(Reuters) — Texas businessman Samuel Wyly and the estate of his deceased brother, Charles, were liable for fraud for having engaged in a "scheme of secrecy" involving offshore trusts that netted them $550 million in trading profits, a jury decided Monday.
Jurors in Manhattan federal court found the defendants liable on all claims brought by the U.S. Securities and Exchange Commission in that regulator's largest case to go to trial in recent years.
The case was seen as a critical test of the SEC's trial capabilities following a string of recent losses, including a not guilty verdict for billionaire Mark Cuban last October in an insider trading case.
It also followed years of litigation and investigation by the SEC and other authorities of the Wylys, who acknowledged creating a maze of trusts in the Isle of Man in an effort to obtain tax benefits.
According to the SEC, these trusts were designed to conceal trading from 1992 to 2004 in four companies on whose boards the Wylys sat.
They included Sterling Software Inc., Michaels Stores Inc., Sterling Commerce Inc. and Scottish Annuity & Life Holdings Ltd., now called Scottish Re Group Ltd.
The SEC said the scheme netted $550 million and the trust money was used to buy items including real estate, art and former U.S. President George Washington's toothbrush.
The Wylys denied wrongdoing, contending they were not legally the beneficial owners of securities held in the trusts and had no duty to disclose them.
"We are deeply disappointed by the jury's decision," Stephen Susman, the Wylys' lawyer, said in a statement. "Sam and Charles Wyly acted in good faith. We will continue to fight for justice through the next phases of the legal process."
Sam Wyly, 79, led the brothers in pursuing the offshore strategy, his lawyer said. Mr. Wyly last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion.
Charles Wyly died in a car crash in 2011. An executor for his estate was substituted as a defendant. Two other defendants settled before trial.
The case is SEC v. Wyly et al., U.S. District Court, Southern District of New York, No. 10-05760.