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 "This is a case about lies, deception and fraud," said Bridget
Fitzpatrick, a lawyer for the U.S. Securities and Exchange
Commission, at the start of a civil trial in New York against Sam
Wyly and the estate of his late brother, Charles.
The SEC has accused the Wylys of concealing stock trading from 1992
to 2004 in Sterling Software Inc, Michaels Stores Inc, Sterling
Commerce Inc, and Scottish Annuity & Life Holdings Ltd through the
use of more than a dozen trusts and 40 different entities in the
Isle of Man.
But Stephen Susman, a defense attorney for the Wylys, told the jury
that the brothers relied on an "army of lawyers" to tell them what
they were legally required to do and never intended to violate any
securities law.
"The Wylys acted in complete good faith — the exact opposite of
being a liar and fraudster, as charged by the SEC," he said during
his opening statement.
The trial, which follows years of litigation and investigation of
the Wylys by the SEC, is the latest test of the regulator's ability
to win verdicts against individuals, following a recent series of
losses in fraud and insider trading cases.
The jury of eight women and four men will be asked to decide whether
the Wylys controlled the securities held in the offshore system, as
the government claims, or whether trustees had sole power to sell
the stock, as the Wylys contend.
In her opening statement to the jury, Fitzpatrick argued that every
transaction in the offshore entities originated as a
"recommendation" from the Wylys that was effectively a command.
"The Isle of Man trustees were not independent," she said. "They did
everything the Wylys wanted."
Susman, however, pointed to language in the trust contracts that
granted the trustees authority over stock sales.
According to the government, the brothers sold more than $750
million of stock in the four companies, while failing to disclose
that such transactions had occurred. They used the proceeds to buy
everything from jewelry for their wives to a horse ranch in Dallas,
Fitzpatrick said.
Susman told the jury he did not dispute that the trades occurred and
that they used the profits to buy various items. But, he said, the
trusts were created to protect assets and reduce tax liabilities,
not to hide anything from the SEC.
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The trial will feature testimony from several people involved in
operating the offshore system, including the Wylys' former lawyer,
Michael French. French will appear as a government witness after
reaching a deal this month to settle charges against him by paying
$794,609 and admitting to aiding in the Wylys' alleged scheme.
The 79-year-old Wyly will also take the stand, though his lawyers
have indicated he will only testify for up to two hours at a time
due to unspecified medical issues. Charles Wyly died in a 2011 car
crash.
The SEC has also accused the Wylys of earning $31.7 million from
insider trading of Sterling Software.
The jury will not consider those charges. Once the jury phase is
over, U.S. District Judge Shira Scheindlin will preside over a
second proceeding on the insider trading claims.
The trial comes after several recent upsets for the SEC in other
fraud and insider trading cases, most prominently in October when a
jury cleared Mark Cuban, owner of the Dallas Mavericks basketball
team, of insider trading.
The case is SEC v. Wyly et al, U.S. District Court, Southern
District of New York, No. 10-05760.
(Reporting by Joseph Ax; additional reporting by Nate Raymond;
editing by Noeleen Walder and Steve Orlofsky)
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