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Feds: Defendant in Melville 'pump and dump' scheme sentenced to prison

A Texas man convicted for his role in a $147 million Melville-based "pump and dump" stock-fraud scheme that cheated investors nationwide was sentenced Wednesday to one year and a day in prison and ordered to pay $4,373,906.94 in restitution, officials said.

Michael Watts, 65, of Sugarland, Texas, was found guilty at trial in 2019 of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, money laundering conspiracy and money laundering, prosecutors have said.

Federal prosecutors asked U.S. District Court Judge Joanna Seybert to sentence Watts to 235 to 293 months in prison, or about 19 to 24 years, citing the financial devastation experienced by the victims, the need for deterrence and their contention that Watts "has not shown even a modicum of remorse for his conduct," according to the prosecution’s September sentencing memorandum.

Among the victims was a 96-year-old military veteran from Oregon who lost more than $748,000 as a result of the scheme, prosecutors said in the sentencing memo. An 89-year-old Massachusetts man was defrauded of $207,826 and had to sell his home and move into his daughter’s basement, prosecutors said.

Seybert’s sentence of one year and one day gives Watts the ability to receive credit for good behavior, allowed in the federal system for sentences of more than one year, that could ultimately see him serve only roughly 10 months of his prison sentence, said Watts’ Melville-based attorney Joseph W. Ryan Jr.

"I think the judge recognized that Mr. Watts presented no threat to the public and should be afforded an opportunity to work and pay back the investments," Ryan said.

Ryan said he is appealing Watts’ conviction and his client will remain free on bond pending the outcome of the appeal.

"We look forward to the appeal in which we will demonstrate that Mr. Watts was wrongfully convicted of a crime he never committed," said Ryan. "Mr. Watts testified. His bother testified. He testified that he never committed any fraudulent acts to defraud investors and never had any intention to do so, because he lost his own $15 million investment in the company."

A spokesman for the U.S. Attorney’s Office in Central Islip, which prosecuted the case, declined to comment.

Prosecutors have alleged that between January 2014 and July 2017, Watts, a former registered broker and a large shareholder in Hydrocarb Energy Corp, and 15 other defendants "participated in a successful, multi-year scheme to defraud investors and potential investors in publicly traded companies" by illegally inflating the price of the stock and then selling for profit more than $2 million worth of Hydrocarb and other shares that he owned or controlled in the months leading to the company’s bankruptcy in April 2016.

Prosecutors said the "pump-and-dump" scheme involved Watts and some of his co-conspirators using a Melville call center as a "boiler room" to lure vulnerable investors, many of whom were elderly, through targeted cold calls.

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