Fraud

U.S. Judge Rules Texas Tycoon Committed Tax Fraud

U.S. Judge Rules Texas Tycoon Committed Tax Fraud

Texas investor Samuel Wyly.

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Texas tycoon Sam Wyly engaged in "deceptive and fraudulent actions" in a years-long scheme to dodge taxes on more than $1 billion held in offshore trusts, a federal bankruptcy judge ruled on Tuesday.

U.S. Bankruptcy Judge Barbara Houser in Dallas ruled that there was "clear and convincing evidence" Wyly committed tax fraud, rejecting his arguments that he relied on professional advisers to vet the offshore system.

"The Court does not believe that the law permits Sam to hide behind others and claim not to have known what was going on around him," Houser wrote.

The ruling followed a trial in which the Internal Revenue Service sought $1.43 billion in back taxes, penalties and interest from Wyly and $834.2 million from Caroline Wyly, the widow of his late brother Charles.

The IRS claimed the Wylys, through a scheme that dated back to 1992, used offshore trusts to avoid paying taxes on $1.1 billion while exercising stock options and warrants of four companies on whose boards the brothers sat.

While Houser found that Sam and Charles Wyly committed tax fraud, she ruled that Caroline "Dee" Wyly was innocent of wrongdoing and did not know the details of what was done offshore.

The judge directed the IRS and Sam Wyly's lawyers to attempt within 30 days to determine how much he should pay. If no agreement can be reached, Houser said both sides should submit proposals within 45 days.

Stewart Thomas, the Wyly family's general counsel, in a statement said while the Wylys were pleased Houser found Dee Wyly was innocent, "They are surprised and disagree with the court's fraud finding as to Sam and his brother Charles."

The ruling came nearly a year after Sam Wyly and the estate of Charles Wyly were ordered to pay the U.S. Securities and Exchange Commission $299.4 million for engaging in securities fraud through those same trusts.

In that case, a Manhattan jury in 2014 found the Wylys liable for scheming to hide $550 million in trading profits in the stocks of Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd., now called Scottish Re Group Ltd.

Following that verdict, Sam Wyly, who last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion, and Caroline Wyly filed for bankruptcy in October 2014. Charles Wyly died in a car crash in 2011.

The case is In re Samuel Evans Wyly, U.S. Bankruptcy Court, Northern District of Texas, No. 14-35043.

(Reporting by Eric M. Johnson in Seattle and Nate Raymond in New York; Editing by Simon Cameron-Moore and W Simon)

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