NEW YORK, July 2 The U.S. Securities and Exchange Commission on Wednesday urged a judge to find Texas tycoon Sam Wyly and his late brother, Charles, liable for insider trading, after a jury found they committed fraud by using offshore trusts to hide stock sales.
Lawyers for the SEC told U.S. District Judge Shira Scheindlin in Manhattan the Wylys executed $40 million worth of swap transactions involving shares of Sterling Software after privately deciding to sell the company in 1999.
"It was the crowning achievement of their fraudulent scheme," Martin Zerwitz told the judge during a three-hour nonjury trial.
But Stephen Susman, the Wylys' lawyer, said the SEC failed to show the brothers took any concrete steps to sell the company before executing the swap transactions.
In May, jurors found Sam Wyly and the estate of Charles Wyly liable on all counts brought by the SEC in the regulator's largest case to reach trial in recent years.
Scheindlin, who presided over the trial, will decide the insider trading claim without a jury, based on Wednesday's arguments and evidence presented at the jury trial.
The judge will also oversee a third trial in August on the amount of damages the Wylys must pay to the government. The SEC has said it will seek up to $553 million, a figure disputed by the Wylys.
Sam Wyly, 79, appeared on Forbes' list of the richest Americans in 2010 with a net worth of $1 billion. Charles Wyly died in a car crash in 2011, and an executor for his estate was substituted as a defendant.
The lawsuit, filed in 2010, came after the SEC and other authorities investigated a complicated system of trusts in the Isle of Man that the Wylys acknowledged they created for tax purposes.
The SEC claimed the trusts concealed trading from 1992 to 2004 in four companies on whose boards the Wylys sat: Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now called Scottish Re Group Ltd.
Wednesday's trial centered on whether the Wylys had already decided to sell Sterling Software when they executed offshore trades in October 1999 that allowed them to profit when the company was sold a few months later.
Scheindlin expressed some skepticism about the SEC's theory, saying there was no evidence the Wylys took concrete steps to sell the company at the time of the trades.
"It's a bit of a stretch," she said.
The SEC said the Wylys controlled Sterling Software's board and thus knew the sale was a done deal. That, the regulator argued, established they traded on material nonpublic information.
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 Steve Orlofsky)