A Step Toward Credibility – SEC Wins In The Wyly Case

by Dorsey & Whitney LLP

The SEC won a significant courtroom verdict Monday when a jury in New York returned a verdict in favor of the agency in the complex, high profile trading action brought almost four years ago against Samuel Wyly and the estate of his late brother Charles Wyly, Jr. who passed away during the case. Samuel Wyly is the founder of Michael’s Stores Inc.. SEC v. Wyly, Civil Action No. 10-cv-5760 (S.D.N.Y. Verdict May 12, 2014). The courtroom victory is a rare recent win in a high profile case for an agency which has struggled to find its footing in the wake of its “get tough” enforcement approach which keys to trial wins.

The thirteen year fraudulent scheme detailed in the Commission’s complaint centered on an elaborate system of trusts and subsidiary companies located in the Isle of Man and the Cayman Island involving four public companies. The off-shore system of trusts and entities was used to conceal the ownership and control of the two brothers in Michaels Stores, Inc., Sterling Software, Inc., Sterling Commerce, Inc., and Scottish Annuity & Life Holdings Ltd. This made it appear that the two brothers only stake in each issuer was their small U.S. holdings in each firm. In fact the SEC claimed that the two brothers controlled significant holdings in each issuer, all of which was concealed from the public and the markets.

During the scheme Samuel Wyly and his brother sold over $750 million of stock in the group of issuers without disclosing their beneficial ownership, according to the Commission. The Wyly defendants failed to report their ownership interests in these issues as required by Schedule 13D and Form 4. This permitted them to sell in large block trades alone over 14 million shares of stock in the issuers for a profit of $550 million.

The scheme also permitted them to make a huge investment in Sterling Software in October 1999 based on inside information. As Chairman and vice-Chairman of the company the two brothers had decided to sell the firm. When that transaction was ultimately announced the Wyly defendants had ill-gotten gains of over $31.7 million.

Initially, William French, attorney to the two brothers, was named as a defendant. The complaint alleged that he took key legal steps which were essential to the scheme to conceal the interest of the brothers in the issuers through the offshore trusts and entities. Shortly before trial, however, Mr. French entered into an arrangement with the Commission which included an agreement to testify for the agency. His testimony reportedly detailed the steps he took to conceal the interests of the Wyly defendants.

The Commission’s complaint alleged violations of Exchange Act Section 10(b), 13(d), 14(a) and 16(a). Judge Scheindlin will hold a hearing to consider remedies.

The victory in Wyly may represent a significant turn of fortune for an agency which has struggled in recent major cases and in the courtroom. Indeed, the SEC has lost three of its last four major cases – Primary Reserve Fund, Brian Stoker and Mark Cuban while prevailing only against Fabrice Toure. It also had a series of losses in other cases beginning late last year and continuing through earlier this year (here). Those defeats have undermined the credibility of a program which relies on a “get tough” approached backed by the threat of going to trial. Prevailing in a complex, difficult and high profile case such as Wyly is a step back on the road to credibility for the enforcement program.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dorsey & Whitney LLP | Attorney Advertising

Written by:

Dorsey & Whitney LLP

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.