Regulator Seeks Tough Penalty for Tax Evasion Case
The Securities and Exchange Commission wants to make an example of two Texas brothers found by a jury at a civil trial to have acted fraudulently to evade taxes, but a defense lawyer said Wednesday that the more than $750 million sought by the government is “hotly contested.”
A Manhattan federal judge will be left to decide on a figure in the penalty phase of a trial against Sam Wyly and the estate of his brother Charles, who a jury found avoided taxes from 1992 to 2002. The government said they paid no taxes on more than $500 million earned through offshore trusts designed to dodge taxes.
Attorney Stephen D. Susman told Judge Shira A. Scheindlin that the SEC’s analysis of how much money must be handed over was “entirely overblown,” and that the most that could be ordered to be surrendered was less than $24 million.
Besides, he added, there’s not enough money to pay up if the SEC gets what it wants and the “amount of disgorgement is hotly contested.”
Susman said Charles Wyly’s estate has about $30 million in the United States while Sam Wyly has about $70 million plus a $12 million annuity. The lawyer said, though, that more than $380 million rested in offshore accounts.
Those offshore accounts were the focus of a trial earlier this year in which a jury found that the brothers tried to hide some of the assets they controlled in four public companies that were sold for billions of dollars.
Sales of companies owned by the Wylys generated more than $14 billion. They included the arts and crafts retail chain Michael Stores Inc. and two technology companies. After the sales, Sam Wyly was on the Forbes list of billionaires for a time. Charles Wyly died in a 2011 car accident in Aspen, Colo., at 77.
On Monday, SEC lawyer Bridget Fitzpatrick said the brothers used some of their gains to invest $600 million in U.S. business, $85 million in real estate and $40 million in furniture, art and jewelry.
“There was a decision to violate the law here, your honor, and that decision was made, in part, because Sam Wyly believed it would be profitable even if he got caught,” Fitzpatrick said.
She said forcing the Wylys to relinquish hundreds of millions of dollars was the only way to prevent future schemes by others who want to circumvent tax laws designed to prevent people from avoiding taxes on millions of dollars in profits.
