US files civil charges in Cayman Islands insider trading scheme

AP: Source Photo

WASHINGTON, USA (AFP) — US market regulators on Thursday accused two Texas businessmen in a huge insider trading scheme involving Cayman Islands trusts and companies, saying they reaped undisclosed gains of 550 million dollars.

The Securities and Exchange Commission filed civil charges against brothers Samuel Wyly and Charles Wyly Jr. of Dallas, saying they violated federal securities laws governing ownership and trading of securities by corporate insiders.

The SEC said the brothers “reaped more than 550 million dollars in undisclosed gains while sitting on corporate boards by trading stock in those public companies through hidden entities located in foreign jurisdictions to conceal their ownership and trading of those securities.”

The agency said the brothers created an elaborate sham system of trusts and subsidiary companies in the Isle of Man and the Cayman Islands to sell more than 750 million dollars worth of stock in four public companies for which they were corporate directors and committed an insider trading violation for an unlawful gain of more than 31.7 million dollars.

The SEC charged also their attorney Michael French of Dallas and their stockbroker Louis Schaufele of Dallas for their roles in the scheme.

“The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws,” said Lorin Reisner, deputy SEC enforcement chief.

“They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.”

The SEC complaint said the scheme centered on publicly traded firms Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc., and Scottish Annuity & Life Holdings Ltd.

According to the SEC’s complaint, the Wylys exploited their insider knowledge of Sterling Software in October 1999 to reap an illicit gain for 31.7 million dollars.

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