A jury says that the wealthy Texas billionaire brothers Charles and Samuel Wyly committed fraud by setting up a secret scam using offshores trusts and making $550M in illegal trading profits. The Texas securities ruling of liability is based on claims brought by the U.S. Securities and Exchange Commission.
The civil trial occurred following years of probes and litigation by the SEC and others. While the Wylys (Charles died in a 2011 car crash) admitted to setting up trusts on the Isle of Man for tax benefits, asset protection, and estate planning, they have denied wrongdoing. The brothers maintained that they were under no obligation to disclose the trusts because legally they weren’t the beneficial owners of the securities in them. They said that they relied on an “army of lawyers” to make sure their activities were in compliance with the law.
The SEC said the Wylys set up the trusts to hide trading that took place between 1992 and 2004 in four companies. The brothers were the boards of these four entities.
During the trial, a number of witnesses testified that the Wylys were in control of the trusts and that trustees were required to follow their orders. The Commission claims that the brothers used their improper gains to purchase $100 million of real estate and tens of millions of dollars in jewelry and art and other items, as well as make substantial charity donations. It wants the Wylys to pay penalties and give back the $550 million in allegedly illegal gains.
Commenting on the jury verdict, SEC Division of Enforcement Director Andre Ceresney said that the agency would continue to hold accountable fraudsters regardless of their scam’s complexity or efforts to conceal their wrongdoing. The regulator, however, isn’t done with the Wylys.
The SEC claims they made $31.7 million from insider trading in Sterling Software after the company was sold in 1999. A U.S. district court judge will decide those claims and whether there will be any penalties.
Shepherd Smith Edwards and Kantas, LTD LLP is a Texas securities fraud law firm.
Wyly brothers hid assets, jury rules, Dallas Morning News, May 12, 2014
Read the SEC Complaint (PDF)
More Blog Posts:
State Senator Reprimanded For Violating the Texas Securities Act, Stockbroker Fraud Blog, May 8, 2014
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014
DOJ’s Fund for Madoff Victims Has Received 51,700 Claims Worth $40B, Institutional Investor Securities Blog, May 14, 2014