Wyly brothers face scrutiny
When Pitkin County approved the plan of Texas multimillionaire Sam Wyly to build nine homes in Woody Creek in 2001, Hunter S. Thompson didn’t mince words.The late author told the Aspen Daily News that it was “as crooked a damn deal I’ve ever seen.” If Thompson were alive today, he might have had similar thoughts about the way Wyly and his brother, Charles, have handled their investments.The renowned entrepreneurs, who own large properties in Woody Creek, and a bank they worked with are facing scrutiny from federal regulators about their business dealings.
At issue, according to a front-page article in The Wall Street Journal on June 3, is tens of millions of dollars the brothers sheltered from U.S. taxes on the Isle of Man.On the tiny island between England and Ireland are numerous trusts “named for locations in and around Aspen,” the Journal reported.How money was transferred to these trusts is what drew the attention of the Manhattan District Attorney’s Office in New York. The Internal Revenue Service and the Securities and Exchange Commission have joined the investigation, the article says.
The inquiry centers on a stock transaction marketed by Bank of America Corp. and other financial institutions. According to the Journal article, the IRS realized that the transaction was used as a tax shelter; ruling that these types of deals are abusive because they result in untaxed income, the IRS banned them in 2003.”These transactions raise questions not only about compliance with the tax laws, but also, in some instances, about corporate governance and auditor independence,” said IRS Commissioner Mark Everson on the agency’s website. “These deals were done for the personal benefit of executives, often at the expense of shareholders.”The Wall Street Journal details one Wyly-related company that was set up on the Isle of Man.
“Devotion Ltd. [is] a holding company with two directors and no employees,” the article says. “Corporate filings with the SEC and in the Isle of Man show it is run by an Isle of Man resident who lives on a small farm and another in a row house who signed paperwork for a $25 million loan from Bank of America in 2002.”The Wyly brothers, who sold their software firm, Sterling Software, for $4 billion in 2000, have a namesake community art center in Woody Creek. Sam Wyly also owns Two-Mile Ranch, the site of the homes that drew Thompson’s ire.”Altogether, the Wylys used the trusts to hold large stakes in at least three … companies and some choice parcels of vacation property near Aspen,” the Journal article says.
Their lawyer, Bill Brewer, of Dallas, defended his clients. They “feel strongly they only did that which was appropriate,” he told the newspaper. The trusts were set up to benefit their family and charities, he said.As for the brothers’ local ties, “The trustees made considerable investments in Aspen, and like so many other things about the Wylys, they turned out to be very good investments for the trusts,” Brewer told the paper. “The motives were fairly simple: Minimize your taxes, provide for your heirs and protect your assets.”Charles Wyly and his wife, Dee, did not return messages Thursday; Neither was Brewer available.Chad Abraham’s e-mail address is firstname.lastname@example.org
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