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Wyly calls ex-lawyer's SEC settlement 'deal with the devil'

Texas investor Samuel Wyly exits the Manhattan Federal Court April 22, 2014. REUTERS/Lucas Jackson
Texas investor Samuel Wyly exits the Manhattan Federal Court April 22, 2014. REUTERS/Lucas Jackson

By Nate Raymond

NEW YORK (Reuters) - Texas tycoon Samuel Wyly said Wednesday his former lawyer cut a "deal with the devil" in agreeing to testify against him in the U.S. Securities and Exchange Commission's fraud trial accusing him of concealing stock trades in offshore trusts.

Wyly, who took the stand for the fifth and final time during his trial in New York federal court, criticized the regulator's settlement with Michael French, Wyly's longtime lawyer who agreed in March to pay nearly $795,000 and admit wrongdoing rather than face trial himself.

"Mr. French made his deal with the devil," Wyly said, according to a transcript. "I mean, he has agreed to testify to the things you wanted him to testify to, and he has done so."

The remarks came shortly before the SEC finished questioning its last live witness, Robert Estep, a former partner with the law firm Jones Day who also advised the Wylys and their companies.

The SEC has accused Wyly, 79, and Charles Wyly, his brother, of earning more than $550 million in undisclosed gains by using a maze of offshore trusts and entities to conceal stock trading in four companies on whose boards they sat on from 1992 to 2004.

The companies included Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc, and Scottish Annuity & Life Holdings Ltd, now called Scottish Re Group Ltd.

The Wylys have denied wrongdoing, arguing they were not legally the beneficial owners of securities held in the trusts and had no duty to disclose them. An executor for Charles Wyly's estate has been substituted as a defendant after he died in a 2011 car crash.

The settlement agreement with French came amid a push by the SEC under a new policy unveiled in June 2013 by SEC Chair Mary Jo White to seek admissions of wrongdoing in some of its cases.

The SEC before the trial had disclosed also demanding an admission of wrongdoing during settlement talks with Samuel Wyly, but no deal emerged.

On Tuesday, French, who testified as the SEC's star witness over four days of trial proceedings, was questioned by a lawyer for Wyly, Harry Susman, about the deal he cut with the SEC.

French as part of the settlement admitted to assisting the Wylys in asserting control over the Isle of Man trusts. He also told them that by serving as a conduit between the Texans and the trustees, he helped them hide their control over the trusts.

But Susman asked French if it was correct the SEC did not require him to admit he did anything improper with regards to his own use of offshore entities to make undisclosed stock trades.

"As I say, I don't remember anything like that in the admissions," French said.

Defense lawyers are expected to call four witnesses before the case heads to the jury. Closing arguments are expected to begin May 5.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

(Reporting by Nate Raymond in New York)

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