Jury Sides With SEC in Wyly Brothers' Trial

Jury Sides With SEC in Wyly Brothers' Trial

The U.S. Securities and Exchange Commission has struggled in recent jury trials. But on Monday the agency managed to win over jurors considering its civil fraud case against Samuel and Charles Wyly, the brothers and business moguls accused of using offshore trusts to hide trades in four companies on whose boards they sat. The Wylys were represented by a father-and-son team at Susman Godfrey, Stephen and Harry Susman.

A federal jury in Manhattan returned a verdict that the Wylys engaged in securities fraud and violated reporting requirements for corporate insiders. The verdict follows a five-week trial before U.S. District Judge Shira Scheindlin and two-and-a-half days of deliberation. (The estate of Charles Wyly was swapped in as a defendant following his death in 2011).

Scheindlin will now weigh the SEC’s request that the Wylys forfeit $550 million in allegedly ill-gotten profits. At the defense’s request, the judge will also hold a bench trial on related claims by the SEC that the brothers made $31.7 million by trading stock in Sterling Software using inside information.

“We proved that the Wylys used a system of offshore trusts to conceal their transactions as directors of publicly traded companies,” SEC enforcement chief Andrew Ceresney said in a statement. “We will continue to hold accountable, and bring to trial when necessary, those who commit fraud no matter how complex their scheme or how hard they try to hide it.”

When the SEC brought suit in 2010, it named as a codefendant a lawyer for the Wylys, Michael French, a former Jackson Walker partner and former Jones Day consultant. French struck a deal with the SEC two weeks before trial, agreeing to pay $795,000 and admitting wrongdoing. French was a star witness at trial for lead SEC lawyer Bridget Fitzpatrick.

“This was the rare situation of the defendants’ former attorney acting as a key witness against his former clients,” said Eugene Goldman, a partner at McDermott Will & Emery and a former SEC lawyer, in an email.

During trial, Stephen Susman told jurors that the offshore trusts at issue were used for tax benefits. “We are deeply disappointed by the jury’s decision today,” he said following the verdict. “Despite the setback, we maintain that Sam and Charles Wyly acted in good faith. We will continue to fight for justice through the next phases of the legal process.”

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