- May 15, 2014
- Labaton Sucharow
The SEC secured a major trial victory this week after a federal jury in Manhattan found Texas investors Sam and Charles Wyly liable for all fraud and insider trading claims brought by the agency. The SEC successfully proved that the brothers (the latter of whom died before the case was brought to trial) had constructed an elaborate system of “sham” offshore trusts, which were used to conceal their ownership stake in several public companies, including the well-known Michael’s chain of arts and crafts stores. The Wylys, through the offshore trusts, then unlawfully traded in those companies’ stock without disclosing their ownership interests. They also executed certain trades based on non-public information about the upcoming acquisition of one of the companies, earning a profit of more than $30 million.
While the court has not yet determined the monetary sanctions the defendants will be forced to pay as a result of these violations, this verdict is significant win for the SEC, especially since the agency has come under fire for losing several high-profile cases. As we’ve noted in other posts, we think that the criticism of the SEC’s trial record is overblown – the agency won an impressive 75% of all trials between 2011 and 2013 – but it undoubtedly helps the Commission to receive another favorable verdict. Having been consulted about this case while at the SEC, I can attest to the fact that it was a particularly difficult one, involving a complex maze of entities and transactions and well-financed defendants. As Enforcement Director Andrew Ceresney noted, the verdict sends a strong message that the SEC “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.”
By Jordan Thomas and Vanessa De Simone
