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Businessman's reputation, cash on line at NY trial
[April 27, 2014]

Businessman's reputation, cash on line at NY trial


(Associated Press Via Acquire Media NewsEdge) NEW YORK (AP) — For decades, Sam and Charles Wyly won admiration as Texas entrepreneurs skilled at building businesses worth billions of dollars. But a regulatory agency is casting them in a new light at a civil trial, saying the brothers earned more than $500 million through fraud and deception by secretly trading the securities of public companies they controlled.



The onetime IBM Corp. employees have a long string of business successes. They took a small chain of Bonanza Steakhouses national before successfully marketing an arts and crafts retail chain, Michaels Stores Inc. — which sold for $6 billion — and then rode the technology boom of the 1990s with their company Sterling Software, which Computer Associates bought for $4 billion.

Their success for a time put Sam Wyly on the Forbes list of billionaires and elevated the brothers' status in Dallas, where they have donated millions of dollars to mostly conservative Republican candidates and causes and $20 million to help build Dallas' performing arts center.


The Securities and Exchange Commission says they ran afoul of securities laws in the early 1990s when they embraced the teachings of a speaker at an asset and wealth preservation seminar. The SEC said they set up secret offshore trusts in the Isle of Man to make millions of dollars in trades on the securities of four public companies they controlled. And they are accused of doing all this while hiding the activity from regulatory agencies and investors entitled to know the true extent of their ownership.

"This is a case about lies, deception and fraud," SEC lawyer Bridget Fitzpatrick told a Manhattan jury in opening statements at the trial for Samuel Wyly, 79, and the estate of his brother, who died in a 2011 car accident in Aspen, Colo., at 77.

She said the men used money they earned through the trusts to build businesses and homes and to fund an Aspen art gallery and a Dallas horse farm.

The lawyer said the offshore investments enabled them to claim they owned less than 20 percent of Michaels when they owned over 40 percent and that they owned less than 1 percent of Scottish Annuity & Life Holdings, also known as Scottish Re, when they owned up to 16 percent.

Fitzpatrick also alleged the men engaged in insider trading by making a $40 million bet in 1999 that the price of Sterling Software would go up when they knew it was a sure thing because they were trying to sell it.

On that point, Wyly defended himself from the witness stand in the past week, insisting he got it "garbled in my mind" by saying in interviews that he decided in the summer of 1999 to sell Sterling Software. When he was shown in court that he said the same thing in a 2001 webcast conversation with an analyst, he responded: "I got it garbled again." He said the confusion resulted because Sterling Software and Sterling Commerce were once the same company and he had decided in July 1999 to sell Sterling Commerce.

By the time his lawyer brought up a 2005 deposition in which he repeated the July 1999 claim, U.S. District Judge Shira A. Scheindlin joined the questioning after he explained it by saying: "I garbled." "You were under oath then in 2005 and that was only six years after 1999," the judge noted. "Today is how many years after 1999. Fifteen?" "Yeah, I have trouble remembering things," said Wyly, who is testifying in two-hour increments each day because of a health issue. A colorful character, he put a black hat over his long gray hair while jurors were out of the courtroom. He smiled when his photograph was taken outside the courthouse. After he left, a court worker said he thought he was an aging rock star.

Wyly's lawyer, Stephen D. Susman, told jurors his client wants to "defend his reputation" after selling his businesses and retiring about a decade ago to be an author. He said Wyly is writing a book about the value of immigration to America.

While Susman noted that the SEC is seeking to force Wyly to disgorge part of his fortune as a penalty, he said what really is at stake is the brothers' legacy.

"Are they going to be known, as the SEC would have it, as liars and fraudsters?" Susman asked jurors. "Or are they going to be known as good businessmen who tried to follow the law?" Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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