SEC Plans To Drop $4 Million In Fraud Claims

By Donald V. Watkins ©Copyrighted and Published on July 12, 2018

On September 1, 2016, the Securities and Exchange Commission ("SEC") filed a lawsuit against several of my private companies and me alleging that the named defendants defrauded professional athletes and other investors out of $6.1 million dollars. The Commission claimed that much of this money was spent on personal expenses like alimony, past due taxes, payments to an ex-girlfriend, and credit card bills. The complaint also alleged that the defendants falsely claimed that Waste Management, Inc., a large, international waste treatment company, was seriously considering acquiring Masada Resource Group, LLC, and its affiliated companies in a multi-billion-dollar transaction.

This morning, an Atlanta-based SEC attorney handling the case sent the defendants’ attorneys the following email:

“After talking this over internally, we intend to seek permission from the [Commission] to drop the charges for which we did not seek summary judgment to save resources.  It will take 8 weeks or so for us to make the recommendation and have it acted upon by the Commission....".

Just like that, $4 million in baseless “fraud” claims regarding the Masada-Waste Management transaction went out the window. Ironically, Masada made thousands of pages of documents relating to the Waste Management transaction available to the SEC in June 2014. Yet, no one from the Commission took the time to review these corporate records at Masada's headquarters in Birmingham. Instead, the SEC decided to spend thousands of manhours and millions of dollars over the last four years dragging my name and reputation through the mud over these now-abandoned "fraud" allegations.

The SEC attorney’s email reference to the “summary judgment” relates to a June 28, 2018 court ruling that an Atlanta federal judge gave to the SEC regarding three loans from former NBA player /Hall of Famer Charles Barkley. It was a “gift” ruling that is based upon clearly erroneous factual findings and conclusions of law. The defendants have formally asked the judge to reconsider this ruling.

The Barkley loans totaled $2.1 million out of the original $6.1 million in alleged “fraud” claims. These loans were approved transactions between a company stakeholder and Masada. Barkley was represented in the loan transactions by investment banking giant Raymond James. His adviser approved of the terms and conditions in the promissory notes. Barkley has never initiated any litigation on his own in connection with these loans. He remains a stakeholder in the businesses at issue.

In ruling for the SEC on the Barkley loans, the Court completely disregarded my authority in the corporate governance documents to borrow money from Barkley and to expend these funds for the benefit of Masada and its affiliated entities/persons. Additionally, the Court ignored the undisputed fact that Charles Barkley’s financial adviser handled the due diligence, documentation, and subsequent communications with me for each one of the loan transactions in question.

Interestingly, neither the SEC, nor the Court, has ever claimed that Masada is not an ongoing international business enterprise, or that Barkley has lost any money in connection with this waste-to-energy venture. In fact, Barkley increased his economic interest in the company by making the loans.

To project a false appearance that the Barkley loan proceeds were used for personal expenses, the Court cited a couple of transactions involving payments to my ex-wife and ex-girlfriend from the Barkley loans. In these transactions, the Court completely ignored the undisputed facts that: (a) my ex-wife is a Masada creditor who is entitled to periodic repayments; (b) my ex-girlfriend was a Masada vendor whose residence was used to house Masada executives, strategic partners, and business associates from around the United States while they worked in Atlanta for the company; (c) the Masada Operating Agreement authorized me to make payments to creditors and vendors in the regular course of business, including those individuals with whom I had a personal relationship; and (d) Barkley received the increased economic participation that he requested in exchange for making the loans (which said increase he retains to this day).

Every transaction cited by the judge in the “gift” ruling was specifically authorized in the Masada Operating Agreement. In his 2007 economic participation agreement, Charles Barkley expressly agreed to honor all of the terms and conditions in the Masada Operating Agreement. For reasons that cannot be explained by the undisputed evidence in the case, the judge freed Barkley from this commitment.

Legal observers are stunned that the SEC has spent the kind of time, money, and resources it has devoted to this case. The lawsuit has now boiled down to $2.1 million in loan transactions between a private company and one of its longtime stakeholders. At this juncture, the Commission has turned itself into a loan collection agency for Charles Barkley. During the past four years, the SEC has spent more money in developing and pursuing this lawsuit than the face amount of the Barkley loans.

This case demonstrates the power of "runaway" federal officials. They can and do abuse their power when other agendas are in play.

PHOTO: The Securities and Exchange Commission's Emblem.