Wyly convicted in civil fraud case

NEW YORK — Texas businessman Sam Wyly and his brother, Charles Wyly, used offshore trusts for a 13-year fraud scheme in which they secretly held and traded millions of dollars in securities from firms they served as directors, a jury decided Monday.

The civil case verdict in Manhattan federal court means Sam Wyly, 79, and the estate of his late brother could be liable for as much as $550 million in forfeiture.

Jurors agreed that the Securities and Exchange Commission proved that the brothers used "an elaborate sham system" of trusts in the Cayman Islands and Isle of Man to hold and trade shares of arts and crafts retailer Michaels Stores, tech firms Sterling Software and Sterling Commerce, and Scottish Annuity & Life Holdings.

The outcome represents a win for the SEC Chair Mary Jo White, who has pledged to strengthen the market regulator's legal efforts against suspected financial fraud. The agency had lost a high profile case to Mark Cuban in October when a Texas jury found the Dallas Mavericks owner not guilty of insider trading for selling his stake in an Internet firm.

"We are very gratified by the jury's verdict finding the Wylys liable for fraud and violations of reporting requirements for corporate insiders," said Andrew Ceresney, director of the SEC's enforcement division.

Defense attorney Stephen Susman said he was "deeply disappointed" by the verdict but announced plans for a continued court fight.

"Despite this setback, we maintain that Sam and Charles Wyly acted in good faith," said Susman. "We will continue to fight for justice through the next phases of the legal process."

Sam Wyly appeared for many years on the Forbes magazine list of the 400 wealthiest Americans. His brother, who died in a car accident three years ago at age 77, had similarly accumulated business wealth. According to Forbes, companies they ran over the years include Bonanza Steakhouses and Earth Resources.

The Wyly brothers and their wives also contributed nearly $2.5 ! million to Republican candidates and committees during a 20-year span, according to an 2010 analysis by the Center for Responsive Politics, a nonprofit group that tracks money in U.S. politics.

SEC lawyers argued that the Wylys used the offshore trusts to hide buy and sell transactions in stocks of the four companies where they served as directors. The deals violated laws that require directors to publicly disclose such transactions.

Defense lawyers contended the trusts were created as part of retirement planning and were not controlled by the brothers.

U.S. District Judge Shira Scheindlin, who presided over the trial, is expected to rule on whether one transaction that produced a $31.7 million profit constituted improper insider-trading. She is also expected to determine forfeiture damages after a separate civil proceeding.