SEC Charges Brothers for Hydrocarb Fraud Scheme
On April 21, 2017, the Securities and Exchange Commission (“SEC”) has charged two brothers – Kent and Mike Watts – with orchestrating a fraudulent scheme to qualify the stock of Hydrocarb Energy Corporation for listing on a major stock exchange, which supposedly would assist the Watts in raising capital for the company and facilitate their profitable exit strategy.
The SEC’s complaint, filed in federal court on February 17, 2017 in Houston, Tex., alleges that Kent Watts signed and filed a misleading Schedule 13D with SEC, which failed to disclose the brothers’ plan to take control of Hydrocarb. The complaint further alleges that both Watts executed sham transactions – including one with Kent Watts’s nephew, Kirby Caldwell – which allowed them to secretly control millions of shares of Hydrocarb stock. The SEC contends that Kent Watts misled Hydrocarb’s outside auditor about key details of these transactions, including the Watts’s continued control over the shares transferred to Caldwell. The SEC alleges that Watts’s machinations ultimately were unsuccessful, since Hydrocarb was never listed on a major exchange and filed bankruptcy in April 2016.
The SEC’s complaint charges Kent Watts with violating Section 17(a)(1) and (3) of the Securities Act of 1933, Sections 10(b) and 13(d)(1) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-14, 13b2-2, and 13d-1 thereunder. The complaint further charges Kent Watts with aiding and abetting Caldwell’s violations of Sections 5(a) and 5(c) of the Securities Act, as well as Hydrocarb’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. The SEC’s complaint charges Mike Watts with violating Section 17(a)(1) and (3) of the Securities Act, Sections 10(b) and 13(d)(1) of the Exchange Act, and Rules 10b-5 and 13d-1 thereunder. The complaint also charges Mike Watts with aiding and abetting Caldwell’s violations of Sections 5(a) and 5(c) of the Securities Act. The complaint charges Caldwell with violating Sections 5(a) and 5(c) of the Securities Act. The SEC seeks permanent injunctions and civil penalties against all defendants, and an officer and director bar against Kent Watts.
For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202N, Boca Raton, Florida, (561) 416-8956, [email protected] or visit www.securitieslawyer101.com. This blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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