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 Location : Ether-Sphere
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 |  Subject: More Anarcho-Capitalist Good News: In S.E.C. Fraud Suit, Texas Brothers Stand Firm  Tue Aug 24, 2010 12:17 am | |
| The Texas billionaire Sam Wyly has a laugh that blends the cackle of a mad scientist with the giggle of a teenager — a high-pitched titter that makes him sound thoroughly delighted. Until, that is, talk turns to the recent securities fraud suit against him and his brother, Charles.
At that point, Mr. Wyly’s laugh makes him sound thoroughly determined — and a little bit manic.
“I can tell you one thing,” he says in a twang that is a little bit Louisiana, where he was raised, and a little bit Texas, where he has spent most of his professional life. “They gonna lose. They gonna get nothing.”
Then his eyes brighten and he leans back in his chair. “Tee-hee-hee-hee!”
In the six years since the Securities and Exchange Commission started investigating the Wylys, the brothers have not spoken publicly about the business enterprises that produced so many unflattering national headlines about them: a maze of 58 trusts and shell corporations based in two well-known tax havens, the Isle of Man and the Cayman Islands.
The brothers were silent when a Senate subcommittee released a 2006 report accusing them of using hundreds of millions in untaxed dollars to pay for business ventures and to acquire art and jewelry, including a $622,000 ruby and a $937,500 painting of Benjamin Franklin. And until last week, they had referred to their lawyer all questions about the S.E.C.’s suit, which was filed in late July and accuses them of “an elaborate sham” designed to fraudulently sell more than $500 million in offshore assets.
But the Wylys have decided that after months of failed settlement talks with the S.E.C., it was time to make the first jab in the fight over public perception. In separate interviews conducted in this resort town where they spend summers, the Dallas-based entrepreneurs and deep-pocketed Republican donors offer a counternarrative to the government’s scathing 78-page complaint.
“I think it’s good politics to beat up on big companies and rich people,” said Sam Wyly. Soon, he said, “the election will be over, and this will be forgotten about, or lost, be shut down, be gone, will be nothing.”
For the S.E.C., which has been trying to shake off its pre-2008 torpor, the case might be another attempt to demonstrate some vigor and perhaps notch a new eight- or nine-figure fine, as it did with Goldman Sachs. What is certain is that the S.E.C. has spent a vast amount of time pursuing the Wylys, who have become the elusive White Whale to its Captain Ahab.
At one of the last settlement talks, the Wylys’ lawyer, William A. Brewer III, said he pointed out that since the investigation began, nearly every lawyer in the room — on both sides — had celebrated the birth of at least one child.
“If this goes on much longer,” he said looking around the conference room on the S.E.C.’s fourth floor, “our kids can settle this with a scrimmage.”
A spokesman for the S.E.C. says the agency’s investigation has been so lengthy because of its financial complexity and the Wylys’ efforts to cloak their actions offshore.
Now semi-retired, the Wylys became a team in the early ’60s and have jointly founded or acquired companies that sold steaks (Bonanza Steakhouse), arts and crafts supplies (Michaels Stores), software (Sterling Software), financial services (Maverick Capital, a hedge fund) and the list goes on.
Sam, who is 75, spotted the opportunities — he likes to call himself “the conceptor” — and Charles, who is 76, minded the details and organization.
They were known for acting quickly, for sometimes ruthless payroll cuts and for an occasionally stubborn devotion to their plans, even when the plans were doomed. Most notably, the two lost close to $100 million of their own and their shareholders’ money in the ’70s when a company called Datran failed to compete with AT&T in data transmission.
But they recovered from that fiasco. In 2000, Sterling Software was sold for $4 billion, and in 2006 Michaels was sold for $6 billion.
“It’s a game,” said Sam. “You win some, you lose some. Some are sort of a tie.”
Mostly, the Wylys have won. Depression-era babies, they were raised in rural Louisiana by a well-educated mother and father who fell on hard times by failing to hedge a cotton crop. For a time, the family moved into a shack without electricity or plumbing.
Today, Sam is on Forbes’s list of billionaires. Charles would not discuss his net worth other than to note, with a smile, “I’m not on that list.”
Charles came dressed for an interview like a man headed to a posh rodeo, in shiny leather boots, jeans and neatly pressed cowboy’s shirt. Like his brother, he does not drink, smoke or swear, in large part, he says, because the Wylys are Christian Scientists, a religion that discourages such behavior.
“We don’t carry on that way,” he explained, smiling at his own old-fashionedness. “You walk along and trip, you might say ‘dag-gummit.’”
The more outgoing of the two, Charles would like to be known for the time and money he gives to the arts and philanthropies. Outside of Dallas, however, if he and Sam are known at all it is for donations to Republican candidates and causes — including the Swift Boat campaign against Senator John Kerry in 2004 — and for the tax shelters that sparked what Charles calls “all the hallelujah.” Unlike his brother, he sounds a little rueful when he talks about both subjects.
“My reputation is more important to me than anything,” he said. “To the extent that people are bombarded with information, they might have the wrong impression. That bothers me.”
He regrets that he did not study the content of the Swift Boat ads more closely, he said, and emphasizes that the Wylys chipped in a small sum — about $30,000, he estimated — as a favor to a friend.
Sam, with his Burberry blazer and rumpled hair, looks like a professor and says that he would love nothing more than to be left alone to read and write books. (His autobiography, “1,000 Dollars and an Idea” was published in 2008, and other nonfiction works are on the way.) He says he almost never thinks about the lawsuit.
It took a few questions to get him to expound on the S.E.C. complaint, and the publicity that followed it.
“It’s a disaster, but you know what? There’ve been worse,” he said, grinning a bit incongruously.
The Wylys’ offshore adventures, according to Mr. Brewer, their lawyer, can be traced to the end of Sam Wyly’s marriage to his second wife, Torie Steele.
Once described in Dallas gossip pages as a “blond dynamo,” Ms. Steele tried with Sam Wyly’s backing to create a chain of luxury clothing stores in Texas called the Wyly Collection. That effort was not much more successful than the marriage, which ended in 1991. The divorce helped pique Sam Wyly’s interest in strategies for protecting assets.
Ms. Steele now runs a kennel in Malibu that breeds wire fox terriers. “I know it has been said that Sam moved his assets offshore to hide them from me,” she wrote in an e-mail. “I have moved on.” She added that her ex-husband is “a generous person and has given a lot back to many less fortunate.”
Mr. Brewer, in response, said that the Wylys’ first offshore trust was not even set up until a year after the divorce.
In 1991, the Wylys attended a seminar on overseas trusts taught by a lawyer named David Tedder, who boasted that no creditor had ever pierced the asset protections his firm established for clients.
Mr. Tedder would later, in an unrelated matter, be convicted of money-laundering and conspiracy to defraud the federal government and sentenced to five years in prison. But long before that, he became one of the first of dozens of attorneys who would help the Wylys move millions offshore.
The Wylys’ overseas trusts kept an armada of lawyers busy and grew into a small galaxy of corporations, trustees and dummy offices. The goal, according to the Wylys, was estate planning and tax deferral. In interviews, both brothers say they saw the trusts as little more than a fancy 401(k).
If there were mistakes in establishing them, or in disclosures required by law, it was the experts the brothers hired who fumbled things, according to Charles.
“We relied on people we thought were fine attorneys and accountants,” he said. “Really, it’s like building any business. You delegate and rely on keeping top management teams, and that was certainly the case in this. Never bothered with the details.”
The S.E.C. complaint also names a lawyer and a banker who worked for the Wylys as co-defendants in the case. Lawyers for the two men declined comment after the complaint was filed.
The S.E.C. maintains that the brothers knew, or should have known, that they were breaking the law. The agency says that the reason for the large number of trusts was to circumvent disclosure requirements on stock sales. This allowed the brothers, the S.E.C. says, to sell lucrative blocks of shares without tipping off other investors and realizing gains of more than $500 million.
The complaint also includes charges of insider trading by which the brothers profited by more than $31 million, the S.E.C. said.
How strong is the case? “Pretty strong,” said Ronald J. Colombo, an associate professor of securities and corporate law at Hofstra University, “though not a no-brainer.”
Professor Colombo, based on his reading of the complaint, said the S.E.C. was likely to argue that assets in those trusts were under the control of the Wylys. He said that when a person can command a trust to buy specific paintings and jewels, at a specific price, on a specific date, as the Wylys regularly did, that person would seem to be controlling it.
Mr. Brewer described the issue of control as largely beside the point. The Wylys did only what they were told to do by professionals, he stressed. Further, “no activity took place that even hints at some disadvantage to anyone in the market.”
Professor Colombo predicts a pretrial settlement, but efforts at resolving this dispute without a judge have gone on for years. The endgame occurred during two meetings at the S.E.C., a 30-minute negotiation in late June, followed by a 90-minute, get-ready-for-combat heads-up in July. The two sides were far apart, according to Mr. Brewer.
If filing the case was intended to push the Wylys to accept harsher terms, Sam vows it will not work. It’s not just that he and his brother did nothing wrong, he said:
“We made all the shareholders money, we made all the employees money, we did a good job for the customers, we did a good job for the vendors. We did everything you’re supposed to do with a company.”
Speaking softly, he smiled like a guy at low boil. “I could write them a check, but that’s not the point,” he said, unleashing another chortle. “It’s not about the money.”
ANCAPS: ANARCHO-CAPITALISTS |
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