SEC Accuses Sam And Charles Wyly, Billionaire Dallas Investors, Of Insider Trading Yielding $550 MILLION
Controversy
Funding the Swift Boat Vets' Attack on John Kerry
John McCain
In May 2006, Senator John McCain (R-AZ) returned donations totalling $20,000 made by Charles and Sam Wyly, and other members of their family, to his political action committee Straight Talk America, Chris Cillizza reported in the Washington Post, May 25, 2006.
"The contributions drew notice because the two brothers bankrolled Republicans for Clean Air, a soft-money 527 group that attacked McCain for his environmental record during his 2000 presidential campaign—an attack that was widely interpreted as being motivated less by concern about pollution than an eagerness to help then-Texas Gov. George W. Bush, for whom the Wylys have been key backers.
Investigations
In 1979, Wyly settled Securities and Exchange Commission charges that he made undisclosed payments to associates to buy up company bonds as part of a plan to stave off bankruptcy. He settled without acknowledging any wrongdoing.
In August 2006, the Dallas Morning News reported that Sam and Charles Wyly were under investigation by the SEC , a grand jury in Dallas and a grand jury in New York, regarding their use of potentially illegal offshore tax shelters. Senate investigators allege that the Wylys used the offshore trusts to buy $30 million worth of artwork, jewelry, furniture and other items for their personal use. The Wylys deny wrongdoing, saying they just followed the advice of high-priced financial advisers. They told the Senate Permanent Investigations subcommittee investigating the offshore tax shelters that they would invoke their Fifth Amendment right against self-incrimination; they were not called to testify.
On July 29th, 2010, the Securities and Exchange Commission charged Charles and Sam Wyly with fraud. The SEC charged the brothers with violating federal securities laws governing ownership and trading of securities by corporate insiders. The Wyly brothers reaped more than $550 million in undisclosed gains while sitting on corporate boards by trading stock in those public companies through hidden entities located in foreign jurisdictions to conceal their ownership and trading of those securities, the SEC alleged.
SEC Charges Corporate Insider Brothers With Fraud
Charles
Wyly Profile
"Charles Wyly is co-founder and chairman of Michaels Stores, Inc., a publicly held company and the nation's foremost arts and crafts retailer operating over 1000 stores in 48 states and Canada.
"Upon receiving his business degree from Louisiana Tech University - where he was recently inducted into the Athletic Hall of Fame - Charles embarked on a lengthy and distinguished career that took him to IBM, where he worked eight years, before joining his brother, Sam, at University Computing Company. He is co-founder of Sterling Software, Sterling Commerce, Earth Resources Company (an oil refining and mining company), and the Bonanza Steakhouse chain. More recently, he was a co-founder of Maverick Capital, which became a multibillion dollar hedge fund.
"His civic interests mirror his diversity as an entrepreneur. Mr. Wyly currently serves as chairman of the Communities Foundation of Texas. He is a member of The Salvation Army National Advisory Board, the past chairman and current member of the Dallas Salvation Army, and a member of the board of the Dallas Center for the Performing Arts, the Dallas Symphony, the Dallas Theater Center, the Cox School of Business, and the John Tower Center for Political Studies at Southern Methodist University. Through his leadership, two private Dallas schools built their permanent campuses.
"In addition to being a patron of the arts and an advocate of charity and education, he champions public policy that promotes strong economic growth while providing opportunities to achieve individual success. A dedicated public servant, he was appointed to the President's Advisory Council for Management Improvement and served the state of Texas as its founding chairman of the Texas High Speed Rail Authority."
Charles is co-founder and past chairman of Michaels Stores, Inc., the nation's leading arts and crafts retail chain operating over 1,000 stores in 48 states and Canada. Michaels was sold in 2006.
He was a founder and served as vice chairman for 16 years of Sterling Software, Inc., an international computer software company, and he served as a director of Sterling Commerce, Inc., a global provider of electronic commerce software products and network services, until their sale in March 2000. Additionally, he was a founder of Maverick Capital, Ltd., an investment management firm.
Charles was also a founder of USACafes and, for 23 years, active as a director of this franchisor, which built the Bonanza Steakhouse restaurant chain to over 600 units before the business was sold in October 1989.
He was a co-founder and, for 13 years, chairman of the board of Earth Resources Company, an oil refining and mining company, until it was sold.
From 1964 to 1977, Charles was with University Computing Company, a computer software company, in various capacities including president from 1969 to 1973. His career began with eight years at IBM.
Charles received his degree in business administration from Louisiana Tech University and, in 1968, was named Alumnus of the Year.
He served the federal government when he was appointed to the President's Advisory Council for Management Improvement and worked with the State of Texas as the founding chairman of the Texas High-Speed Rail Authority.
His civic posts include chairman of the Communities Foundation of Texas Board of Trustees; member of the National and the Dallas Advisory Boards of The Salvation Army; member of the board of directors of the Dallas Center for the Performing Arts Foundation, the Dallas Theater Center, Southern Methodist University's John Tower Center for Political Studies and its Cox School of Business, the Dallas Symphony Orchestra and Lakehill Preparatory School; and chairman of the Advisory Board of St. Alcuin Montessori School.
Prior civic and community service includes chairman of the Dallas Advisory Board of The Salvation Army and its $10 million Dallas-Fort Worth Metroplex Capital Campaign; chairman of the board of the Dallas Theater Center; and director of the United Way of Dallas, the Dallas Museum of Art, the Dallas Summer Musicals, and TACA, a nonprofit organization benefiting the performing arts in Dallas.
He is married to Caroline "Dee" Wyly and they have four children — Martha Miller, Chip Wyly, Emily Wyly and Jennifer Lincoln; and seven grandchildren — Trey, Carla, Christopher and Dulaney Miller; Wyly and Jessica Lincoln; and Meghan Lindsey.
Samuel Wyly Profile
Samuel "Sam" Wyly (born 1934) is an American entrepreneur and businessman, philanthropist, and major contributor to conservative campaigns and candidates. In 2006, Forbes magazine estimated his net worth at $1.1 billion. His older brother, Charles Wyly, is nearly equal in wealth; the two brothers are close with their business affairs, and are often referred to as the "Wyly brothers". Wyly's memoir, 1,000 Dollars and an Idea: Entrepreneur to Billionaire, was published in September 2008.
Early life and education
Samuel Wyly was born in Lake Providence, Louisiana. He began working at an early age, helping his father and mother publish a weekly newspaper, the Delhi Dispatch in Delhi in Richland Parish. He sold advertising, wrote stories, folded and addressed the finished papers, and cleaned the printing presses.
Following high school, Sam went to Louisiana Tech University. He worked his way through college by selling class rings.
Following graduation, he went to the University of Michigan's School of Business, where he received a Masters of Business Administration degree in 1957 (he is one of five graduates who are billionaires). He was able to attend only because of a new scholarship program, and enrolling as the school's first Paton scholar.
Business career
After receiving his MBA, Sam moved to Dallas to work as a salesman at IBMs Service Bureau Corporation. Three and a half years later he left IBM to become the area sales manager for Honeywell, establishing their computer business in Dallas and Oklahoma.
Sam's wealth comes from businesses that he founded and developed, or purchased and expanded;
- 1963: founded University Computing Company (UCC), which provided computer services to engineers, scientists, and researchers with Sun Oil Company, Texas Instruments, and others. He began the company with $1,000 and three customers;. The company went public in 1965. By 1968, sales were $60 million; in 1971, they were $125 million.
- 1967: With his brother Charles, bought the restaurant chain Bonanza Steakhouse. He had initially started investing in it with money from the sale of stock in UCC. The company grew to approximately 600 restaurants by 1989,, when the two brothers sold it.
- 1968: Acquired Gulf Insurance; at the time, the company had free equity of $52 million and $63 million unrealized capital gains.
- Co-founded Earth Resources Company, an oil refining and silver and gold mining company, served as its Executive Committee Chairman from 1968 to 1980.
- 1970: Purchased Computer Technology, which functioned as the in-house data processing unit for LTV, for $40 million in cash and notes.
- 1972: Sold a computer terminal business to Harris-Intertype, writing off $32 million in investments.
- 1973: Divided UCC into four companies, including Datran, which began construction of a nationwide system of microwave towers to transmit data among 27 American cities in direct competition with AT&T.
- 1981: Co-founded Sterling Software. The company was sold to Computer Associates in 2000 for $4 billion.
- 1982: Bought controlling interest in an arts-and-crafts chain Michaels; the company's revenues grew from $10 million at the time of purchase to $1.24 billion by 1996. In July 2006, Bain Capital and the Blackstone Group purchased the company for $6 billion.
- 1986: Purchased Frost Bros., a specialty retail chain, from Manhattan Industries. After failing to reorganize while operating under bankruptcy protection, the company was liquidated in mid-1989.
- In 1990, co-founded hedge fund Maverick Capital, which by 2003 had about $8 billion in assets. Beginning in 1993, his son Evan, a Maverick co-founder, and money manager Lee S. Ainslie III managed the fund.
- As of 2006, Wyly was the largest stockholder of clean-energy producer Green Mountain Energy.
- In 2006 Wyly also was the largest investor in the online social networking company Zaadz.com at an estimated 1.5m.
- In March 2007, Forbes magazine estimated Wyly's net worth to be $1.1 billion. In September 2006, Forbes ranked him as the 354th wealthiest American.
- In July 2010, The Wyly brothers were charged with fraud. They are accused of earning more than $550 million dollars through fraudulent deals. The charges assert the fraud extended over 13 years.
Politics
In March 2007, commenting a purchase of a local bookstore by Sam and his wife Cheryl, the Aspen Times noted that the Wyly family "has been known not only for its philanthropic efforts, but also its large contributions to conservative political campaigns and candidates." Sam and his brother Charles have personally given about $10 million to Republican causes and candidates between the early 1970s and 2006, they say; both are Bush Pioneers.
In 2000, Sam contributed $2.5 million to a group called "Republicans for Clean Air", which ran ads praising George W. Bush's environmental record and criticizing that of John McCain. The ads ran in New York, Ohio, and California in advance of early March primaries, at a time when Bush and McCain were locked in a tight struggle for the Republican presidential nomination. It initially was unclear who was behind the group or who paid for the ads until Sam stepped forward to take the credit.
In 2004, Sam also donated $20,000 to the Swift Boat campaign that raised questions about Sen. John Kerry's military record in Vietnam, helping scuttle Kerry's challenge to Bush. Sam said he was neither leaning toward McCain nor Democrat Barack Obama in the 2008 presidential campaign, and wouldn't get involved in the race.
Charles and Samuel along with their wives, have donated $2.5 million to more than 200 Republican candidates and committees over the past 20 years, including over $1.3 million to the Republican National Committee, according to an analysis by the Center for Responsive Politics.
The top recipients of their largesse have been Texas Republicans. George W. Bush received at least $100,000 raised by the Wyly clan during the 2000 presidential election. Sen. Kay Bailey Hutchinson has received $30,400 from the family; Rep. Pete Sessions, $29,000.
Other Republican senators who've received their donations include John Cornyn of Texas, Sam Brownback of Kansas, Judd Gregg of New Hampshire, John Thune of South Dakota and Kit Bond of Missouri. Sam Wyly also funded the Swift Boat campaign that torpedoed Massachusetts Democrat John Kerry's 2004 presidential campaign.
And the Wyly brothers have been busy in the 2010 election cycle, most recently writing a check dated June 10 for $10,000 to the Republican Congressional Campaign Committee. Charles Wyly has contributed to FreedomWorks PAC, which has been instrumental in the Tea Party movement. The Wylys and their companies have also reportedly contributed $353,500 to Texas Gov. Rick Perry in recent years.
As reported by HuffPost's Sam Stein, the brothers played an instrumental role in helping Bush defeat John McCain during the 2000 Republican presidential primary, with a $2.5-million advertising campaign that marked the "very first ad" launched by a 527 -- "the oft-maligned political groups that came about due to a loophole in campaign finance laws."
Sam Wyly's son Andrew ended up being a major fundraiser (or "Texas Aviator") for McCain in the 2008 election. In the 2010 cycle, Andrew has contributed to Marco Rubio's Florida Senate campaign and Pat Toomey's Pennsylvania Senate campaign, among other Republican candidates.
Beyond politics, the charges are sure to shake up the close-knit community in Dallas, where the brothers wielded enormous influence. Charles Wyly donated millions to the Dallas Center for the Performing Arts to have a building named after him, which was designed by famed architect Rem Koolhaas and billed as the world's only "vertical theater."
A prominent lawyer for the Wylys, Michael C. French, and stockbroker Louis J. Schaufele III were also charged in the case. Schaufele III is the Investment Committee chairman of the Episcopal Foundation of Dallas.
The case, which caps a six-year investigation prompted by inquiries about overseas trusts kept by the Wylys, also serves as a vindication of sorts for Senator Carl Levin (D-Mich.), who along with former Sen. Norm Coleman (R-Minn.) issued a damning 2006 report on tax haven abuses that primarily focused on the Wyly brothers.
Philanthropy
In 2006, the Dallas Morning News estimated that Sam and his brother Charles had spent more than ninety million dollars on a wide range of charities. His philanthropy has included:
- In 1968, setting up the Sam Wyly Foundation to help minority businessmen.
- Helping to start an educational TV channel in Dallas.
- Funding, with his brother Charles, the Charles Wyly, Sr., Tower of Learning, on the campus of Louisiana Tech, in memory of their father. The building includes a computer center and the university library.
- A $10 million gift for Sam Wyly Hall, at the University of Michigan, which opened in 2000.
- Being one of the biggest supporters of the Aspen Writers' Foundation.
Personal
Sam and his brother Charles, older by a year, have been close all their life. They became Eagle Scouts together. They played high school football together. Both went to Louisiana Tech University and joined the same fraternity. They have worked together in a large number of businesses they've owned or run, over the years.
In August 2006, the Daily Morning News reported that Sam and his third wife, Cheryl, lived in a 8,450-square-foot, $7.48 million house in Highland Park, Texas. Sam has six grown children from his first two marriages.
In a 1973 article, Forbes magazine said he was a "devout Christian Scientist".
Resources
External links
2000
- Joe Conason, "Tit for tat? How the Texas brothers who secretly funded attack ads against McCain have made millions managing state money under the Bush administration in Austin," Salon, March 6, 2000.
- Jake Tapper, "Boy on the bus. John McCain's impulsive, inspired and angry ride misses a few turns before getting back on the road. But can he catch up?" Salon, March 6, 2000. See page 4.
2004
- "Swift Boat Follies," WhiteHouseforSale Blog, August 20, 2004.
- "The Press Corps Still Loves Those Accusers (Part 3)! John O’Neill’s gang can’t seem to shoot straight. Why won’t the press corps confront them?" Daily Howler, August 25, 2004.
- Joe Conason, "Sailing buddies. A flotilla of new reports shows that the Swift Boat Veterans group is helmed by longtime cronies of the Bush family," Salon, August 28, 2004.
- Sheldon Rampton and John Stauber, "Sinking the Swift Boats," Common Dreams, August 31, 2004.
- Thomas B. Edsall, "Swift Boat Group's Tally: $6.7 Million," Washington Post, September 11, 2004.
2005
- "George Bush's Wise Guys: Noe, Abramoff, Reed, and the Wyly Brothers," BuzzFlash Alert, June 14, 2005.
- Greg Palast, "GIVE IT BACK, GEORGE. Did Wyly Coyotes' Ill-Gotten Loot Buy White House?" gregpalast.com, August 11, 2005.
- Albert L. May, "Swift Boat Vets in 2004: Press Coverage of an Independent Campaign," George Washington University, published in First Amendment Law Review, Fall 2005 Vol. 4 pp. 101-106; as revised December 5, 2005.
2006
- Jake Tapper, "Gearing Up for '08? McCain Befriends Old Enemies," ABC News, April 23, 2006.
- "McCain 'befriends old enemies'," The Carpetbagger Report, April 24, 2006.
- "McCain's DoubleTalk Express Rolls Into Dallas," The Democratic Party, May 17, 2006.
- Jason Zengerle, "McCain's Wyly Ways," The Plank/The New Republic, May 18, 2006.
- Chris Cillizza, "McCain Returns Donations Made to PAC," Washington Post, May 25, 2006.
- Glenn R. Simpson, "Foreign tax shelter under scrutiny," Wall Street Journal (Star-Telegram (TX)), August 1, 2006.
- David Cay Johnston, "U.S. blows the whistle on tax cheats," New York Times/International Herald Tribune, August 1, 2006.
- Tim Funk and Rick Rothacker, "BofA admits errors to Senate. But bank is now more stringent in efforts to fight money laundering, executive says," Charlotte Observer (NC), August 2, 2006.
- Greg Newton, "Trust Week: Untrustworthy trusts I. Swift-boating the wily? Or trading loopholes for heavily-advised mavericks?" NakedShorts, August 7, 2006.
- Brendan M. Case, "Selling secret accounts draws scrutiny. Senate report blasts Dallas firm for offshore services for the masses," Dallas Morning News, August 13, 2006.
- Katie Fairbank and Sudeep Reddy, "Billionaire brothers under a microscope. They're known for gifts to charities, politics, but tax shelters scrutinized," Dallas Morning News, August 27, 2006.
- Trish, "Bankrollers of Swiftboat Vets and McCain Smear in Trouble With the Feds," Pensito Review, August 27, 2006.
In a 78-page complaint filed in a Manhattan federal court in New York, the SEC said the Wylys held and traded tens of millions of shares in companies on whose boards they served and "defrauded the investing public" by misrepresenting their ownership and trading of those stocks.
"The apparatus of the fraud was an elaborate sham system of trusts and subsidiary companies located in the Isle of Man and the Cayman Islands ... created by and at the direction of the Wylys," the SEC complaint stated.
Using this offshore system, the Wylys were able to sell stock worth more than $750 million in four public companies where they served as corporate directors. They also committed an insider trading violation at one of the companies that resulted in an unlawful gain of over $31.7 million, according to the complaint.
The complaint lists the four companies as Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc. and Scottish Annuity & Life Holdings Ltd., which is now known as Scottish Re Group Ltd.
"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, SEC deputy director of enforcement, said in a statement Thursday. "They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders."
The Wylys' defense attorney, William A. Brewer III of Dallas, called the charges "without merit" and said the Wylys "intend to vigorously defend themselves - and expect to be fully vindicated."
"At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation," Brewer said in a statement issued by his law firm.
In March, Forbes magazine estimated Sam Wyly's net worth at $1 billion. He has given generously to Republican causes and candidates, including the Swift Boat campaign that helped re-elect President George W. Bush in 2004 by tarring his Democratic opponent, Sen. John Kerry.
The Wyly brothers, with their wives, have donated almost $2.5 million to more than 200 Republican candidates and committees at the federal level over the past two decades (See Below), according to the nonpartisan Center for Responsive Politics.
Both Presidents Bush received donations from the Wylys. Other recipients included current and former Republican senators: Kay Bailey Hutchison, John Cornyn and Phil Gramm of Texas; Sam Brownback and Bob Dole of Kansas; Elizabeth Dole of North Carolina; Mel Martinez of Florida; Judd Gregg of New Hampshire; John Thune of South Dakota; and Kit Bond of Missouri.
Also named as defendants in the lawsuit are the Wylys' investment attorney, Michael C. French of Dallas, who was accused of covering the operation "with a false cloak of legality that was essential both to its concealment and its execution. Another defendant was the Wylys' stockbroker, Louis J. Schaufele III of Dallas, who was accused of using his position to conceal and misrepresent the Wylys' control over the securities and making insider trades himself.