SEC sues three local men claiming securities fraud By L.M. Sixel, Houston Chronicle
Updated 5:36 pm, Monday, February 20, 2017
The Securities and Exchange Commission sued three local businessmen for allegedly violating federal securities laws, claiming they participated in a scheme to inflate the size and importance of a small energy company so it could be "uplisted" to a major stock exchange.
The SEC alleged in the lawsuit that the scheme involved sham transactions, self trading and fraudulent securities filings aimed at boosting the value of Hydrocarb Energy Corp. in order to raise more capital and create a market in which the businessmen could sell shares at a profit. The suit was filed in U.S. District Court in Houston.
The agency accused Kent P. Watts, 69, former chief executive officer and chairman of Hydrocarb, along with his brother, Michael E. Watts, 71, of engaging in fraud as they tried to move Hydrocarb's stock from the decentralized over-the-counter market where investors deal directly with one another to the Nasdaq stock exchange, the world's second largest stock exchange. Michael Watts worked as a consultant of Hydrocarb, according to the lawsuit.
The SEC also alleged that Kirby Caldwell, 34, sold unregistered securities. Caldwell is the nephew of Kent Watt.
None of the three could be immediately reached for comment. They have not filed a response to the lawsuit in federal court.
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The SEC alleges that the Watts sought to replicate a more successful effort back in the 2000s when they "uplisted" the stock of another small company they controlled, Hyperdynamics Corp., to the New York Stock Exchange, the world's largest equities market.
In that deal, according to the SEC lawsuit, the brothers made tens of millions of dollars in profits by selling their shares.
But in the more recent effort the Nasdaq listing effort ultimately failed, according to the lawsuit, and Hydrocarb filed for bankruptcy protection in April 2016.
The SEC is seeking unspecified civil penalties. |
