Judge Says Businessman Sam Wyly Hid Wealth Offshore
May 11 2016 - 10:50AM
Dow Jones News
Former billionaire Sam Wyly committed tax fraud by shielding
more than $1 billion in family wealth in offshore trusts, a federal
bankruptcy judge in Dallas ruled Tuesday.
Mr. Wyly's brother Charles, who is deceased, was also part of
the "deceptive and fraudulent" scheme, according to U.S. Bankruptcy
Judge Barbara Houser.
The ruling is a win for the IRS, which accused members of one of
Dallas's most prominent families of evading taxes while still
living the good life on money that came from the business
operations the Wylys once ran, including Michaels Stores and
Bonanza steakhouses.
Exactly how much Sam Wyly will have to pay remains to be seen.
The IRS sought $1.4 billion in back taxes and penalties from Sam
Wyly, and other money from Dee Wyly, widow of Charles Wyly.
Stewart Thomas, a lawyer for the Wyly family, said he was still
"evaluating" the 459-page opinion but that his clients disagreed
with parts of the ruling.
"While Sam and Dee Wyly are pleased that the court rejected the
IRS's gift tax claim and found Dee Wyly to be an innocent spouse,
they are surprised and disagree with the court's fraud finding as
to Sam and his brother Charles," Mr. Thomas said.
Sam Wyly filed for bankruptcy protection in 2014, in a bid to
deal with a $299 million damages award for federal securities law
violations involving the offshore trusts.
Judge Houser found Dee Wyly didn't commit tax fraud, and had no
reason to know the offshore money that was paying for lavish homes,
artwork and jewelry had been improperly hidden from U.S. tax
authorities. She was married to Charles Wyly for 56 years. He died
in 2011.
"There was nothing that should have 'tipped her off' that
something was amiss," the judge wrote.
Not so for Sam and Charles Wyly. Judge Houser didn't buy the
argument that the brothers reasonably relied on the advice of
lawyers and advisers in sending their money to an overseas tax
haven.
Lawyers for the accused Wylys contended the web of trusts were
set up for appropriate tax and estate-planning purposes, and
weren't under the family's control. They denied wrongdoing.
Judge Houser said she refused to find "that it is appropriate
for extraordinarily wealthy individuals to hire middlemen to do
their bidding in order to insulate themselves from wrongdoing so
that, when the fraud is ultimately exposed, they have plausible
deniability."
Bankruptcy court papers say Mr. Wyly has reined in his lavish
lifestyle, selling his New York City apartment and several
paintings through Christie's Inc. He has let go of both staffers in
his "family office," as well as writers who helped him author books
on entrepreneurship. The bankruptcy was meant to help Mr. Wyly
negotiate a repayment plan for his debts.
Securities and Exchange Commission officials had accused the
Wyly brothers of using a web of trusts and other entities based in
the Isle of Man and Cayman Islands to sell large portions of
shareholdings in four companies but not disclosing those sales in
filings with regulators over a 13-year period starting in 1992.
The Wylys built their fortune by founding or acquiring several
companies, including business-software makers Sterling Software
Inc. and Sterling Commerce Inc., arts-and-crafts chain Michaels
Stores Inc. and insurer Scottish Re Group Ltd. Sterling Software
was later sold to CA Technologies Inc. and Sterling Commerce to
AT&T Inc., which later sold it to International Business
Machines Corp.
Katy Stech contributed to this article.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
May 11, 2016 10:35 ET (14:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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