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NEW YORK, March 20 (Reuters) - A former lawyer for the wealthy Texas investors Samuel and Charles Wyly agreed to pay nearly $795,000 and admit to wrongdoing to resolve regulatory charges that he assisted the brothers in a multi-year $550 million fraud, according to court papers filed on Thursday.
The settlement between the lawyer Michael French and the U.S. Securities and Exchange Commission was disclosed just 1-1/2 weeks before jury selection was set to begin in the case. The SEC has accused the Wyly brothers of using offshore trusts to hide stock sales in four companies closely tied to them.
The accord marked the seventh time that the SEC has obtained an admission of wrongdoing from a defendant as part of a new settlement policy unveiled in June 2013 by SEC Chair Mary Jo White.
The SEC had previously disclosed in court that it engaged in settlement talks with Samuel Wyly similarly demanding an admission of wrongdoing, but no deal has emerged.
Charles Wyly died in an August 2011 car crash. An executor for his estate was substituted as a defendant. Jury selection is expected to begin on March 31.
Joshua Klein, a lawyer for French, declined to comment. Lawyers for the Wylys did not immediately respond to a request for comment.
The SEC accused the Wylys in a 2010 lawsuit of using offshore trusts and subsidiary companies in the Isle of Man and the Cayman Islands to conceal the sale of more than $750 million in stock sales over a 13-year period from 1992 through 2004 in four companies they founded or served as members of the board of directors.
Those companies were Michaels Stores Inc, Sterling Software Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now known as Scottish Re.
The SEC also accused the Dallas-based brothers of insider trading, claiming they earned $31.7 million from trades in Sterling Software after deciding in 1999 to seek a buyer.
In his settlement, French agreed to give up $400,000 of alleged illegal profit plus $394,609 of interest.
He also admitted to conduct related to activity that is part of the SEC's case against the Wylys, for whom he began to work in 1992 after leaving the law firm Jackson Walker.
According to an admission of facts signed by French, this conduct "was undertaken by French in connection with the purchase, offer, or sale of a security," and "French acted intentionally or recklessly in connection with the violations described (in the admission of facts)."
The SEC had accused French of using his positions as the brothers' lawyer and as a director of three of their companies to hide their ownership stakes and trading. The regulator also accused French of using his positions to set up and trade in his own offshore entities without proper disclosures.
Thursday's settlement is the second in the Wyly case.
A former stockbroker for the brothers, Louis Schaufele, agreed to pay $498,693 in a settlement disclosed in January.
French is still expected to be a key witness at trial, having helped establish the trusts at the center of the case while in the Wylys' employ.
Lawyers for Samuel Wyly and the executor for Charles Wyly's estate are expected to argue that they relied on the legal advice of French in not disclosing ownership of the securities held in the offshore trusts.
The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760. (Editing by Jan Paschal)