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Businessman's reputation, cash on line at NY trial

Published on NewsOK Modified: April 27, 2014 at 9:38 am •  Published: April 27, 2014

NEW YORK (AP) — For decades, Sam and Charles Wyly won admiration as Texas entrepreneurs skilled at building businesses worth billions of dollars. But a regulatory agency is casting them in a new light at a civil trial, saying the brothers earned more than $500 million through fraud and deception by secretly trading the securities of public companies they controlled.

The onetime IBM Corp. employees have a long string of business successes. They took a small chain of Bonanza Steakhouses national before successfully marketing an arts and crafts retail chain, Michaels Stores Inc. — which sold for $6 billion — and then rode the technology boom of the 1990s with their company Sterling Software, which Computer Associates bought for $4 billion.

Their success for a time put Sam Wyly on the Forbes list of billionaires and elevated the brothers' status in Dallas, where they have donated millions of dollars to mostly conservative Republican candidates and causes and $20 million to help build Dallas' performing arts center.

The Securities and Exchange Commission says they ran afoul of securities laws in the early 1990s when they embraced the teachings of a speaker at an asset and wealth preservation seminar. The SEC said they set up secret offshore trusts in the Isle of Man to make millions of dollars in trades on the securities of four public companies they controlled. And they are accused of doing all this while hiding the activity from regulatory agencies and investors entitled to know the true extent of their ownership.

"This is a case about lies, deception and fraud," SEC lawyer Bridget Fitzpatrick told a Manhattan jury in opening statements at the trial for Samuel Wyly, 79, and the estate of his brother, who died in a 2011 car accident in Aspen, Colo., at 77.

She said the men used money they earned through the trusts to build businesses and homes and to fund an Aspen art gallery and a Dallas horse farm.

The lawyer said the offshore investments enabled them to claim they owned less than 20 percent of Michaels when they owned over 40 percent and that they owned less than 1 percent of Scottish Annuity & Life Holdings, also known as Scottish Re, when they owned up to 16 percent.

Fitzpatrick also alleged the men engaged in insider trading by making a $40 million bet in 1999 that the price of Sterling Software would go up when they knew it was a sure thing because they were trying to sell it.

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