The United States Securities and Exchange Commission recently filed suit against two Texas brothers (Sam and Charles Wyly) alleging an elaborate securities sham to fraudulently sell offshore assets.  Sam Wyly is on the Forbes list of billionaires.  According to a front page article by David Segal in the August 23, 2010 New York Times, Sam and his brother Charles had a maze of 58 trusts and shell corporations in two well-known tax havens– the Isle of Man and the Cayman Islands.  Sam and Charles Wyly have denied the charges filed by the S.E.C. in a 78 page Complaint.

The New York Times article about the Wyly brothers is definitely worth reading.  The story provides some valuable lessons for those interested in asset protection planning.  One lesson is to choose your professional advisors carefully.  According to the New York Times, in 1991 the Wyly’s attended a seminar on overseas trusts taught by a lawyer named David Tedder, who boasted that no creditor had ever pierced the asset protections his firm had established for clients.  Mr. Tedder would later, in an unrelated matter, be convicted of money laundering and conspiracy; and he was sentenced to 5 years in prison.  Charles Wyly is quoted in the New York Times article as saying "We relied on people we thought were fine attorneys and accountants."

A second lesson from the Wyly’s situation is that careful attention is needed not only when offshore entities are established, but also after they are operating.  That is, formation of one or more entities could be perfectly legitimate; but movement of funds and other assets may have tax and other implications that have to be addressed.

The Wyly brothers clearly seem intent on fighting the S.E.C. allegations. But no matter what the outcome of this particular case, it holds some useful lessons for anyone interested in asset protection.