Dallas-based Wyly brothers, big GOP donors, rose together from rags to riches to SEC lawsuitBy Michael Graczyk, AP
Friday, July 30, 2010
Wealthy Dallas brothers become SEC fraud target
AUSTIN, Texas — Brothers Charles and Sam Wyly, born a year apart during the Great Depression, almost always have been joined at the hip.
They were kids when the collapsed economy forced the surrender of the family cotton farm in Lake Providence, La. Later, they starred on the high school football team, studied at Louisiana Tech University in the 1950s, and eventually set sales records at IBM.
They rose to the elite class of billionaires, A-list members of Dallas society and regular donors to philanthropic projects and primarily conservative Republican candidates and causes.
Now, the brothers are together again — named in a federal complaint that accuses them of using offshore havens to hide more than a half-billion dollars in profits over 13 years of insider stock trading.
If the two are found to have cheated investors, the financial fallout could affect politics, where Texas Republicans could see a huge source of political contributions wither.
In a 78-page federal complaint filed in New York City, the Securities and Exchange Commission said Thursday the Wylys held and traded tens of millions of shares in companies on whose boards they served and “defrauded the investing public” by misrepresenting their ownership and trading of those stocks and using “an elaborate sham system of trusts and subsidiary companies” offshore.
The brothers’ attorney, William A. Brewer III, said the SEC complaint was “without merit.”
“They have never been given any reason to believe the financial transactions in question were anything other than legal and fully appropriate,” Brewer said.
Charles Wyly, 76, and brother Sam, 75, with their wives, have donated almost $2.5 million to more than 200 Republican candidates and committees at the federal level over the past two decades, according to the nonpartisan Center for Responsive Politics.
The brothers themselves have said they’ve given about $10 million to Republican candidates and causes since the 1970s.
In Texas politics, they give big, but quietly, Austin-based political consultant Bill Miller said Friday.
“Their profile is pretty darn low,” Miller said. “I’m not saying its invisible because they’re proactive when they play. … They’re out there, but they’re subterranean.”
The brothers’ website credits them for always embracing “the opportunity to participate in our nation’s political processes.”
The elder Wyly is a former member of a White House Advisory Council for Management Improvement. In the 1970s, Sam Wyly was a member of the Electoral College and chairman of the Presidential Advisory Commission on Minority Enterprise during the Nixon and Ford administrations.
Over the past decade, incumbent Republican Gov. Rick Perry has been one of the biggest political beneficiaries, receiving more than $300,000 combined from the Wylys since 2000, according to Texas Ethics Commission reports.
Lt. Gov. David Dewhurst, Attorney General Greg Abbott and Comptroller Susan Combs also have been recipients. They have occasionally given small amounts to Democratic legislators from Dallas and also have contributed to political action committees.
“One of the most highly charged topics around is politics, and one that’s more highly charged is political money,” Sam Wyly told The Associated Press in 2008. “People just love to write and read about it.”
In 2002, they each gave $10,000 to Texans for a Republican Majority, the political action committee then-U.S. House majority leader Tom DeLay and his associates used to raise and spend money to defeat Democratic candidates and elect Republicans to the Texas Legislature. DeLay and two associates continue to fight criminal charges related to that political committee.
Both Presidents George H.W. and George W. Bush received donations. And the brothers helped bankroll the famous Swift Boat campaign that helped re-elect the younger Bush in 2004 by tarring Democratic opponent, Sen. John Kerry.
For Charles, who is married and a father of four and with seven grandchildren, and Sam, also married with six kids and 10 grandchildren, the road to wealth is classic rags-to-riches Americana.
In his 2008 memoir, “Entrepreneur to Billionaire: 1,000 Dollars & an Idea,” the younger Wyly, a one-time aspiring journalist, writes about growing up in a house without electricity to how he wound up in Dallas as an IBM trainee alongside a skinny kid from east Texas named Ross Perot, and how like Perot, he saw an opportunity to sell computing services to companies that couldn’t afford their own computers.
“I think there is just as good of opportunities today as when I started,” he said in the 2008 AP interview. “Some folks give up too soon when they should be persistent.”
With $1,000 to his name, he started University Computing, credited with pioneering “the marriage of the computer and the telephone,” according to the brothers’ website. Sam was chairman. Charles was president.
From there, sometimes acting with his brother, he bought and sold several companies including a mining company, Bonanza restaurants and Irving-based Michaels Stores Inc., which is among the companies named in the SEC complaint.
Over the years, Sam Wyly took on AT&T’s monopoly in data transmission, built Sterling Software then sold it to Computer Associates for $4 billion, only to launch a proxy fight against the new owners, which he settled for a payment of $10 million.
In February 2005, word of the SEC investigation that culminated with Thursday’s complaint was disclosed in a news release from Michaels, where the brothers had swapped roles as chairman since acquiring the firm in 1983.
In a statement late Thursday, their law firm pointed out since October 2006, when the $6 billion sale of Michaels was approved to private equity firms, “neither Charles nor Sam Wyly has been affiliated with any public company or registered entity.”
Graczyk reported from Houston. Associated Press writer David Koenig in Dallas contributed to this report.
Wyly brothers www.charlesandsamwyly.com/index.htm
Tags: Austin, Dallas, Fraud And False Statements, North America, Political Action Committees, Political Organizations, Texas, United States