Articles Posted in Texas Securities Fraud

The U.S. Securities and Exchange Commission wants Sam Wyly and the estate of his brother Charles to pay $750M for securities fraud involving an offshore tax scam. The Texas billionaire siblings were found liable in civil court earlier this year. Now, the case has gone to trial to determine how much the Wylys must pay in damages.

According to the federal jury that issued the verdict, the Wylys are liable for the offshore trusts and other entities on the Cayman Islands and the Isle of Man that garnered them $553 million in profits between 1992 and 2004 via concealed trades. The fraud involved offshore transactions with four of their companies in which they sold shares. The sales should have been noted in regulatory filings but were not listed.

Now, the SEC is saying that it should be entitled to all unpaid taxes on the profits from the scam in addition to interest. Lawyers for the brothers, however, are contending that the proper penalty is $1.38 million and that the law does not support the regulator’s disgorgement theory. They are also arguing that the SEC cannot step into the Internal Revenue Service’s shoes. (During the fraud, the U.S. government was not aware that the Wylys owed taxes because they did not disclose their control of the trusts. )

A Texas jury has convicted to two ex-ArthroCare executives with operating a $400 million scam to bilk investors. Michael Baker, the former CEO, was found guilty of wire fraud, securities fraud, conspiracy to commit both, and making false statements. Michael Gluck, the ex-CFO, was found guilty of securities fraud, wire fraud, and conspiracy to commit both also. ArthroCare manufactures medical devices.

According to prosecutors, from 2005 until 2009 the two men and others inflated sales and revenue by tens of millions of dollars through transactions with several ArthroCare distributors. Some of the transactions occurred because the medical device maker had to satisfy sales forecasts and not to fulfill distributors’ product needs. As a result, ArthroCare sent million of dollars worth of devices to these distributors, reporting the deliveries as sales in yearly and quarterly filings. This let ArthroCare meet and sometimes even exceed predicted sales.

Meantime, the distributors consented to the extra inventory in return for cash commission, extended terms of payment, and a refund option. Gluk and Baker even compelled the company to acquire DiscoCare, a distributor, to hide the nature of these sales.

The civil trial is underway between the Securities and Exchange Commission and brothers Sam and Charles Wyly (The latter is deceased after he died in a car crash in 2011). The regulator is accusing the Texas siblings of using offshore trusts to hide over $750M of stock sales in companies in which they are board members and engaging in a $550M securities fraud.

In its Texas securities case, the SEC claims that between 1992 and 2004 the Wylys concealed stock trading in Sterling Software Inc., Sterling Commerce. Inc., Michaels Stores Inc., and Scottish Annuity & Life Holdings Ltd. by using entities and offshore trusts. The brothers also are accused of making $31.7 million in insider trading profits involving Sterling Software after the company was sold in 1999.

At issue is whether the Wylys were in control of the offshore trusts and if so then they may have also violated US tax laws. That said, the statute of limitations for charges involving tax evasion is six years.

Even though jurors rendered a mixed verdict in the Securities and Exchange Commission’s financial fraud lawsuit in Texas against Life Partners Holdings Inc. (LPHI), the company still may have ended up with the better outcome because the Texas life-insurance investments seller won some of the bigger claims. Still, Even as Life Partners is declaring the securities case outcome a victory, Andrew Ceresney, the Commission’s enforcement director, said the agency was pleased that the defendants were found liable for defrauding shareholders and submitting SEC filings that were false.

In U.S. District Court in Austin, Texas, the regulator had accused Life Partners of disclosure and accounting fraud that purportedly went on for years and were related to misleading marketing practices that allegedly occurred during the sale of life-insurance investments to customers. While jurors turned down the SEC’s primary insider trading and fraud allegations, they found the company and two of its executives liable in a securities fraud violation of a narrower scope involving revenue-recognition practices. Also, Life Partners’ CEO Brian D. Pardo and general counsel R. Scott Peden were were found liable for their role in the filing of false reports, and Pardo also was found to have falsely certified company filings.

Meantime, Life Partners continues to be the defendant in a number of Texas securities cases, including one involving 207 plaintiffs in Dallas who went through the company to invest in life policies. State regulators also have a separate Texas securities fraud lawsuit against Life Partners they are appealing in the wake of the decision by a state judge to turn down some of the main claims it made in 2012. The Texas State Securities Board has been looking into allegations that the life settlement provider misled investors of life insurance policies.

Austin-based medical device manufacturer ArthroCare Corporation (ARTC) will pay $30 million to settle allegations that its senior executives were involved in a Texas securities scam that caused shareholders to lose over $400M. The company’s former senior VPs, David Applegate and John Raff, have already pleaded guilty to conspiracy to commit wire fraud and securities fraud over the financial scam.

As part of the deferred prosecution settlement, the US Justice Department has filed a complaint in the Western District of Texas charging the company with one count of conspiracy to commit securities fraud. The medical device maker will continue to cooperate with the government in its ongoing probe and pursuit of the individuals involved in the financial fraud. ArthroCare’s ex-CEO and CFO are scheduled to stand trial later this year.

In this Texas securities settlement, the company admitted that its executives inflated its revenues by tens of million of dollars, hid the nature and financial importance of its relationship with certain distributors, and engaged in bogus transactions to manipulate earnings and revenue. ArthroCare also acknowledged that these executives caused it to “park” millions of dollars worth of medical devices at distributors during the end of each relevant quarter to make it appear as if these were shipments (meaning supposed sales).

Ricky Williams, the ex-NFL and University of Texas running back, is suing Peggy Fulford and King Management Group & Associates for securities fraud. He says that he and his wife were bilked of $6 million. Now, Williams wants an injunction, a restraining order, and damages for breach of contract, theft, and breach of fiduciary duty.

Williams claims that Fulford has been in control of most of his approximately $11 million fortune since 2007 when he and his wife went into an oral agreement with the financial adviser and King Management to have them manage their assets. He says that Fulford told them she had graduated from both Harvard Law School and Harvard Business Law School and that she was licensed to practice law in Texas. Williams is now saying that no record exists of Fulford attending either graduate program or having been admitted to the State Bar of Texas. Fulford lived in Houston between 2011 and 2013 before moving out of state.

Williams says that he and Fulford established a joint checking account at SunTrustBank and that without his knowing or consent she obtained and used a debit card linked to the account. It wasn’t until last year when the IRS called him to ask about his 2010 tax return that Williams discovered that Fulford had removed $6 million from his account via debts, wire transfers, cash withdrawals, and checks and that the money was used for mortgage payments, retail purchases, credit card bills, other debts, transfers to other accounts, and other purposes. She also purportedly pretended to be his wife when she spoke to the government agency.