In his first significant interview in nearly a decade, controversial businessman Eric Watson talks to Matt Nippert and finally addresses his tax problems, Hanover Finance, that bitter split with former business partner Sir Owen Glenn, and what life in Pentonville Prison was really like.
His optimism was either relentless or delusional, but Eric Watson hadn’t packed a toothbrush for his October 19 date in a London courtroom.
It was a sentencing hearing – the latest in a series of seemingly endless, and endlessly expensive, proceedings with Sir Owen Glenn – where Lord Justice Christopher Nugee was handing down his penalty after having ruled Watson was in contempt two weeks prior.
Watson says he’d been briefed on a range of possible outcomes after he was found to have hidden assets from creditors, but had put little weight on the fourth possibility – “highly unlikely” he says his lawyers told him – of being sent to prison.
“Maybe I’m too optimistic about things, but four wasn’t a hot favourite to win the derby,” he says.
As the judge asked him to stand to hear his fate, Watson’s mind was largely turned to a dinner booking that evening at a friends’ vegan restaurant where he was due to convince a clutch of English, German and Spanish businessmen to buy into a €200 million property deal.
“I’m like, ‘hurry up, guys I’ve gotta get out of here’,” Watson says of the imposition on his time.
“I’m standing there listening: ‘blah, blah, blah, and the mitigating circumstances, and you’ve got six months’.”
In a stinging ruling, Lord Justice Nugee proposed a six-month sentence to be served at the decrepit Pentonville Prison in London, but reduced it to four largely because Watson was still dealing with the after-effects of a recent Covid infection.
It was only the moment a couple of “big, burly women, like sumo wrestlers” approached him in the dock to place him in handcuffs that Watson says he realised: “This is getting a bit serious.”
It’s fair to say he was unprepared for what came next: “I didn’t even have a toothbrush! I’ve got a business suit on and a white shirt, brand new Clarks leather boots – which I ended up wearing for the next six weeks with my prison gear because they didn’t have shoes big enough in prison to fit on my size 47 floppers.”
Watson was released a month ago – just before Christmas – and is talking to the Weekend Herald from home in London, in his first significant interview in more than eight years. In the time since then he has sold down his remaining assets in New Zealand (the Warriors, Bendon, an estate in Karaka), joined forces with – then made a mortal enemy of – Sir Owen Glenn, and seen his Cullen Group of companies wear one of New Zealand’s largest-ever tax avoidance rulings: $118.4m and counting.
He says he’s kept silent to date because he thinks “there’s been no real point, right? What’s the point? We lost. We lost the [Glenn] case, because the judge was pretty harsh, in that particular case. We’ve had the Cullen [tax] debacle.”
He’s talking now because, he says, he finally has time on his hands. He also sees an opportunity to pre-publicise a book he’s preparing on his life and times, and hopes to flip the film or mini-series rights to streaming giants.
“Unashamedly, you’re part of the marketing machine my friend,” he tells his interviewer.
(The book’s working title, From Penthouse to Pentonville, is a direct adaptation of a recent Weekend Herald headline.)
During a more than hour-long interview conducted over Zoom, Watson moves between charming self-deprecation, almost New Age fatalism and acceptance of his circumstances, convoluted explanations as to why his recent grievous court losses should actually have been wins, and a clear-eyed appreciation of the difficulties that lie ahead. He also vapes constantly.
He’s recently claimed in court that his reason for non-payment of various debts is because he is penniless. It’s a contention he – despite the appearance of London accommodations and having hired a New Zealand PR agent – reaffirms to the Weekend Herald.
“It depends on what you mean by ‘broke’. Personally, you know, potentially, I could declare bankruptcy. It’s a distinct possibility,” he says. “I just haven’t got around to it.”
He says his thinking about this drastic step has changed after his stint in Pentonville: “I was concerned about bankruptcy. In the UK it’s only 12 months, or it can be longer if people petition for it to be longer – which I’m sure they would. But I thought that might really f*** me up, business-wise, having a bankruptcy. But now I’ve had prison.”
Losing the coin toss
How it all got to this point for the one-time most famous (and among the 10 richest) New Zealand businessmen is largely, he claims, down to the fallout following legal disputes with Sir Owen Glenn and the Commissioner of Inland Revenue. A breakdown of a business partnership saw Glenn secure a ruling declaring their arrangement was “thoroughly misleading and deceitful,” and the repayment of his £130m investment – and £43m in damages – the pursuit of which led directly to Pentonville.
Watson insists he only lost this case on a technicality, with what he alleges to have been a key document being ruled inadmissible at the start of trial.
“Litigation is, at the end of the day, it’s a toss of the coin. And the mega multimillion dollar toss of the coin? We lost. And I have no qualms about that. We did lose, but you have to understand we thought we were going to win,” he says, adding: “Shit happens.”
Watson treads a careful line when discussing Lord Justice Nugee’s judgment, but disagrees with a number of adverse determinations made by the court about his credibility and business practices: “I have to respect the process, but obviously I disagree with a number of those conclusions, vehemently.”
And despite the titanic legal struggle, Watson initially insists: “I actually have no hard feeling towards Owen.” He claims his one-time business partner actually profited handsomely from the deals.
Watson also later says his contemporary business partners patched him into conference calls from his cell and “could see through what this really was: It’s an onslaught from a guy who’s got hundreds of millions of dollars and feels a bit like a cheated spouse in a one-sided divorce.”
He calls Glenn’s legal campaign a “vendetta” and alleges his former business partner’s very public battle with cancer has no bearing on the possibility of settling the case as he suspects the presence of a dead mans’ switch: “Why would his estate settle any differently? I think he’s left instructions after his death – ‘Here’s another £50m, continue to pursue Eric Watson’.”
For Glenn’s part, a spokesman for his office says Watson had chosen, since a key 2018 ruling, “to put assets beyond the reach of creditors” and the ongoing action was also “about justice and holding Watson responsible for his actions and, hopefully, preventing others from being deceived”.
Watson has no doubt his trouble with Glenn are not over, and almost tries painting himself as David versus a legal Goliath: “Owen’s $40m that he’s spent has been spent very well. He does have a very, very effective and ruthless team of the highest-paid QCs in the world.”
Referring to Glenn’s penchant for high-profile charitable donations, Watson says, “Well, God bless him: I mean, he likes to give money away, but he can’t put his name on litigation.”
But case law lasts forever. Of the staggering sums spent by both parties to date (Watson says he’s spent less than Glenn, but still in the tens of millions) he jokes: “In certain philanthropic ways we’re both helping the starving lawyers of the UK.”
"We pay no tax"
The parallel tax case that took place contemporaneously on the other side of the world was rooted in a long-running dispute with the Inland Revenue Department over Watson’s exit from New Zealand in 2002. Then he shunted his wealth through a series of related-party Cayman Islands loans in order to – as the High Court ruled in 2019 – avoid tens of millions of dollars in tax. None of this has yet been paid, and interest is accruing.
Proceedings in London had canvassed Watson’s tax structuring, and he makes no bones about his – perfectly legal – position: “Each deal is structured on the basis of minimising tax.”
And personally, he says, he’s a tax resident of the UK but has taken advantage of that country’s non-domiciled status popular with oligarchs. He describes this status as: “We do not pay tax, as many high net worth New Zealanders would know – [the late] Doug Myers, for example – it’s a jurisdiction which enables people to live there and pay tax only on the earnings in their country, not on their worldwide income.”
He foresees no problems from Inland Revenue if he were to return to New Zealand – when the Covid crisis and MIQ spaces permit – except for one small issue. “I don’t have any tax issues at all. Aside from the fact that we, that Cullen, owes Inland Revenue a hundred and something million.”
But despite his pleadings of personal poverty and with Cullen now in liquidation, Watson sees a way for the taxman to get satisfaction. He claims his advisers Russell McVeagh were negligent in urging him not to accept an $8m settlement offer from IRD in 2012, and raises the prospect of a civil claim to force the law firm – or its insurers – to cover the tax bill.
“We handed that to the liquidators on a plate,” Watson says triumphantly.
But KPMG, appointed by Inland Revenue to Watson’s Cullen Group, concluded in a recent report that this proposed claim had “no merit”.
After the interview, Watson emailed through a 2019 legal opinion penned by Wynn Williams – who, it must be noted, ran Cullen’s unsuccessful defence in the tax proceedings – sketching out the claim. The opinion also said Russell McVeagh had assessed the chance of Cullen losing the case at the time of the settlement offer to be no more than 30 per cent.
The Weekend Herald sent this opinion to two tax law professors, both of whom said there was not enough supporting information to make a firm assessment of its prospects – but that they did not appear high. Auckland University professor Matthew Littlewood says: “If KPMG have decided it isn’t worth pursuing, they’re probably right.”
KPMG, acting as liquidators for the Cullen Group, said in a statement this week that they stood by their assessment of the claim. A clarifying statement from the accountancy giant added: “There was insufficient evidence to support Watson’s assertion that the case against the law firm was ‘very strong’.”
Russell McVeagh, for their part, declined repeated requests for comment.
House of Hanover
Another small speed bump to overcome with any return by Watson to New Zealand would be the lingering fallout from the demise of his Hanover Finance, which left thousands of investors hundreds of millions of dollars short after it collapsed at the beginning of the global financial crisis.
He was co-owner of the company alongside managing director Mark Hotchin, who Watson speaks of with some affection. “He’s a brilliant property operator, with a mega, mega portfolio. Well done, Mark. And I mean that genuinely.”
• Mark Hotchin buys Auckland mall for $23m
But Watson does claim sympathy for those who didn’t do so well. “I really do feel bad for people that have lost money. It was just, it was just completely avoidable.”
This avoidance was not his responsibility, though. He says his role with Hanover was solely as an investor – not being a director or executive – and the company’s board “loaded with independent directors” approved any dividend payments to him prior to the company’s troubles.
He notes he and Hotchin put assets into Hanover – “there was no asset stripping” – and points fingers at the government, whose deposit guarantee scheme came too late to cover his retail investors, and claimed mismanagement by Allied Farmers, which inherited Hanover’s loan book in an investor-approved merger.
Listed companies Watson has been involved with since Hanover have also had mixed results. United States clothing retailer American Apparel was reverse-listed by Watson and a partner in 2009, but later collapsed into bankruptcy.
The company had largely traded on the notoriety of its infamous founder Dov Charney, who Watson says was “more extraordinary than Owen Glenn. Or me, perhaps.”
He says the company was performing well when he helped list it. “American Apparel went incredibly well for a while, and then got into difficulties. But you know, we were long gone by then.”
The rebranding of his Long Island Ice Tea beverage company into crypto-bandwagoner Long Island Blockchain did not seem him interviewed by the FBI, he says.
In 2019 several promoters of the company pleaded guilty to insider trading charges after the renaming amid the Bitcoin frenzy triggered a stock bubble, and some communications involving Watson were included in court documents.
“The so-called investment relations guys who were managing multiple companies, including Long Island Ice Tea, they were communicated with and given sensitive information and they traded the stock,” he says, drawing a clear line between his own conduct and that of others. “I didn’t sell any shares, no one associated with me sold any shares. That would have been crazy to do that.”
His flagship Bendon underwear company also went public in 2018, backed into Naked Brands, and its share price had appeared listless until this week, when Reddit-driven mania for penny stocks saw its shares triple. Even Watson couldn’t quite explain this recent meme-driven rally, simply saying over email this week: “Extraordinary”.
He says he hasn’t given up on making deals, and is off next week to Barcelona and Germany to pursue leads.
Lord Justice Nugee highlighted Watson’s penchant for constructing deals where he shares in profits, but puts no – or substantially less than his partners – money down.
Watson says this is a fair reading of the way he operates, but it understated what he brought to the table. “That’s a great business model for your ROI [return on investment]. But you’re also putting in your network, your putting in your contacts, you’re putting in your creativity and constructing the deal.”
Selling his life story
But back to books, specifically his From Penthouse to Pentonville, which Watson is pitching as a collection of anecdotes about his life and times and those of the people he met behind bars. He says his manuscript is already at 80,000 words, that he is working on angles and options to get it adapted for the screen, and namechecks Netflix, Amazon Prime and the BBC as possible homes for his dream.
“I’ve had guys spend literally hours with me telling them how they murdered people, how they held up banks,” he says of the material he has recently been able to acquire.
“One guy in there got out after 500 armed robberies 20-odd years ago, got straightened out, and then robbed 28 bookies in the next 30 days,” he says of another inmate.
“The work ethic was super, and his gross margins were extraordinary.”
He hints at revealing more about his time dating Nicole Kidman, and is also planning to finally tell his side of the story about that 2002 fight with Russell Crowe in the bathrooms of a Japanese restaurant in London: “That’s a cracker, and I’ve never told it before.”
He now reflects on, and embraces, his prison time in a near-parody of Zen. “Everything that happens, happens in life for a reason. So the rich result I got was the experience of something that I would never otherwise have had. It’s actually been quite meaningful to me.”
A Covid lockdown-enforced bout of solitary confinement at the start of his sentence was difficult, he says, but the waves of isolation parted. “I started to meet a few people and got a bit of help and started to get a bit more access around the place and it became a really, really interesting journey of discovery.”
It’s at this point he catches himself: “But then I don’t want to get too carried away with all that shit.”
He’s got stories to tell, and a life to sell.
“It’s been super interesting. And life should be interesting. Of course I’ve got micro regrets, but I haven’t got any macro regrets.”
Asked if he hopes for the same critical and commercial success as Jordan Belfort, who embraced his notoriety – admittedly Belfort’s own prison time came from a criminal sentence -with his memoir, and later film adaptation, of The Wolf of Wall Street, Watson shrugs his shoulders.
“I don’t really care what the story is. I just want to sell books, and get some money out of it.”
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