U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21898 / March 24, 2011
Securities and Exchange Commission v. Mike Watson Capital, LLC, Michael P. Watson and Joshua F. Escobedo, Civil Action No. 2:11-CV-00275 (DB) (D. Utah)
SEC SEEKS INJUNCTION, DISGORGEMENT AND PENALTIES FOR UTAH REAL ESTATE PONZI SCHEME
The Securities and Exchange Commission announced that, on March 23, 2011, it filed a civil action in the United States District Court for the District of Utah against Mike Watson Capital, LLC, a company based in Provo, Utah, Michael P. Watson, a resident of Mapleton, Utah, and Joshua F. Escobedo, a resident of Spanish Fork, Utah, alleging that each of the Defendants violated the antifraud and securities offering registration provisions, and that Watson and Escobedo violated the broker-dealer registration provisions of the federal securities laws.
In its Complaint, the Commission alleges that from October 2004 through February 2009, Defendants raised more than $27.5 million from more than 120 investors through Mike Watson Capital's issuance of promissory notes. According to the Complaint, Watson and Escobedo told investors that returns were generated by real estate investments, and backed by substantial equity and cash flow produced by company properties. In reality, the properties never generated sufficient income to cover investment interest or redemptions, and therefore investor returns were paid primarily from new investors' funds.
Mike Watson Capital, Watson, and Escobedo agreed to settle the SEC's charges without admitting or denying the allegations in the Complaint. This settlement is subject to approval by the court. Mike Watson Capital agreed to be permanently enjoined from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and imposing jointly and severally with Watson, disgorgement of $16,383,037.83 and prejudgment interest of $1,953,610.99, and imposing a civil penalty of $130,000. Watson agreed to be permanently enjoined from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, imposing jointly and severally with Mike Watson Capital, disgorgement of $16,383,037.83 and prejudgment interest of $1,953,610.99, and imposing a civil penalty of $130,000. Escobedo agreed to be permanently enjoined from violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, imposing but waiving disgorgement of $153,822.98 and prejudgment interest of $16,786.56, and not imposing a civil penalty based upon his Sworn Statement of Financial Condition.