Wyly Brothers Accused of Fraud by SEC
The Securities and Exchange Commission (SEC) has charged Samuel and Charles Wyly with civil fraud and tax evasion. The Texas billionaire brothers are accused of using offshore companies to amass $550 million through the trading of company stock on which they served as directors. The two are also accused of profiting $31.7 million on an insider trading deal in 1999.
The SEC claims to have discovered, over the course of a six-year investigation, many instances where the Wyly brothers hid information from investors that was required to be disclosed by the SEC. The investigation began after Bank of America contacted the SEC in an attempt to verify the brothers’ offshore assets.
What the SEC Requires
Individuals or entities that hold more than 5 percent of company’s stock are required to disclose this information. The SEC also requires executives and directors to disclose any purchase or sale of the company’s stock. The SEC requires these disclosures so other investors can use the information to determine whether or not to buy or sell shares of a company.
What the SEC Claims the Brothers Did
By using brokers, lawyers and others, the brothers are accused of transferring $190 million in stock options and warrants to offshore companies, and then turning the options and warrants into nearly $600 million by exercising the options and warrants. Because the brothers were able to hide their ownership of companies by using offshore companies, they were able to trade shares in the companies they owned without disclosing that information, in violation of SEC rules.
It is important to remember that the Wylys’ have not been convicted of a crime, only charged, and the SEC still has to prove its case – that the brothers committed civil fraud and tax evasion. According to Michael S. Knox, University of Pennsylvania Law School professor, stated: “There is a whole range of tax planning out there, and most of it is done in an attempt to reduce taxes.”
The potential consequences of allegations brought by the SEC are severe and charges should never be taken lightly. Businesspeople and investors in Travis County and Central Texas need an experienced Austin tax attorney when facing charges of civil fraud or evasion of taxes to ensure that their rights are fully defended.
