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Analysis of a Bogus SEC Lawsuit
By Donald V. Watkins
©Copyrighted and Published (via Facebook) on September 4, 2016
©Copyrighted and Published (via Facebook) on September 4, 2016
We finally got a copy of the Securities and Exchange Commission's September 1, 2016, lawsuit against three of my companies and me. Now I understand why a copy of the lawsuit was released to the media before it was served upon us. The normal courtesy between lawyers of sending a copy of the lawsuit to the opposing attorney was not extended in this case. We got a copy from the news media.
The lawsuit is busting at the seams with bogus claims and false allegations. Now it makes sense why the SEC did not come to my offices to review the thousands of corporate documents it had subpoenaed in 2014. If they had, the agency would have been required to evaluate its bogus claims in light of those documents. The SEC had no interest in finding and presenting the truth in its lawsuit regarding the nature and scope of the economic participation transactions at the center of their lawsuit, as well as the prior lawsuit I filed against the SEC last October. The SEC wanted to publicly slander me with false allegations that I "duped" professional athletes. In stereotypical fashion, the SEC views the handful of athletes in my business circle as lacking in business acumen. They are wrong. These guys are highly educated and smart.
The SEC conveniently left out the crucial fact that the 29 stakeholders in my businesses include a sibling, life-long friends, two former pro athletes (with degrees from Georgia Tech and Notre Dame) who are now senior management executives in my businesses, a former judge, three lawyers, CEOs of national and international businesses, a top executive of a public energy utility, two doctors, experienced businessmen/women, and other highly intelligent individuals who believe in my businesses, work ethic, and integrity.
Even the athletes who the SEC says were "duped" are personal friends of mine who had financial advisors at the time of their transactions. One of the so-called "duped" athletes was represented in his transaction by a high-powered Wall Street investment bank.
The SEC complaint acknowledges that my waste-to-energy business is ongoing and global in nature. The agency does not challenge the fact that the this business owns: (a) $4.8 million in engineering plans and specifications; (b) domestic and global process patents for a waste-to-energy process that took millions of dollars to develop; (c) a waste conversion process that has an established system performance insurance value of $225 million; (d) proprietary software containing algorithms for converting solid waste from more than 60 countries into fuel grade ethanol, and (e) a host of other tangible and valuable assets.
The SEC questions the value of the business. Interestingly, when I applied for an opportunity to purchase the St. Louis Rams seven years ago, international financing institutions with much more sophistication in valuing businesses than the SEC reviewed my financial submission to determine if I was a capable buyer. The Wall Street bank that represented the seller qualified me to compete for this purchase opportunity at every stage of the process. The cornerstone of my financing package was the value of the same energy assets now questioned by the SEC. The Rams did not sell to me, or any other outside purchaser. The team sold to Stan Kroenke, the sole limited partner in the Rams at the time. Kroenke exercised his preferential right to buy the team and moved it to Los Angeles.
The SEC claims that I spent "investor" money for personal items. This is the SEC's biggest stretch of all. The SEC knowingly disregards the plain language of the two-page purchase agreement and the fact that the stakeholders referenced in its complaint purchased economic participations in my block of equity interest. These purchases occurred in a manner authorized by corporate governance documents that predated all of the transactions in question. When the purchases were consummated, my economic interest in the companies was diluted down to accommodate their collective purchases. In other words, I sold a part of my entitlement to certain economic benefits to these stakeholders. The money from the sales transaction belonged to me, not the corporations. The money was reported on my tax returns, not the parent company's returns.
Furthermore, I was the equity member who financed an impressive seven-year global expansion of the business to 47 countries. I built a global company in record time and without violating any laws. This growth occurred during and after a crippling global recession. I never took a salary during this period. The SEC also knows that Secretary of State John Kerry authenticated one of my Middle Eastern business alliances on February 13, 2013.
The economic participants in my block of equity contributed no further money to my company beyond their initial purchase price. Their downside was capped at their purchase price, but their upside was replicated each time we entered into a business alliance covering new markets in different countries, at no cost to them.
The SEC does not allege that my companies' business plans were not implemented. In support of its dubious allegations of fraud, the SEC talks about a potential business alliance with Waste Management. This is another area where the SEC's failure to inspect and review our corporate documents allows them to leapfrog over the real facts surrounding this potential alliance. Waste Management went from being our competitor in the waste-to-energy space to becoming a potential business alliance partner. The subpoenaed documents, which the SEC never bothered to obtain and review, will support our version of this matter.
The SEC's allegations cast my efforts to keep my business alive and growing during and after the Great Recession of 2008 in a negative light. We managed to stay alive and grow during the recession. Rather than asking the U.S. government for a taxpayer-sponsored bailout like the Wall Street banks, GM, insurance giant AIG and other businesses did, we made it through the recession using a combination of my personal resources and the help of close friends.
Today, we are still working in countries across the globe. The SEC's 2-year investigation has not collapsed our company, despite the agency's best efforts to accomplish this goal. For the most part, our business alliance partners understand the SEC's efforts to smear me and sabotage my businesses.
The good news for my stakeholders and me in the SEC lawsuit is this: Through the process of formal discovery in the litigation, we will learn exactly who our enemies are and we will expose them for what they are. We will also have the opportunity to file and prosecute a counterclaim against the SEC (and those who aided and abetted the agency) for monetary damages because of the SEC's abusive agency conduct in this case.
Finally, the SEC's lawsuit is paper thin, bogus and malicious. I will not let the SEC's lawsuit intimidate me or chill the exercise of my First Amendment right to criticize ethically challenged public officials, or anybody else.
Donald V. Watkins
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