Texas man resentenced in Melville-based $147M "pump and dump" stock scheme

A Texas man was resentenced Friday to five years in prison after an appellate court found his one-year sentence for defrauding investors in a $147 million Melville “pump and dump” stock scheme was too lenient.

Michael Watts, 68, of Sugarland, Texas, was sentenced Friday in Central Islip at U.S. Eastern District Court after he was convicted at a 2019 trial of charges for conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, money laundering conspiracy and money laundering.

Following his five-year prison sentence, he was also ordered to three years’ supervised release.

He was first sentenced in November 2021 to one year and a day in prison when prosecutors had sought up to 24 years in prison. He was also ordered to pay more than $4.4 million in restitution to investors and forfeit $560,000 in assets.

Following the initial sentence, the U.S. attorney’s office appealed the judge’s ruling to the U.S. Court of Appeals Second Circuit and the panel sent the case back to the U.S. Eastern District Court for resentencing.

Watts was one of 16 defendants charged with running a Melville stock boiler room to artificially inflate the price and trading of stocks in Hydrocarb Energy Corp from 2014 to 2016.

Prosecutors said the traders illegally cold-called investors using high-pressure sales tactics to lure elderly and vulnerable victims.

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

Prosecutors said Watts, who was one of the largest shareholders, “knew that the business was in a downward spiral and also used the boiler room to dump more than $2 million of Hydrocarb shares that he owned or controlled on unsuspecting investors in the months leading to the company’s April 2016 bankruptcy."

The boiler room fraudulently inflated the stock price of Hydrocarb and four other companies by more than $147 million, prosecutors said. The other 15 defendants were convicted, including several co-defendants, and sentenced between 2 to 10 years in prison.

By John Asbury

john.asbury@newsday.comJohnAsbury

John Asbury is a breaking news and general assignment reporter. He has been with Newsday since 2014 and previously worked at The Press-Enterprise in Riverside, California.