Texas tycoon Sam Wyly engaged in “deceptive and fraudulent actions” in a years-long scheme to dodge taxes on more than $1 billion held in offshore trusts, a federal bankruptcy judge ruled on Tuesday.
U.S. Bankruptcy Judge Barbara Houser ruled that there was “clear and convincing evidence” against Wyly who will be required to pay, according to the Texas Law Book, as much as $1.4 billion in back taxes and penalties.
The Internal Revenue Service (IRS) had initially sought $3.22 billion in back taxes, penalties and interest from Wyly and Caroline Wyly, the widow of his late brother Charles, in a trial that opened at the federal bankruptcy court in Dallas earlier this year.
The IRS later reduced its claims, saying it was now seeking $1.43 billion from Sam Wyly and $834.2 million from Caroline Wyly.
The IRS claimed the Wylys, through a sheme that dated back to 1992, used offshore trusts to avoid paying taxes on $1.1 billion while exercising stock options and warrants of four companies on whose boards the brothers sat.
“The Court is convinced—by clear and convincing evidence—that Sam and Charles committed tax fraud,” Houser wrote, adding that Caroline was unaware of the scheme and was innocent.
The Wylys argued that they relied on a network of advisors and lawyers who vetted the offshore system and advised them on their taxes.
“Sam knew what was happening in connection with the offshore system and that no money or assets moved within that system without Sam’s knowledge and express direction,” Houser wrote. “He does not simply turn his wealth over to others and wish them luck.”
The ruling came nearly a year after Sam Wyly and Charles’ estate were ordered to pay the U.S. Securities and Exchange Commission $299.4 million for engaging in securities fraud through those same trusts.
In that case, a Manhattan jury in 2014 found the Wylys liable for scheming to hide $550 million in trading profits in the stocks of Sterling Software, Michaels Stores (MIK), Sterling Commerce Inc and Scottish Annuity & Life Holdings, now called Scottish Re Group (SKRUF).
Following that verdict, Sam Wyly, who last appeared on Forbes’ list of the 400 richest Americans in 2010 with a net worth of $1 billion, and Caroline Wyly filed for bankruptcy in October 2014. Charles Wyly died in a car crash in 2011.
