The U.S. Securities and Exchange Commission wants Sam Wyly and the estate of his brother Charles to pay $750M for securities fraud involving an offshore tax scam. The Texas billionaire siblings were found liable in civil court earlier this year. Now, the case has gone to trial to determine how much the Wylys must pay in damages.
According to the federal jury that issued the verdict, the Wylys are liable for the offshore trusts and other entities on the Cayman Islands and the Isle of Man that garnered them $553 million in profits between 1992 and 2004 via concealed trades. The fraud involved offshore transactions with four of their companies in which they sold shares. The sales should have been noted in regulatory filings but were not listed.
Now, the SEC is saying that it should be entitled to all unpaid taxes on the profits from the scam in addition to interest. Lawyers for the brothers, however, are contending that the proper penalty is $1.38 million and that the law does not support the regulator’s disgorgement theory. They are also arguing that the SEC cannot step into the Internal Revenue Service’s shoes. (During the fraud, the U.S. government was not aware that the Wylys owed taxes because they did not disclose their control of the trusts. )
SEC Attorney Bridget Fitzpatrick acknowledged that the agency’s tax-based disgorgement theory is unique but appropriate, She pointed out that the trusts were set up specifically for the purpose of tax benefits. The SEC had originally wanted the Wylys to pay $1.4 billion according to every profit dollar made through the trusts. U.S. District Judge Shira Scheindlin, who is presiding over the nonjury trial, barred that effort. Scheindlin also cleared the brothers of insider trading charges in another nonjury trial last month.
Our Texas securities fraud law firm represents institutional investors and individual investors. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.
Texas tycoons Wylys should pay $750 mln for fraud, SEC tells judge, Reuters, August 4, 2014
SEC Seeks up to $750 Million in Sanctions From Wyly Brothers, The Wall Street Journal, August 4, 2014
More Blog Posts:
Jury Says Wyly Brothers From Texas Committed Fraud, Stockbroker Fraud Blog, May 14, 2014
$550M Securities Fraud Case Between Texas’ Wyly Brothers & SEC Goes to Trial, Stockbroker Fraud Blog, April 2, 2014
FBI Probes Possible High-Speed Trading, Insider Trading Link, Institutional Investor Securities Blog, April 1, 2014