“If not for the dedicated investigators within the California Department of Insurance and the federal agencies involved in this investigation, this fraudster may have continued his scheme for many more years to come, harming the financial security of his victims as well as publicly funded programs through his tax evasion.” – CSLEA President Alan Barcelona
LOS ANGELES – On February 16, 2023, Tommy Lester Watts, 63, a.k.a. “Michael Nesbeth,” “Michael Kent,” and “Alex Mason,” of Westwood pleaded guilty to one count of transactional money laundering and one count of tax evasion for defrauding victims out of more than $5 million by purporting to sell bonds for large-scale construction and other projects, and for evading the payment of over $1.2 million in taxes.
According to his plea agreement, from September 2016 to September 2019, Watts falsely claimed to be experienced in and able to provide surety bonds and other financial guarantees for large-scale projects. Watts told victims that he would assist them in obtaining financing for their projects via his various companies, including the Sherman Oaks-based Source One Surety LLC. Watts misrepresented that any such bonds or guarantees were underwritten by well-known companies and banks, and that they were backed by assets in the millions or billions of dollars.
But Watts and his companies were not licensed to sell such bonds in California. And his claims about his experience, his clients – which purportedly included governments – his underwriting, and his supporting assets were not true. To make his scheme appear legitimate, Watts hijacked the corporate filings of other companies and created fake employees and accounts for underwriters and banks.
Watts caused victims to send his companies approximately $5,238,344, the majority of which he spent on personal items such as classic and luxury cars, rent for high-end apartments, and the purchase of luxury retail goods.
He also laundered victim payments through accounts held in the names of corporations that were not registered and used fake taxpayer identification numbers – and then used those accounts to spend victim funds as his own. He hid this income from the IRS in tax years 2017 through 2019, in which he failed to file any tax returns. Watts admitted in his plea agreement that he received a total of $4,683,430 in income that he failed to report to the IRS for those three tax years.
Watts has agreed to forfeit to the United States nearly $60,000 seized from two bank accounts he controlled, a Mercedes-Benz car and a Subaru SUV. He also has agreed to pay to the IRS a total amount of $4,226,535 in restitution, which includes at least $1,863,035 for his tax liabilities.
United States District Judge Maame Ewusi-Mensah Frimpong scheduled a September 8 sentencing hearing, at which time Watts will face a statutory maximum sentence of 10 years in federal prison for the transactional money laundering count and up to five years in federal prison for the tax evasion count.
The FBI, Homeland Security Investigations, IRS Criminal Investigation, and the California Department of Insurance investigated this matter.
Assistant United States Attorney Kristen A. Williams of the Major Frauds Section is prosecuting this case.