They're Not Named Wyly For Nothing

The SEC has charged billionaire Texas investors Charles and Sam Wyly with securities fraud that netted them $550 million in illicit profits through insider trading. The two brothers are among the most important donors to Republican conservative causes, and first came to public attention with their funding of the Swift Boat ads that upended John Kerry’s campaign for the presidency before it even began.

Also indicted were Michael C. French, the brothers’ investment advisor, and their stockbroker Louis J. Schaufele III, both from Dallas, who were accused of abetting the scheme by giving it a veneer of legality and hiding the control the Wyly’s exercised over offshore funds used in the fraud.

The alleged scheme involved trusts and subsidiaries in the Isle of Man and the Cayman Islands, through which over a 13 year period the Wyly’s entered into more than $750 million of illegal stock sales. The sales were in stock of companies with which the Wyly’s were intimately familiar because one or the other served on the board of directors. The SEC noted as one example that Sam Wyly served as chairman of the board of Michael’s stores, and used inside information to sell shares of the company secretly.

In the corporate world, what makes these allegations jaw-dropping is the betrayal they represent of a director’s fundamental ethical responsibility to serve the interests of the company and the shareholders who own it. The Wyly’s were secretly selling stock in the companies they were publicly supporting as directors, an activity that will likely make them pariahs in the clubby world of executives and wealthy investors who are selected to serve on the boards of major companies.

What makes the indictment politically curious is that the Wyly’s defense attorney stated not only that the brothers are innocent and will defend themselves vigorously, but that the SEC is trying to salvage something from a misguided investigation of the brothers that began six years ago. That would put the initial investigation into the Wyly’s activities in 2004, right in the middle of the campaign to reelect George W. Bush, and in the middle of the Swift Boat ad campaign.

As prominent and wealthy Texan donors to Republican causes over many years, the Wyly’s were certainly known to the Bush family and especially to Karl Rove, who was said at the time to have used Wyly funding of the Swift Boat campaign to mask the White House’s role in mounting this attack ad. The Swift Boat ad was a hallmark Rove operation, in that it attacked the major strength of the opposition candidate. Rove said at the beginning of the campaign that by the time it ended the public wouldn’t be able to decide if John Kerry was a war hero or traitor. Public opinion polls showed that the ads certainly left doubts in the public mind on this very point, even though none of the veterans in the ads served with Kerry during the Vietnam War. Those who did came forward and stated that the ads were scurrilous and mocked the reputation of a true war hero.

Why, then, was the White House allowing the SEC to investigate the two men responsible for funding such an important part of the 2004 campaign? Was this a whistleblower case that forced the SEC to look into the Wyly’s complex and secretive web of offshore companies? Was the case deliberately bottled up over the next four years while Bush served out his second term? Or did it merely take that long for the SEC to gather enough evidence from its investigation to go forward with a trial? Why has it taken the Obama administration two further years to pursue this case, and does the timing of the announcement have anything to do with the recent establishment by Karl Rove of a company whose purpose is to conduct “opposition research” on Democratic candidates? Op research efforts often result in advertisements on television and radio, and Karl Rove will certainly need wealthy donors to pay for these ads.

If the case proceeds to trial, the SEC may seek jail terms for the two Wyly brothers.

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Numerian is a devoted author and poster on The Agonist, specializing in business, finance, the global economy, and politics. In real life he goes by the non-nom de plume of Garrett Glass and hides out in Oak Park, IL, where he spends time writing novels on early Christianity (and an occasional tract on God and religion). You can follow his writing career on his website,

3 CommentsLeave a comment

  • To the rich.

    Many of the rich hide their assets in such ways. If these two are nailed, then it sends a message to the others to come clean.

  • In the corporate world, what makes these allegations jaw-dropping is the betrayal they represent of a director’s fundamental ethical responsibility to serve the interests of the company and the shareholders who own it.

    Thirty years of propaganda about how self-interest is the natural basis of all human activity and therefore must not be crippled by those nasty bureaucrats and their regulations have left me finding this statement amazing.

    Hollowing out America’s industries? That’s inevitable globalism.

    Mass layoffs and wage reductions? Labor flexibility and holding costs down.

    Raiding pension funds? Efficient cutting of legacy costs.

    Predatory lending? Savvy businessmen.

    No ethics anywhere in any of that. And now suddenly you tell me that rich men with financial power are supposed to have ethics? Now that’s jaw-dropping.

  • Still, I bet you there are some board members who served with these guys who are not so much surprised at trading on inside information, as they are that the Wyly’s shorted the company stock while serving as directors.

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