New plot twist in Eric Watson show as associates plead guilty to insider trading
One was a Cayman Island-based stockbroker and film producer whose credits include the little known crime-comedy Badass Thieves. The other was a search engine expert who ran financial websites promoting supposedly savvy share tips.
Now both Oliver Lindsay and Gannon Giguiere have pleaded guilty to conspiring to commit securities fraud in a US $10m insider trading case, which led the FBI to become interested in encrypted text messages sent and received by ex-pat New Zealand businessman Eric Watson.
After initially contesting the charges, Lindsay and Giguiere have admitted illegally profiting from a ‘pump-and-dump’ scheme, similar to that seen in The Wolf of Wall Street.
The premise was to buy up large amounts of shares in a failing or distressed company, in this case US firm Kelvin Medical, ‘pump’ the value of the stock by issuing news releases and promotional material containing false, misleading or exaggerated information, and then ‘dump’ the shares by selling them at artificially high prices to other investors.
Each party brought special talents to the scheme. Giguiere used his background in internet search engines financial reporting. He had been formerly employed as “senior director of search” at Altavista, an early rival to Google, and operated a stock promotion website called themoneystreet.com and paid for advertisements on websites like Yahoo Finance.
Lindsay, also known as Oliver-Barret Lindsay, was from Canada, but more recently was the principal at a Cayman Island-based stock brokerage CMGT.
He was also an executive producer on several short films, including Badass Thieves, and a low budget 2009 Canadian horror movie The Seamstress.
A third person, an anonymous informant who has admitted being involved in “penny stock fraud” for years, has passed a large volume of texts and call transcripts to the FBI.
Both men are awaiting sentence in a US federal court in San Diego early next year.
It was while reviewing these communications that FBI agents discovered Lindsay discussing what FBI agents have alleged was a similar plan regarding a company called Long Island Iced Tea Corp, and how they became interested in Eric Watson’s WhatsApp messages.
Long Island Iced Tea was a “premium non-alcohol ready-to-drink beverage” company which Watson had built up and owned a significant stake in, and was listed on the US stock exchange the Nasdaq.
In late 2017, Long Island Iced Tea stunned sharemarket observers when it announced on December 21 it was moving into cryptocurrency, as it sought to take advantage of soaring values in the likes of Bitcoin.
Watson has been contacted for comment, and hasn’t been charged in relation to the investigation.
WhatsApp texts show the informant and Lindsay discussing the sudden shift and formation of the new company, called Long Blockchain, before it had been announced publicly.
The FBI alleges that behind the scenes, preparations were being made to take advantage of an expected bolt in stock value once the company announced it was switching focus from beverages to blockchain technology.
The value of blockchain, or cryptocurrencies, were at an all time high in late 2017. The best known cryptocurrency Bitcoin had seen its value rise from just under US $1000 on January 1 2017 to an all-time high of US$17,060 on December 11, 2017.
Texts obtained by the FBI show a flurry of chatter between Watson, Lindsay and an informant over a period of months leading up to the launch of the new blockchain-focussed company.
Also listed in the encrypted text exchanges are messages to another New Zealander, former Lion NZ chief executive Julian Davidson.
Davidson was hired as executive chairman to Long Island, but left in December 2018 and later sued over the terms of his exit.
According to the texts obtained by the FBI, Watson messaged Lindsay in September 2017: “We seem to have a hold up with tea? Paul saying you need more time? We really should (sic) moving don’t you think?”
On September 21, 2017: Watson texts Lindsay again: “Let’s get going.” Lindsay replies: “Convince Julian.”
Watson: “That won’t be a problem.”
The FBI search warrant states Watson received a series of text messages in November outlining the cost of a marketing campaign to promote the stock.
It suggests three authors would be paid $5000 each “including distribution”, a call centre would be required for a fee of $5000 “per caller, per week” call centres.
An ad spend on Yahoo and Facebook would cost $2000 daily, a blogger $5000 per month for a daily post.
And then there was video and distribution costs.
The text string also discusses timings and focus of press releases and promotional material.
Also presented to the court in the FBI search warrant was a transcript of a phone call in which Lindsay gave the informant further details of the plan.
“The guy behind the deal, Eric, was trying to get me to find a Canadian vehicle to vend in a currency trader out of the UK.
“He thinks that he’s got approval from a majority of the shareholders to vend in to LTEA as a blockchain deal and, like, add this like blockchain element to an existing currency trader. So it could be a massive press release, actually.”
Lindsay also said to the informant: “When Eric is going around to … shareholders, he’s revealing a little bit to them. He’s telling them that they’re now (sic) inside information, they can’t transact the stock, but there’s gonna be some leakage there. Like there’s going to be some people that are going to start bidding the stock up.”
A proposed press release revealing the pivot to blockchain was circulated amongst Lindsay, Gannon and the informant in the days leading up to the public release of the change.
It’s alleged the men bought up large numbers of shares in Long Island Iced Tea on December 20. Giguiere purchased 17,500 shares at $2.42 per share.
On December 21, Long Island Iced Tea put out a press release revealing the company was to rebrand as Long Blockchain Corp.
The company’s share price rose significantly. At the time Watson owned 1.5 million shares in the company, or about 15 per cent.
A further text exchange that same day obtained by the FBI between Watson and Lindsay went as follows.
Lindsay: Laughing … Good job getting that done
Watson: Thanks. A f…… lot of brain damage. When the market sees the Stater deal we may have a $50 stock.
The next day Giguiere sold his newly acquired shares for a gross profit of US $162,000.
According to a filing with the Securities Commission, Watson sold his shares a few days later.
In July this year, the FBI applied for a search warrant to access an iPhone 6 (white, in a black case) belonging to Lindsay for more text and call details.
Last week Assistant US attorney Aaron Arnzen, from the US District Court for the Southern District of California, told Stuff the investigation was continuing, and he couldn’t comment about any aspects that weren’t already public.
In filings to the court, much of the evidence was being kept secret as the US Justice Department continued to look into the scheme.
“Because the investigative materials include personally identifiable information, and evidence surrounding other targets, subjects and witnesses of ongoing investigations, and unrelated third parties, the discovery in this case is sensitive.”
Giguiere and Lindsay are also being pursued through the US courts for civil case.
Watson is also in the clutches of expensive litigations in the United Kingdom and New Zealand.
He has been ordered to pay Sir Owen Glenn around $80m plus interest after a joint business venture in the United Kingdom between the former friends, co-owners of the Warriors rugby league side and horse racing enthusiasts turned nasty.
In April, Watson’s company Cullen Group filed an appeal against a High Court decision in New Zealand, which ruled it owed Inland Revenue $51m in tax.
Bruce Sheppard, who was sued by Watson and his former Hanover Finance associate Mark Hotchin for defamation, said: “Between Owen Glenn, the Inland Revenue, and the FBI and the Securities and Exchange Commission in the US, he certainly has got his hands full.
“I’m not sure Eric has ever had his back to the wall in a pure sense of the word, so who knows how he would behave when he has his back to the wall.
“It could get really ugly. Inland Revenue is probably not a death star event, but Owen Glenn is probably a death star event.”
Watson has sold up most of his New Zealand assets. He gave up his share in the Warriors NRL club for $16m, and left the club with $4.6 million of debt when he sold the club to the Carlaw Heritage Trust and Autex Industries last year.
“Watson sucked everything out of it,” new owner Mark Robinson said of his stewardship of the club.
He has also sold an estate south of Auckland and his interest in Auckland Viaduct restaurant Soul Bar & Bistro.