Bloomberg said that former Michaels Stores Inc. Chairman Samuel Wyly and the estate of his brother Charles are expected to go on trial in a Manhattan federal court today. The news agency said that the latest development was somewhat a victory for the US Securities and Exchange Commission, who had waited almost a decade to prosecute the Texas entrepreneurs. The lawsuit has been filed by the commission four years ago after a six-year probe.
SEC claimed said that the co-founders of the arts-and-crafts retailer had created a scheme that involved a labyrinth of offshore trusts and subsidiaries located in the Isle of Man and Cayman Islands to trade securities of companies whose boards they sat. The brothers had been indicted of hiding proof of ownership of the securities through the scheme since 1992 until 2004 in order to avoid laws that limit stock transactions by corporate insiders. Bloomberg said the SEC is seeking to impose penalties and against the brothers and for the court to force them to return $550 million of ill-gotten gains from the shady transactions.
"(The Wylys) knew or should have known that they were beneficial owners of these securities and that the alleged failure to disclose this information was part of the fraud scheme," the SEC said in its complaint.
The news agency said that the brothers had long since denied the allegations. They explained that the offshore trusts were done to benefit their families. Moreover, the Wyly brothers also said that their other offshore entities were done for tax planning purposes and for the protection of their assets.
Presiding US District Judge Shira Scheindlin will reportedly decide on whether the Wyly brothers are liable for insider trading. On the other hand, a jury will determine whether the brothers are liable for the other federal securities law violations that have been claimed by the SEC. The second phase will have Scheindlin decide on remedies like penalties should be imposed if the brothers are indeed liable, Bloomberg said.
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