TRANSCRIPT OF INTERVIEW GIVEN TO THE FINANCIAL TIMES BY SHAWN BESWICK

Pursuant to regulator request, Timothy S Batchelor has not made and will not be making any public comment on the lawsuit or its successful resolution.

A transcript of the interview follows regarding the facts and circumstances that gave rise to the lawsuit entitled Securities and Exchange Commission v. Timothy S Batchelor and its resolution.  This transcript has only been edited to conform with U.S. English language standards and conversational continuity.  Questions and statements by the interviewer are displayed in BOLD. Statements and comments by Shawn Beswick are displayed in normal font. 

Good afternoon, Mr. Beswick.  Thank you for spending a few minutes with us today.

My pleasure.  I'm glad I was able to accommodate you this week.  I know you have been wanting to do this for some time.

We understand that Tim will not be making any comment or answering any questions about this case or his experience with or opinions of the U.S. SEC at their request.

Yes, that's correct.  ​

I would have liked to meet him, but no problem at all.  That seems like it is quite standard in these lawsuits.  I would like to begin with some basic background information on the transaction that started all of this, then dive into some particulars, if that is ok?

Sure.  However you would like to proceed is fine with me.

Great.  To begin with, what do you do?

I am a Founder at Convergence Partners, a firm that Tim and I started in 2009, when he was ready to leave Duff & Phelps.

And how long have you worked with Mr. Batchelor?

10 years.

It seems from reading the regulatory complaint, that this all started with a transaction about a submarine.  Is that correct?

Yes, basically, We owned a company called Subsea Engineering, Inc. headquartered in Alpharetta, Georgia in the United States.

And, what is Subsea Engineering?

SEI is a company that was formed to acquire the intellectual property, as well as some other assets like the vehicle itself, of a submersible craft that was invented some years back.  It operates as both a high-speed surface vessel as well as a submarine.

Is that something new?  A vessel that is both a speedboat and a submarine?

Yes.  It's revolutionary.  No craft like this has ever been successfully developed.  For decades, people have attempted to design such a vehicle, but the common thinking was that it could not be done.

Do you have experience with submarines?

Oh, yes.  Going all the way back to the early 1990s, I have been involved with a variety of submarine projects.  I was manufacturing submarines at the very beginning of the tourist submersible industry.  Back when Don Walsh and Jacques Paccard, who went to the bottom of the Mariana Trench back in the 1960s, were speaking at a conference, I flew my company's current submersible over to Monaco.  It received such a strong response, that I found myself at a dinner with them shortly thereafter, where we talked about the future of modern submersibles and the advent of the tourist submarine industry.  It was off to the races from there.

Wow, ok.  So you saw something in this SEI, is it, submarine that was different or special?

Yes, very much so.  SEI is just our abbreviation for Subsea Engineering.  The craft that we purchased is one of a kind.

The SEC seems to suggest there wasn't a submarine, that Mr. Batchelor was setting out to develop one with investor money.  It doesn't sound like that is anything close.  Am I missing something?

​No, it is nowhere close.  The SEC is just wrong.  Not only is there a submarine, but it had already completed a number of its demonstration dives prior to our acquisition.  We had indications of interest from all over the world.  During the acquisition, SEI had someone from DNV GL, the premier certification firm in the world for submarines, work on the engineering due diligence required on the vessel.  Finance people don’t develop submarines, engineers do. 

What is SEI going to do with the submarine?  What is the company's purpose?

SEI purchased the assets with a view toward bringing the latest iteration of the product to a variety of military, law enforcement, and surveillance markets around the world, along with its portfolio of other submersible related projects. 

That sounds great.  Far from a finance guy wanting to build his own submarine?

Yah.  You could say that.  Tim holds a variety of positions, but submarine captain is not one of them.​

[Sound of laughter.]  Great.  So, let's move to the transaction that the SEC complained about.  Did you do a transaction involving SEI?

Yes.

The SEC claimed that Mr. Batchelor raised $2.4 million to develop a submarine.  Is that the transaction?

The SEC complained that the lawyers’ transaction documents didn’t adequately reflect the buyers’ and sellers’ understanding of the transaction.  SEC did not claim that the buyers were unsatisfied with the transaction.  To my knowledge, no one has ever complained about this transaction, even to today.  In fact, when the SEC first complained, the buyers signed a document verifying their consent to the transaction.  The transaction itself is simple.  A lawyer representing a group of buyers approached us wanting to buy a portion of our interest in SEI.  Neither Tim nor I ever had a discussion with the buyers before the transaction.  Everything was through the attorneys.  Tim and I couldn’t pick the buyers out of a line-up.  We don’t have any idea what they even look like.  But, at the end of the day, a prior stockholder sold a portion of its holding to a new stockholder.  If you buy a share of Apple from someone, the seller of that stock receives the money, not Apple.  Our national security related projects can cost hundreds of millions of dollars to develop.  Their notion that $2.4 million was raised to do that is a clear indication of how little they understood about this matter.

So, you two never spoke with the buyers prior to becoming partners with them in SEI?

No, not once.  It was such a tiny transaction, our standard practice is to simply let the lawyers handle it.  

So, the lawyers put the whole deal together?

Yes.

Ok.  Let's get into the particulars.  Who were the parties to the transaction?

There was a group of four buyers and ourselves represented by an attorney who later took a position in the transaction, himself, in order to manage the buyers’ interest.​​​

Is this the transaction that the SEC describes as Mr. Batchelor raising money from several wealthy individuals and one institutional investor?

[Sound of laughter.]  Sorry, I still think that’s funny.  SEC mischaracterized it, but yes, we’re talking about the same thing.  There were no institutions involved in this transaction.  What the SEC calls an institution was a little LLC controlled by the buyers’ lawyer.  That’s a great example of the poetic license that the SEC takes as they feebly try to justify their actions.  The individuals were the lawyer’s clients.  Tim has great relationships with many billionaires and countless institutions, none of whom were involved in this tiny $2.4 million transaction.

So, the buyers' lawyer participated in the transaction as well?

Yes.

The SEC claimed that these buyers did not know that money was going to be received by individuals...

Complete nonsense.  The buyers' lawyer structured the transaction, prepared all the documents and disclosures, and handled all the money.  The SEC cost the buyers an obscene amount of money for bureaucratic nonsense that they just concocted. ​ To say that the buyers didn’t know that the sellers were receiving the money is just ridiculous.  The buyers’ lawyer listed himself as the transaction executive, not Tim, not me, but him, which was entirely appropriate given the level of control that he had over the transaction.  When the SEC made the claim, the buyers happily verified in writing that they were fully aware of how the proceeds of the sale were handled.

Unfortunately, we’re not the first ones to fall prey to hollow SEC claims.  The so-called investigator assigned to our case had the last case that we know of that she worked on dismissed for what one of the SEC’s own judges said was a complete absence of evidence of any wrongdoing.  The case is called SEC v. Hill.  Go look it up.  Did she learn from that?  Of course not, and here we are.

So, if Mr. Batchelor never spoke to these individuals, how could he have misled them into thinking he was going to develop a submarine?

Exactly.  Welcome to the party that is today's SEC.  I'm sure that they intend to find the truth as they rack up regulatory fines, aka scalps, but their investigative capabilities are just so lacking at this level that they end up bringing cases with no merit and no evidence as they did in the Hill case.  They just have such a poor understanding of private transactions that they unintentionally run off half-cocked holding everything to a public market standard.  Ours is a great example.  They just understood so little about the transaction that their complaint demonstrated their ready, fire, aim strategy.  When you strip away all of the hyperbole, basically, the SEC is saying that the lawyers' document didn’t adequately cover what the buyers and sellers understood the transaction to be.  Therefore, the sellers aren’t entitled to keep the money and the buyers aren't entitled to keep the purchased interest.  We disagreed.

While I'm on the subject, let me say this.  Tim isn't allowed to say this because of how the SEC has written their own rules.  But, I certainly can say it.  Tim did not do a single thing wrong in this transaction.  I have seen him in situations where he clearly could have taken advantage of someone or a situation, and you know what?  He never has.  Not once. 

Ok, that’s messed up.  I'm starting to understand.  Do you mind if we turn to the complaint now?  I'd like to get a better understanding of the particulars.

Sure, no problem.

Great.  First, the SEC says that the money was put into an unregistered fund.  Is that true?

Yes, that’s true.

Ok.  Anything that you would like to add to that?

Sure.  The SEC likes to portray unregistered funds as evil doers.  It helps them with their press releases that they like to do to try to shame you into settlement.  But, here’s the thing.  We were unregistered because the SEC provides for an exemption to registration.  We qualified for it, so we were unregistered.  At all times, we were and are in compliance with all applicable laws.  But, they don’t talk about that.  Even in the complaint, they don’t accuse us of not being in compliance.  But, they say it as if it is a bad thing.  Then, they turn around and do a press release stating a conclusion that hasn’t been reached.  They try to use their six ounces of muscle to rack up regulatory fines with, in our case, reckless disregard of the actual facts.

So, is it still an unregistered fund?​

Actually, we have made the conscious decision not to pursue U.S. projects anymore.  The onerous regulatory environment coupled with the reckless manner in which it is enforced is bad enough.  But, combine that with the fact that the SEC has been allowed to create its own court system that, surprise surprise, universally sides with them, and it is simply no longer cost effective to pursue U.S. projects.  Given the portfolio of products that we offer related to national security and law enforcement, it's truly unfortunate that those are the personnel that will suffer because of the regulatory environment. ​​

Were there other national security related projects, as the SEC claimed?

Yes, definitely.  We have a whole host of other projects unrelated to that company.​​

So, the case is closed?

Oh yes, it's all done. 

It sounds like you would have won if you litigated the case instead of settling it where nobody won?

We absolutely believe that we would have.  But it just comes down to dollars and cents.  After having already spent over $1 million in legal fees, we would have incurred millions in additional legal expenses to successfully defend an action that would just cause distraction for another two to three years.  At the end of the day, it was just a regulatory matter.  It's just not worth the time or effort.  But, that’s part of their strategy.

 

How did the case end?

How these cases usually end.  Neither side admits or denies anything, you just hand them a check to go away.  A check, by the way, that coincidentally equals about half of what your legal expenses would be to win the case.  Just another cost of doing business in the United States.

So, the SEC wasn't successful in blocking the Subsea Engineering transaction?

No. No.  Tim would not have agreed to that because that would hurt the actual buyers.  Not only did SEC not block the prior transaction successfully, but the remainder of SEI has been sold, which represented a 76x return on the project.  That was the last of our US projects.  We no longer operate in the United States.  As I said before, the onerous regulatory environment just isn't worth it.

Wow.  That’s great.  So, I have to ask.  Would you do anything differently in the future?

With only a small team assigned to this transaction, we employed a full-time in-house securities lawyer and a full-time in-house tax lawyer working exclusively on this transaction alongside a major Wall Street law firm, and yet somehow the SEC chose to ignore their entire work product -- probably because it obliterated their theory.  We always comply with all applicable laws, but, unfortunately, you can’t always protect your stakeholders from regulatory overreach.

Lastly, did the SEC lawsuit have any effect on your business?  Then, I will let you get back to work.

Absolutely, but not the way SEC would like.  Billionaires and institutional investors have all taken their turn being harassed by the SEC.  It’s just what the SEC does these days – maybe that will change in the future, maybe not.  But, this episode has only served to strengthen our partnership with these folks.  They have a lot of respect for Tim, seeing him tested under fire.  He protected the people that were actually important in this transaction, while swatting away the bureaucratic nuisance.

Well, thank you very much for your time today.  It was very helpful.  It's a completely different story when you understand the facts.  I can't say thank you enough.  May I keep these documents?

Sure.  My pleasure.  I'm glad I could work it in this week.

Cheers.