The civil trial is underway between the Securities and Exchange Commission and brothers Sam and Charles Wyly (The latter is deceased after he died in a car crash in 2011). The regulator is accusing the Texas siblings of using offshore trusts to hide over $750M of stock sales in companies in which they are board members and engaging in a $550M securities fraud.
In its Texas securities case, the SEC claims that between 1992 and 2004 the Wylys concealed stock trading in Sterling Software Inc., Sterling Commerce. Inc., Michaels Stores Inc., and Scottish Annuity & Life Holdings Ltd. by using entities and offshore trusts. The brothers also are accused of making $31.7 million in insider trading profits involving Sterling Software after the company was sold in 1999.
At issue is whether the Wylys were in control of the offshore trusts and if so then they may have also violated US tax laws. That said, the statute of limitations for charges involving tax evasion is six years.
The brothers denied any wrongdoing. They claim they weren't the beneficial owners of the stock in the trust. They said their lawyer told them that they did not need to reveal the sales and holdings of the trusts and they were given no indication that their activities were illegal.
Last month, ex-Wyly lawyer Michael French settled with the SEC by admitting to helping the two brothers in their alleged breach of securities disclosure rules. French will pay close to $795,000 and is serving as a witness for the agency in their cases against the brothers. Signing an admission of facts, French acknowledged that he “acted intentionally or recklessly” in relation to the violations described. The SEC is also accusing him of using his positions to establish and trade in offshore entities of his own. Also reaching a settlement related to the SEC case is Louis Schaufele, a former stockbroker for the Wylys.
The Texas securities case has been going on for so many years that the law under the SEC has changed. Last year, the US Supreme Court ruled that the regulator could no longer go after civil penalties for most of the time period under dispute. Because of this, the case is now in two parts.
A jury will rule over one part—regarding the Wylys' alleged failure to disclose the trust and trading in them—and a judge will decide on the insider trading allegations and whether the jury verdict merits a penalty.
This is the second securities case between Sam and the SEC. In 1979 he settled allegations involving undisclosed payments to encourage Wyly Corp. bond purchases. In this latest securities case, the regulator intends to pursue hundreds of millions of dollars in disgorgement of purportedly ill-gotten gains and penalties.
Our Texas securities lawyers represent investors that have sustained losses because of fraud. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today.
Civil Trial to Start of Wyly Brothers in SEC Tax-Haven Case, The Wall Street Journal, March 30, 2014
Wyly brothers' ex-lawyer settles SEC fraud case, admits errors, Reuters, March 20, 2014
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Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014
In Alleged $400M Texas Securities Fraud Medical Device Maker Pays Over $30M Settlement, Stockbroker Fraud Blog, January 13, 2014
FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014