Thursday, September 15, 2016

Donald Watkins demands SEC dismiss lawsuit against him, claiming the agency knowingly brought false allegations and doctored evidence in the process

Donald Watkins
One of Alabama's most prominent attorneys and businessmen is demanding the Securities and Exchange Commission (SEC) dismiss a lawsuit against him, claiming the agency knowingly brought false allegations and even doctored evidence.

Donald Watkins, in a letter from his Georgia-based attorney Mario Williams, said SEC lawyers face possible sanctions under Rule 11 of the Federal Rules of Civil Procedure if they do not dismiss the lawsuit against Watkins and three of his companies. (See letter at the end of this post.) Writes Watkins in a post yesterday at his Facebook page:

Under Rule 11 of the Federal Rules of Civil Procedure, a complaint that contains false allegations and which was filed for the purpose of harassing the Defendants, must be withdrawn within 21 days after notice of the Rule 11 violations, or the party filing such a lawsuit faces the risk of sanctions and monetary fines.

In his Rule 11 Letter, Attorney Williams detailed 19 pages of egregious violations of the Rule in which the SEC asserted false allegations in its complaint as true statements of fact. Based upon documents in its possession, the SEC knew or should have known that these allegations were false prior to filing the lawsuit.

In the past couple of years or so, Watkins has become almost as well known for his citizen journalism as for his legal and business pursuits. From his base at Facebook, Watkins has reported numerous investigative articles about corrupt Alabama political figures -- including Gov. Robert Bentley, former House Speaker and convicted felon Mike Hubbard, and former wife-beating U.S. judge Mark Fuller. Has someone sicced the SEC on Watkins in retaliation for his journalistic endeavors? That seems like a reasonable question to ask, especially in light of new information in Watkins' dismissal letter. From Watkins' Facebook post yesterday:

Additionally, the SEC deliberately altered a key section of an email written by me to change its context as well as the message that was being conveyed to the recipient. In doing so, the SEC failed to inform the Court (and public) that it had doctored the email in question, as required ethically and legally. As such, the SEC knowingly presented a false “fact” to the Court that it knew the Court would be bound to accept as “true” if and when the Defendants filed a motion to dismiss the complaint.

That sounds a lot like fraud on the court, and it suggests someone has gone to considerable lengths to discredit Watkins (at best) and cost him huge sums of money (at worst). In its complaint filed September 1, the SEC alleged Watkins defrauded professional athletes and other investors out of millions of dollars.

A Waste Management truck
The SEC alleges that Watkins and his companies, Masada Resource Group and Watkins Pencor LLC, falsely informed investors their funds would be used to support waste-to-energy ventures. At the heart of the fraud, according to the SEC, were Watkins' assurances that Waste Management Inc. (WMI), a large international waste-treatment firm, was poised to acquire the Watkins companies in a deal alleged to involve a purchase price of more than $2 billion.

The SEC claims Watkins knew the deal was not going to happen. Watkins says the SEC had documents proving the deal was in the works. From Watkins dismissal letter:

[The SEC] knew from documents in its possession that former Texas Lt. Governor Ben Barnes, a well-known and respected businessman, formed a limited liability company with Masada on May 3, 2011, for the specific purpose of pursuing the deployment of Masada waste-to-ethanol facilities throughout the United States and internationally in an alliance with WMI and Waste Corporation of America (WCA). [The SEC] also knew that: (a) Barnes was the lead partner on getting the WMI-Masada strategic alliance deal done, and (b) WCA CEO Tom Fatjo was assisting Barnes in this transaction. 
[The SEC] knew that Masada and Barnes believed in good faith that the value of the contemplated WMI business alliance or acquisition transaction could exceed $2 billion because Section 4.6(c) of the Masada-Barnes Operating Agreement specifically provided a formula for calculating Barnes' compensation for a WMI investment or acquisition transaction in excess of $2 billion. Additionally, [the SEC] knew that Barnes received voluminous due-diligence documents on Masada that were transmitted to WCA and WMI, including detailed financial modeling prepared by a New York City financial analyst with impeccable credentials and no relationship with Watkins. The financial model entailed a 10-facility deployment plan with WMI over a 5-year period that had an estimated economic value to Masada of $2 to $4 billion. 

Watkins then provides details on developments beyond his control that caused the deal to fall through. The most crucial hurdle proved to be the departure of Carl Rush from WMI in 2012. Writes Watkins at Facebook:

Rush was WMI’s Senior VP for Organic Growth and the executive who oversaw WMI’s biofuels investments/acquisitions. Rush was also WMI’s designated point person for the Masada transaction. His unexpected departure was announced after Barnes advised Masada that WMI was arranging a second meeting with Masada’s CEO for the purpose of presenting the contemplated business alliance transaction to WMI’s CEO and Lead Director in late August or early September 2012. Even then, Barnes conveyed to Masada in writing that Rush could still get the Masada-WMI deal done from outside of WMI. As it turned out, he could not.

Where is SEC v. Watkins, et al headed? That's hard to say, but Watkins' dismissal letter includes the following language about the Alabama political scene:

The investigation was . . . an accommodation to influential third parties who are personal adversaries of Watkins who had access to top officials in the Atlanta Regional Office. This access allowed these third parties to improperly impact the course and outcome of the investigation.

Will these third parties be identified during the course of litigation? Could Watkins take legal action against them? Were their actions criminal? If so, it could provide more insight into the ugly realities of Alabama politics.

For now, near the end of his Facebook post on the matter, Watkins fires a shot at the SEC that seems to squarely nail its target:

The SEC complaint achieved its intended result. The lawsuit has harassed the Defendants’ businesses and damaged their good reputations among business partners worldwide and in the general public.

As it turns out, the biggest fraudster of them all is the SEC, the regulatory agency that slept through the Great Recession of 2008 and that is missing in action in the wake of a massive fraud scheme announced last week at Wells Fargo, in which 2 million bank and credit card accounts were fraudulently opened at a publicly traded bank.



Anonymous said...

Seems pretty clear that Mr. Watkins' journalism has riled some powerful folks. Don't think this has much to do with business.

Anonymous said...

Maybe I don't understand the workings of the SEC, but I don't understand how a public agency has authority over a privately held company.

legalschnauzer said...

I'm not an SEC expert either, @11:04, but that was my impression, too. Still researching all of this because it's a fairly complex story, but I'm not sure Watkins even has issued "securities," and I think he has made that argument to SEC for quite some time. (BTW, Watkins sued SEC several months ago, and agency now has followed up with this complaint. Not sure why it isn't in the form of a counterclaim, although the SEC might work under special rules.) I thought securities were publicly issued stocks, but Watkins was seeking investors for a privately held company. Does SEC even have jurisdiction over Watkins and his companies? That seems to be a major issue right now.

Anonymous said...

Who are the athletes allegdly involved in this?

legalschnauzer said...

I don't believe they have been identified, @2:02. One of them apparently is Bryan Thomas, former UAB football standout who went on to play 10-plus years with NY Jets in NFL.

Anonymous said...

This reminds me of the lawsuits Rob Riley and Jessica Garrison filed against you. They were for pure intimidation purposes, from those who don't like a free press. This sounds like the same thing.

Anonymous said...

My question is ;"Why did the SEC demand a jury trial in their filing?"

Anonymous said...

Is the Waste Management deal history or could it still come together? If it could still come together, I would volunteer to be one of Watkins investors. I don't have any money, but I would like to invest anyway. Hah!