Texas tycoon Wyly points to lawyer’s advice in fraud trial
Texas businessman Sam Wyly told jurors on Wednesday he relied on the advice of his former lawyer in determining whether he needed to disclose stock holdings in offshore trusts at the center of a fraud case brought by the U.S. Securities and Exchange Commission.
Wyly, who took the stand for the second day during his trial in New York federal court, said that he relied on the lawyer, Michael French, and other individuals in preparing securities filings about his stock holdings.
“He advised me of the filings I was required to make,” Wyly said.
The SEC has accused Wyly, 79, and his late brother, Charles Wyly, of using a maze of offshore trusts and offshore entities to conceal stock trading from 1992 to 2004 in four companies on whose boards they sat.
The companies included Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc, and Scottish Annuity & Life Holdings Ltd.
The Wylys had denied wrongdoing, arguing they were not legally the beneficial owners of securities held in the trusts and had no duty to disclose them.
Charles Wyly died in an August 2011 car crash, and an executor for his estate was substituted as a defendant.
Wyly’s testimony on Wednesday could buttress his defense that he and his brother relied on the advice of French, a securities law expert, when they failed to disclose ownership of the securities held in the offshore trusts.
French, a former chief executive of Scottish Re Group Ltd, testified on Tuesday that he had expressed concerns about the level of control Wyly had exercised over the trusts. He told jurors Wyly had directly contacted trustees about specific transactions, rather than following the process set up in the trust documents.
But when asked Wednesday by his lawyer, Stephen Susman, if French had articulated concerns about the level of control he was exerting, Wyly replied: “No, he did not.”
French is appearing as an SEC witness after settling related charges and admitting wrongdoing.
French also testified that he was “bothered” by Wyly’s use of the trusts to buy personal items.
Among them was a 1910 painting by British realist John William Godward called “Noonday Rest,” which the SEC said an Isle of Man entity set up for the Wylys bought for 155,000 pounds after Wyly’s wife bid on it at a Sotheby’s auction.
“I felt like that was not proper,” French said.
But Wyly said French never expressed concerns about the painting’s purchase. Wyly said he didn’t need the trust to buy it, since he already had the money.
“Sure, sure, I’d buy it,” he said. “Great painting.”
The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.