By Nate Raymond
NEW YORK (Reuters) - A jury on Monday found that Texas business brothers Samuel and Charles Wyly committed fraud by creating a secret scheme involving offshore trusts that netted them $550 million in illegal trading profits.
Jurors in Manhattan federal court found Samuel Wyly and the estate of his brother liable on all claims brought by the U.S. Securities and Exchange Commission, in the regulator's largest case to go to trial in recent years.
Samuel Wyly, 79, last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion. Charles Wyly died in a car crash in 2011, and an executor for his estate was substituted as a defendant.
The trial followed years of litigation and investigation by the SEC and other authorities of the Wylys, who acknowledged creating a maze of trusts in the Isle of Man in an effort to obtain tax benefits.
The case was seen as a test of the SEC's trial capabilities following losses in some of its recent cases, including a verdict in which billionaire Mark Cuban was found not liable last October on insider trading charges.
"We are deeply disappointed by the jury's decision," Stephen Susman, the Wylys' lawyer, said in a statement. "Sam and Charles Wyly acted in good faith. We will continue to fight for justice through the next phases of the legal process."
The SEC said the trusts were designed to conceal trading from 1992 to 2004 in four companies on whose boards the Wylys sat. They included Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now called Scottish Re Group Ltd. The SEC said the scheme netted $550 million.
The SEC also contends the Wylys earned $31.7 million from insider trading in Sterling Software after selling the company in 1999. Those claims will be decided by U.S. District Judge Shira Scheindlin, who also will determine the penalties. A trial on remedies is scheduled for August 4.
The Wylys denied wrongdoing, contending they were not legally the beneficial owners of securities held in the trusts and had no duty to disclose them.
Samuel Wyly was in Texas rather than the New York court on Monday. One of Charles Wyly's daughters could be seen crying as the verdict was read.
The 12 jurors deliberated over 2-1/2 days. Kevin Rothman, a retired letter carrier, said one juror had been a holdout until ultimately convinced the Wylys did not have a viable defense.
"We couldn't see it, we couldn't find it," he said.
Andrew Ceresney, director of enforcement of the SEC, welcomed the jury's findings.
"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," Ceresney said in a statement.
The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.
(Editing by Noeleen Walder and Grant McCool)