Contentious Wyly case continues to unfold

Contentious tax litigation can take a very long time to resolve.

For over two years, we’ve been following a complicated fraud and tax evasion case involving two Texas brothers, Charles and Sam Wyly, who set up a series of offshore tax shelters that ran afoul of federal regulators.

The twists and turns have included Charles’s death and Sam’s bankruptcy filing. The case also involves monetary sanctions by the Securities and Exchange Commission (SEC) and huge tax penalties.

In this post, we will update you on the latest development: Sam Wyly’s settlement with the SEC.

SEC concern about illegal trusts

The Wylys made hundreds of millions of dollars through several businesses, including Bonanza steakhouses and Michael’s craft stores. But they started drawing scrutiny from federal regulators (SEC and IRS) for possibly using illegal offshore tax shelters in the Isle of Man and elsewhere.

In 2010, the SEC charged the brothers with civil fraud. The brothers contended that their offshore trusts in the Isle of Man and elsewhere for their businesses were not created to sidestep SEC disclosure requirements or hide the income from sales of their companies from taxation.

Four years later, the civil fraud case went to trial and resulted in tens of millions of dollars in civil fines against the two brothers. Charles died in 2011, so the fines were against Sam and Charles’s estate. We discussed this in a post in October 2014.

Before the SEC could collect fines from Sam Wyly, however, he filed for bankruptcy.

Latest developments

Sam Wyly has reportedly reached an agreement with the SEC to resolve the civil sanctions against him. The amount is $181 million. The settlement is pending approval of the bankruptcy judge, as well as SEC commissioners.

Meanwhile, there remains the issue of the stupendously large tax penalties imposed by the IRS against Sam Wyly for the income he attempted to shelter through offshore trusts. That amount is a staggering $1.11 billion. According to media reports, Sam Wyly is negotiating with the IRS, seeking a settlement that would reduce those penalties.

In other words, this long-running case still isn’t over.