SEC targets Sam Wyly in pursuit of admissions of wrongdoing

NEW YORK Mon Feb 10, 2014 5:12pm EST

NEW YORK Feb 10 (Reuters) - The U.S. Securities and Exchange Commission has demanded an admission of wrongdoing from Texas investor Samuel Wyly, as part of an ongoing policy shift from allowing defendants to settle lawsuits without acknowledging the charges against them.

Details of the settlement talks with Wyly emerged at a federal court hearing in New York last week, when SEC lawyer Gregory Miller told the judge that "we're just not going to settle unless there's admissions by the defendant."

Wyly, 79, and his brother, Charles Wyly, are accused of creating a series of offshore trusts to hide stock sales from 1992 and 2004 in four companies they founded or sat on the board. They have denied wrongdoing.

Stephen Susman, a lawyer for Wyly, did not respond to requests for comment on Monday. A spokesman for the SEC declined to comment on the SEC's strategy, which was revealed in a court transcript from Feb. 4.

The SEC has extracted admissions of wrongdoing from defendants in four cases since SEC Chair Mary Jo White unveiled the policy of pursuing admissions of guilt in June.

But some defense lawyers not involved in the Wyly case predict the new policy will prevent settlement deals from being made.

"People are very hesitant to agree to settlements with admissions of wrongdoing, and that's why over the long run you'd expect to see an increase in trials," said David Marder, a former SEC lawyer who is now at the law firm Robins, Kaplan, Miller & Ciresi.

U.S. District Judge Shira Scheindlin has directed the parties to sit down on Feb. 28 and discuss a possible settlement before U.S. Magistrate Judge Frank Maas, saying that she wanted "to see if there's anything to talk about." The case is set to go to trial on March 31.

The SEC's lawsuit accused the Wyly brothers of insider trading, claiming the Dallas-based brothers made $31.7 million from trades in Sterling Software Inc after deciding to seek a buyer in 1999.

The SEC accused the brothers, both large donors to conservative and charitable causes, of hiding stock sales of Sterling Software, Sterling Commerce Inc, Michaels Stores Inc and Scottish Annuity & Life Holdings Ltd.

The trusts were created in part to avoid sending bearish signals to investors, the SEC said.

Charles Wyly died in a car crash in August 2011, and an executor for his estate has since been substituted as a defendant. The lawsuit also names Michael French, a lawyer for the Wylys.

The SEC has reached one settlement with a fourth defendant, Wylys' stockbroker Louis Schaufele, who agreed last month to pay $498,693 to resolve claims stemming from his role in the scheme.

The case is set for a jury trial, though that could change. Wyly's lawyers have sought to have Scheindlin decide the case by a judge.

At last week's hearing, the judge said the request was in part because of Wyly's unspecified "medical problems."

The SEC is scheduled to respond by Tuesday on whether it wants to proceed with the case before a jury. A final pretrial hearing is scheduled for March 10.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

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