Wyly brothers urge dismissal of SEC fraud lawsuit
11:37am EDT
By Jonathan Stempel
reuters.com
NEW YORK (Reuters) - The billionaire brothers Samuel and Charles Wyly asked a federal judge to dismiss a U.S. Securities and Exchange Commission lawsuit accusing them of orchestrating a $550 million securities fraud.
In a court filing, the Wylys argued that the SEC had failed to show they intended to defraud the government or directed others, including lawyers, to make misleading securities filings.
The Dallas-based brothers also urged the rejection of an insider-trading charge tied to their $4 billion sale in 2000 of Sterling Software Inc to the company now called CA Inc. They said the charge was based on a swap transaction that predated their decision to sell the company.
"The defense is simple: The Wylys hope and believe that everything they did was appropriate," their lawyer, William Brewer, a partner at Bickel & Brewer in Dallas, said in an interview.
"The conduct being questioned was in large part the handiwork of lawyers," he went on. "The reliance on counsel actually handling these matters negates or disproves any intent on the part of the Wylys to do anything inappropriate."
SEC spokesman John Nester declined to comment on the Wyly filing. "We stand by our allegations," he said in an email.
An SEC response is due by December 13, court records show.
In July the SEC accused the Wylys of creating a sham web of offshore trusts in the Isle of Man and Cayman Islands to conceal more than $750 million of stock sales in four companies they founded or where they served as directors.
Other defendants include a lawyer for the Wylys, Michael French, and a stockbroker, Louis Schaufele. Both also filed motions to dismiss the SEC case.
Barrett Howell, a lawyer for French, was not immediately available for comment. Schaufele's lawyer, Martin Auerbach, declined to comment, saying he had yet to review the filings.
WYLYS SAY "NO FACTS" SUPPORT SEC CLAIM
Samuel Wyly, 76, and Charles Wyly, 77, are known as major donors to conservative causes and philanthropies.
Their case followed a six-year SEC probe. It is among the higher-profile lawsuits that the regulator has filed in recent months following criticism that its enforcement had been lax and that it failed to uncover Bernard Madoff's Ponzi scheme.
The SEC accused the Wylys of concealing stock sales over 13 years in Sterling Software, Michaels Stores Inc, Sterling Commerce Inc, and Scottish Annuity & Life Holdings Ltd.
It also said the Wylys reaped $31.7 million from insider trading on Sterling Software after deciding in late 1999 to sell the company.
The Wylys said the SEC had failed to show how they might have directed others to mislead regulators in SEC filings, or how the brothers were responsible for the alleged hundreds of misstatements.
The SEC "does not allege any facts from which it could be inferred that the Wylys intended to defraud anyone," Michael Smith, a partner at Bickel & Brewer, wrote in Friday's filing. "There is certainly no inference of intentional misconduct."
Smith also said the October 1999 swap agreement involving Sterling Software was not covered by federal insider trading laws at the time, and took place one month before Sterling actually began pursuing a sale.
Brewer said, "The fact Sam Wyly may have discussed with his brother or family members, 'Gee, maybe we should talk with the board about selling the company,' is well short of anything suggesting they had inside information at the time."
HORSE FARM, ART, DONATIONS
According to the SEC, the Wylys used their improper gains to acquire nearly $100 million of real estate, including two Aspen, Colorado, ranches and a 100-acre horse farm outside Dallas; to buy tens of millions of dollars in art, collectibles and jewelry; and to make large donations to charitable causes.
The Wylys built Michaels Stores into one of the nation's biggest arts and crafts retailers before selling it in 2006 to private equity firms Blackstone Group LP and Bain Capital Partners LLC for about $6 billion.
Sterling Commerce was sold for about $4 billion in 2000 to what is now AT&T Inc. Scottish Annuity is a reinsurer now called Scottish Re Group Ltd.
Samuel Wyly is worth $1 billion, Forbes magazine said last month in its list of the richest Americans. Charles Wyly did not make the list.
The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.
(Reporting by Jonathan Stempel; editing by John Wallace)
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