* Wylys accused of concealing stock sales
* SEC says Wylys traded in company they planned to sell
* Lawyer says Wylys expect to be vindicated
(Adds paragraphs 4, 7-8 and 11)
By Jonathan Stempel
NEW YORK, March 31 The wealthy Texas brothers
Samuel and Charles Wyly on Thursday lost their bid to dismiss a
U.S. Securities and Exchange Commission lawsuit accusing them
of orchestrating a $550 million securities fraud and committing
U.S. District Judge Shira Scheindlin in Manhattan denied
motions to dismiss the complaint in its entirety. She said the
SEC adequately alleged the Wylys' liability for fraud, and
stated a claim for insider trading against the brothers.
Following a six-year probe, the SEC last July accused the
Dallas-based brothers of creating a sham web of offshore trusts
in the Isle of Man and Cayman Islands to conceal 13 years of
stock sales in four companies they founded or where they served
The regulator said the Wylys hid the sales to eliminate the
risk that disclosure would send a bearish signal to the market
and cause share prices to fall while they were selling.
Scheindlin agreed the SEC adequately pled the concealment
of sales in Sterling Software, Michaels Stores Inc, Sterling
Commerce Inc and Scottish Annuity & Life Holdings Ltd.
The judge also said the SEC may pursue a claim that the
Wylys reaped $31.7 million from insider trading on Sterling
Software after deciding in late 1999 to sell the company.
"A reasonable investor would almost certainly want to know
information related to the Wylys' planned sale," she wrote.
William Brewer, a lawyer for the Wylys, in a statement said
his clients were disappointed with the decision. "The Wylys
will continue to vigorously defend themselves, and they remain
confident they will be fully vindicated," he said.
Scheindlin also refused to dismiss SEC charges against
Louis Schaufele, a stockbroker, and Michael French, a lawyer
for the Wylys. Schaufele's lawyer Martin Auerbach declined to
comment. A lawyer for French did not immediately return a call
The lawsuit is among the higher-profile cases that the SEC
has pursued following criticism that its enforcement had been
lax and it failed to uncover Bernard Madoff's Ponzi scheme.
According to the SEC, the Wylys used their improper gains
to acquire nearly $100 million of real estate, including two
ranches in Aspen, Colorado, and a 100-acre horse farm outside
Dallas; to buy tens of millions of dollars in art, collectibles
and jewelry; and to make large donations to charitable causes.
The brothers built Michaels into a big arts and crafts
retailer before selling it for about $6 billion in 2006 to
private equity firms Blackstone Group LP (BX.N) and Bain
Capital Partners LLC. Sterling Commerce was sold for about $4
billion in 2000 to what is now AT&T Inc (T.N). Scottish Annuity
is a reinsurer now called Scottish Re Group Ltd SKRRF.PK.
Forbes magazine last September estimated that Samuel Wyly
was worth $1 billion.
The case is SEC v. Wyly et al, U.S. District Court,
Southern District of New York, No. 10-05760.
(Reporting by Jonathan Stempel in New York; Editing by Maureen
Bavdek, Gary Hill and Carol Bishopric)