Wyly Offshore Operations: The facilitators

The Subcommittee found that the Wylys made use of untaxed offshore dollars to advance their business and personal interests in the U.S.

Sam and Charles Wyly did not venture offshore alone. They relied on U.S. and offshore professionals to help them in establishing and managing the offshore entities, open U.S. and offshore bank and securities accounts, provide legal advice and opinions, move assets offshore, conduct securities transactions, make investments, create new domestic and offshore entities for various business ventures, and develop mechanisms to transfer offshore dollars into the U.S.

Domestic Facilitators

U.S. Legal Counsel - U.S. legal counsel played a significant role in assisting the Wylys to operate offshore. Wyly representatives informed the Subcommittee that U.S. legal counsel were routinely consulted about prospective offshore transactions and routinely provided the advice and paperwork. The evidence presented to the Subcommittee supports that assertion, demonstrating that U.S. lawyers helped identify and negotiate with offshore service providers to establish and manage the Wyly-related offshore entities, devised ways to move Wyly assets offshore purportedly without incurring an immediate tax liability, provided legal advice on securities issues, designed various structures to allow offshore dollars to be invested in U.S. businesses and real estate, and drafted reams of needed paperwork.

For instance, three California law firms, Tedder, Chatzky and Berends; Pratter, Tedder and Graves; and Chatzky and Associates, provided legal advice and helped produce written legal opinions that supported the 1992 and 1996 stock option-annuity swaps used to move millions of stock options and warrants offshore. Meadows, Owens, Collier, Reed, Cousins and Blau, a Texas law firm specializing in tax and real estate matters, developed a new type of U.S. management trust for the Wylys that allowed offshore entities to pay 99% of U.S. real estate acquisition and operating costs.

On a number of occasions, Meadows Owens represented the offshore entities, for example, meeting with the Lehman Brothers and SBC when questions arose about whether or not the offshore entities were subject to Wyly control. Meadows Owens also drafted numerous documents associated with the Security Capital pass-through loans and other transactions involving the offshore entities. Jones, Day, Reavis and Pogue, a major law firm with which Mr. French was then affiliated, provided international tax and securities advice and acted as outside counsel to Michaels Stores.

Jackson and Walker provided legal advice on corporate and securities matters, which included advising some of the offshore entities on their SEC filing obligations. Morgan Lewis and Bockius provided a legal opinion in regards to the creation of the foreign grantor trusts established to benefit the Wyly family and advising on their U.S. tax treatment.

According to the Wylys' current legal counsel, one of the Wylys' key legal advisers was Michael French, who served as "General Counsel to the Wyly Family" from 1992 until 2001. French told the Subcommittee that when he worked for the Wylys, he did not consider himself to be the family's general counsel, and took a position with the Wylys because he wanted to leave legal practice and work on business matters. During his time spent with the Wylys, French served as a director of Michaels, Sterling Software, and the Wyly-related hedge fund Maverick, and became a key investor and executive at Scottish Re Group.

From 1992 until 2000, French served as a "trust protector" for the Wyly-related offshore trusts. In late 2000, French and the Wylys decided to sever their business ties. In December 2000, French and the Wylys signed a written agreement in which French ceased to act as legal counsel to the Wyly family, resigned from his trust protector positions, and relinquished his ownership interest in several Wyly-related business ventures. He retained his ownership interest and executive position in the Scottish Re Group, and the Wylys left the management of that venture.

U.S. Financial Institutions

In addition to U.S. legal advisers, the Wyly-related offshore entities used the services of U.S. financial institutions to handle their financial needs.

Throughout the thirteen years examined by the Subcommittee, the Wyly-related offshore entities obtained brokerage services mainly from one individual, Louis Schaufele, a U.S. stock broker based in Dallas. He opened and administered U.S. securities accounts for the offshore entities, helped them exercise stock options, purchase and sell U.S. securities, obtain loans, hedge stock prices, move assets among accounts, and wire transfer substantial funds across international lines.

During the period under review, Schaufele worked at three U.S. securities firms, taking the offshore accounts with him each time he moved positions. From 1992 until 1995, he worked for Credit Suisse First Boston (CSFB). Over a three year period, CSFB opened about 20 accounts for the offshore entities. From 1995 until early 2002, Schaufele worked for Lehman Brothers which, over the seven year period, he opened about 125 accounts for the offshore entities. From 2002 until 2004, Schaufele worked for Bank of America in two of its securities divisions and in association with its private bank.

During this three year period, the Bank of America opened about 65 accounts for the offshore entities. When Schaufele first moved to the Bank of America in 2002, its private bank already had an extensive domestic relationship with the Wyly family. For the next two years, Schaufele continued to handle transactions for the Wyly-related offshore entities, while the family's long-term private banker, Marta Engram, handled their domestic accounts.