Texas Billionaires Charged With Fraud

Sam and Charles Wyly, billionaire Texas brothers who gained prominence spending millions of dollars on conservative political causes, committed fraud by using secret overseas accounts to generate more than $550 million in profit through illegal stock trades, the Securities and Exchange Commission said.

“They are among the biggest of the big when it comes to campaign bank-rollers, and their donors list is a who’s who of the Republican Party over the past decade.”

Dave Levinthal


The Wylys, who have been generous contributors to the Republican Party and GOP candidates, have spent the past several years facing questions, including from a Senate investigative committee, about whether they hid millions of dollars in tax shelters abroad.

Through their lawyer, the Wylys denied all charges.

According to the SEC, the brothers, who live in Dallas, created an elaborate and clandestine network of accounts and companies on the Isle of Man and in the Cayman Islands. The brothers then used these accounts and companies to trade more than $750 million of stock in four public companies on whose boards they served, not filing the disclosures required for corporate insiders, the SEC said.

Charles Wyly

In one case, the SEC alleges that the Wylys traded based on insider information they learned as board members, netting a profit of $32 million.

“The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” Lorin L. Reisner, deputy director of SEC enforcement, said Thursday in a statement announcing the civil charges.

The agency is seeking unspecified financial penalties and a variety of other sanctions, including barring the Wylys from serving as directors or top executives of public companies.

According to The Washington Post, William Brewer III, a lawyer representing the Wylys, said they intend to clear their name.

“After six years of investigations, the SEC has chosen to make claims against the Wyly brothers — claims that, in our view, are without merit,” Brewer said in a statement. “It will come as little surprise to those who know them that the Wylys intend to vigorously defend themselves — and expect to be fully vindicated,” he says.

“They are among the biggest of the big when it comes to campaign bank-rollers, and their donors list is a who’s who of the Republican Party over the past decade,” says Dave Levinthal, a spokesman at the nonpartisan Center for Responsive Politics.

“It’s almost hard to find prominent Republicans who haven’t been a beneficiary of their financial largess. They’ve definitely been very kind, financially speaking, to a number of Republicans,” Levinthal says.

Both brothers, according to Forbes magazine, are billionaires who amassed their fortune by founding a computer company and investing in a wide range of interests including oil, insurance and restaurants.

In 1979, Sam Wyly faced sanctions by the SEC for improper regulatory disclosures.

They have been the subject of probes into potential financial wrongdoing since then. In 2006, the Senate permanent subcommittee on investigations completed a report on tax havens that focused on the Wylys.

Over 13 years, the Wylys used an “armada” of lawyers, brokers and other professionals to manage hundreds of millions of dollars in transactions that amounted to “the most elaborate offshore operations reviewed by the Subcommittee,” according to the panel’s report.

The regulators alleges that the Wylys committed fraud and various other violations of securities laws while sitting on the boards of four companies over the course of a decade: Michaels Stores, Sterling Software, Sterling Commerce and Scottish Annuity & Life Holdings.

The SEC says that by using offshore accounts to trade shares of these public companies, the Wylys were able to escape filing the regulatory disclosures required of board members when they buy or sell shares.

By keeping their trading activity secret, the Wylys deprived outside investors of information they could use “to gauge the sentiment of public companies’ insiders and large shareholders about the financial condition and prospects of those companies,” the SEC says.

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