(Adds details from ruling, background on case, byline, case
By Joseph Ax
NEW YORK, July 11 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
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
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
(Reporting by Joseph Ax; Editing by Bernadette Baum and G