Tearful at times and testy at others, Denver developer Brian Watson defended his actions and those of his company Tuesday, five years after both became surrounded by scandal.
“Sadly, I don’t think the SEC knows how hard it is to be an entrepreneur and a business owner,” said Watson, the unsuccessful Republican nominee for Colorado treasurer in 2018. “Especially with all of the government regulations.
“I think it’s personally sad and offensive, their allegations,” Watson said of fraud claims.
Watson, 54, was called to testify by the U.S. Securities and Exchange Commission, which is suing him and his company, Northstar Capital Partners, for allegedly defrauding investors in 11 real estate projects by pledging to invest 5% of equity capital in the properties, then not doing so.
“You knew that it wasn’t true, right?” Jodanna Haskins, an SEC attorney, asked Watson.
“I disagree,” the developer told her Tuesday morning.
“You disagree?”
“I do invest my capital in every project,” Watson asserted.
While left unsaid whether he defrauded investors, Tuesday’s testimony in front of the nine jurors who will decide that presented a rare opportunity for Watson to denounce and decry some of the many people who have smeared him and his once-thriving firm, as he sees it. Northstar and Watson have battled kickback allegations from Amazon as well as the SEC claims.
“This is about me and my company,” Watson said curtly as Haskins tried to cut him off soon after he took the witness stand downtown. “So, I would like to answer fully.”
On three occasions, U.S. District Judge Gordon Gallagher reminded Watson to answer only the question before him and not fall into tangents. “I apologize, I get impassioned,” Watson said.
He presented several defenses for his failure to make 5% investments in the 11 projects in question between 2017 and 2019. First, he argued the 5% pledge was “negotiable” language that other Northstar employees inserted in investment documents, not binding promises, and that the most important documents, operating agreements, did not include that 5% language.
Second, Watson maintained that he did invest in the projects by making earnest money deposits and paying for due diligence work — money that preceded his outreach to investors.
“My money was already in the deals. I was already invested in the moment this email went out,” he said of a fundraising email. “My intent was to also invest when the deal was done.”
Third, on the rare occasion when Watson and Northstar did not make equity investments of at least 5% in a project, that was because of unexpected financial circumstances, he said. This included divorce payments to his ex-wife, who was also a lawyer for Northstar.
“Did you tell investors about your divorce?” Haskins asked.
“No. I don’t know anybody who would publicize that,” Watson said as he wiped away tears.
The SEC is accusing Northstar and Watson of collecting high fees on projects they did not invest in, then spending the cash on a private jet and Cherry Hills mansion. On the 11 projects, Northstar, which Watson fully owns, took in a little more than $2 million in fees and Watson himself collected $38,000.
“I was not receiving a tremendous amount of fees like I am being accused of,” he said.
Watson may testify again Wednesday or Thursday, when his lawyers make the defense’s case. Jurors are expected to begin deliberating Friday and could render a verdict that day.
Watson’s testimony was bookended by that of two former Northstar executives: Brent Gray, who was chief financial officer, and Scott Gibler, who was chief investment officer.
“I was looking out for investors and it seemed like I was constantly reminding Mr. Watson about his capital contributions, … that we were waiting on his checks or transfers,” Gray said.
“If Mr. Watson were not to invest, that would be misrepresentation in materials to investors.”
Gray, testifying for the government, went through Northstar’s dense general ledgers while on the witness stand and confirmed that Watson did not invest in nine of the projects in question and invested only small amounts in two other properties, rather than 5%.
“Sometimes he would ignore the conversation or direct it elsewhere,” Gray recalled of his talks with Watson. “We would host these meetings and say, ‘Here is what your required capital contribution is,’ and he would indicate that he would be contributing on a later date.”
During his own testimony Tuesday, Watson sometimes betrayed his bitter resentments.
“You trust those employees, right?” Haskins asked, referring to former Northstar executives.
“Looking back, no,” he responded. “But back then, yes.”
Read more from our partner, BusinessDen.
Get more business news by signing up for our Economy Now newsletter.
