a boost of 180% on the previous day’s trading price.
Less than two hours after the announcement Giguiere then sold his shares, banking US$162,500 in “illicit” profits.
Beverage to blockchain
The company said in the announcement it was “shifting its primary corporate focus toward the exploration and investment in opportunities that leverage the benefits of blockchain technology”, rather than the “ready-to-drink segment of the beverage industry”.
The three are charged with breaches of the Securities Exchange Act. The regulator is seeking injunctions and penalties from all three and wants to bar UK-resident Watson from being a company officer or director.
The other two men, the SEC statement said, have previously been charged for another alleged stock manipulation scheme.
Long Blockchain’s security registration has also been revoked, it said.
In an emailed statement Watson said it was a “civil matter and will be dealt with via my legal representatives in the US”.
Watson said the SEC complaint alleged he provided information along with other shareholders on the “behalf and behest of the company” to Long Blockchain’s investment relations firm represented by “Oliver Lyndsay”.
“This was under a non-disclosure and IR agreement with the recipient,” Watson said.
“Unbeknownst to the company, shareholders or me, Mr Lindsay acquired and sold shares in the company and has since it appears been charged with similar violations with stocks in other companies.”
Watson said “neither I nor the filing shareholders traded nor profited from the stock”.
The SEC filed its complaint in the US district court in the southern district of New York.
It said unless the three are “restrained and enjoined”, they would engage in similar behaviour again.
Watson, 60, controlled over 30% of the company’s shares both personally and through companies he controlled, the filing said.
Lindsay is a 40 year-old Canadian citizen and resident of Vancouver. He was the principal of CMGT Capital Management, a Cayman Islands-exempt broker registered with the Cayman Islands Monetary Authority.
Giguiere, 47, lives in California.
LTEA traded on the Nasdaq from July 2016 until April 2018 when it was delisted for making a series of “public statements designed to mislead investors and to take advantage of the general investor interest in bitcoin and blockchain technology”.
The statement of claim said LTEA was formed in 2015 through a merger of Long Island Brand Beverages and Cullen Agricultural Corp, a company owned and controlled by Watson.
Watson served time in Pentonville Prison in the UK last year after attracting a four-month prison sentence in a London court, as a result of his long-running battle with expatriate NZ millionaire and former business partner, Owen Glenn.
Watson was found in contempt of court by Lord Justice Christopher Nugee in a judgment dated Oct 2.
Glenn has been trying to get back the “vast majority" of the £43.5 million Watson owes him after their partnership soured and led to a bitter legal dispute, including a court fight to have Watson's assets disclosed and frozen.
The contempt finding related to Justice Nugee’s finding that Watson had hidden assets from NZ millionaire businessman Glenn after being ordered to pay Glenn £43.5 million in 2018.
This story has been updated to include a response from Eric Watson.
