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UPDATE 1-U.S. judge finds Texas tycoon Wyly not liable for insider trading
July 11, 2014 / 4:12 PM / in 3 years

UPDATE 1-U.S. judge finds Texas tycoon Wyly not liable for insider trading

(Adds details from ruling, background on case, byline, case citation)

By Joseph Ax

NEW YORK, July 11 (Reuters) - Texas tycoon Sam Wyly and his late brother, Charles, were found not liable for insider trading by a U.S. judge on Friday, two months after a federal jury found them liable for committing fraud by using offshore trusts to hide stock sales.

U.S. District Judge Shira Scheindlin in New York said the Securities and Exchange Commission had failed to show that the Wylys’ desire to sell a company they controlled, Sterling Software, was material knowledge that could form the basis for insider trading.

Spokesmen for the Wylys and the SEC did not immediately comment on the decision.

Scheindlin’s decision came a week after she presided over a one-day nonjury trial on the insider trading claim, a small part of a larger set of allegations the SEC brought in 2010 after years of investigation.

In May, jurors found Sam Wyly and the estate of Charles Wyly liable on all counts in the regulator’s largest case to reach trial in recent years.

Scheindlin is set to preside in August over a third trial, also without a jury, to determine the amount of damages the Wylys must pay to the government. The SEC has said it will seek at least $553 million, a figure the Wylys have disputed.

Sam Wyly, 79, is a former billionaire. His brother, Charles, died in a car crash in 2011.

The SEC lawsuit focused on a complicated system of trusts in the Isle of Man that the Wylys said they created for tax purposes. An executor for Charles Wyly’s estate was substituted as a defendant after his death.

Regulators claimed the Wylys used the trusts to conceal trading from 1992 to 2004 in four companies on whose boards they sat - Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now called Scottish Re Group Ltd.

The insider trading claim centered on whether the Wylys had already decided to sell Sterling Software when they executed $40 million in offshore swap transactions in October 1999 that allowed them to profit when the company was sold a few months later.

But Scheindlin said the Wylys took no concrete steps to sell the company until after the trades had been completed.

“While it is difficult to draw the line between inchoate desire and something more material, that line must be drawn somewhere,” she wrote.

The case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court for the Southern District of New York, 10-5760. (Reporting by Joseph Ax; Editing by Bernadette Baum and G Crosse)

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