EFTA01205781.pdf

23. Between March 1992 and January 1996, in the Isle of Man, a self- governing British crown dependency located between Scotland and Northern Ireland in the Irish Sea, Sam Wyly established ten (I0) trusts and Charles Wyly established seven (7) trusts (collectively the "Offshore Trusts"), naming many ofthem for places or events ofpersonal significance. Among the Offshore Trusts' names, for example, were• Louisiana towns and schools associated with -the Wylys' youth, including Lake Providence, where the Wylys were born, Delhi, where the Wylys attended high school, 9 The Wylys Appointed Trusted Loyalists to Serve as "Protectors"29. Although the language ofthe trust agreements governing the Wylys' Offshore Trusts purported to confer upon the Offshore Trustees broad and exclusive authority to manage the trust assets, this authority was illusory. Under the trust agreements, trust Protectors were granted the right "to remove, appoint or replace any Trustee with or withput cause at any time," as well as the right to add or remove trust beneficiaries. Inpractice,theOffshoreTrustswerecontrolledbytheseProtectors,who .were Wyly-appointed loyalists whose livelihoods were dependent on the Wylys and whose function was to ensure that the Wylys' instructions for the Offshore Trusts were executed. 31. The Wylys employed a protocol for effecting transactions in their Offshore System. One or both ofthe Wylys conveyed instructions to the Protectors for transactions to be executed in their Offshore System. The Protectors, in tum, conveyed the instructions to the appropriate Offshore Trustee, who then implemented them by signing the necessary documentation, or, in the caseofissuer Securities transactions, by faxing the necessary trading instructions to Schaufele or his assistants; or, in the case of structured Issuer Securities transactions, by executing and returning the relevant portion .oftransaction documents that the Wylys had first negotiated through Schaufele.32. The Protectors' role was to convey the Wylys' instructions to the Offshore EFTA01205781 Trusteesandensurethattheinstructionswerefollowed. Toaccomplishthis,the Protectors were in regular communication with the Offshore Trustees. Between 1992 and early 2005, the Protectors issued thousands ofinstructions to the Offshore Trustees, several hundred ofwhich directed Issuer Securities transactions. 33. The Protectors never initiated, devised or independently decided what Issuer Securities transactions to preseriffo the Offshore Trustees, and never failed to convey the Wylys' Issuer Securities instructions to the Offshore Trustees. Moreover, the Protectors conveyed to the Offshore Trustees instructions for only such Issuer Securities transactions as were directed by Sam Wyly or Charles Wyly. 4. Pursuant to the Defendants' scheme to conceal the Wylys' control over the Offshore System, the Protectors termed their instructions to the Offshore Trustees -z 14 EFTA01205782 "recommendations," thereby implying that the Offshore Trustees could exercise discretion by declining to implement them. Like the Protectors, however, the Offshore Trustees never initiated, devised or independently decided what transactions, in Issuer Securities or otherwise, were to be executed by the Offshore System. And just as the Protectors never failed to convey the Wylys' instructions to the Offshore Trustees, the Offshore Trustees never failed, in turn, to implement those instructions. 35. Despite the fact that the Protectors made thousands of "recommendations" for transactions to the Offshore Trustees from 1992 through at least early 2005, many relating to transactions worth tens ofmillions of dollars, the Offshore Trustees never deviated from executing such "recommendations." When a "recommendation" came to the Offshore Trustees from the Protectors, they understood it was coming from the Wylys themselves, and, if it was a transaction permitted by the Trust documents, which it effectively always was, it was implemented. 36. The Wylys' instructions, delivered to the Offshore Trustees by the Protectors, frequently left nothing to the Offshore Trustees' judgment or discretion. In many Issuer Securities sales instructions, for example, the Offshore Trustees simply were told by the Protectors which Offshore Company or Offshore Companies were to sell stock, the total number of shares to sell, the maximum number of shares to be sold per day, the minimum price at which the shares could be sold, which broker to use, and how the proceeds were to be invested or applied. Instructions also neevcionally required immediate action by the Offshore Trustees, affording them no time for any meaningful review or assessment prior to implementation. Such immediate action items included EFTA01205783 "recommendations," thereby implying that the Offshore Trustees could exercise discretion by declining to implement them. Like the Protectors, however, the Offshore Trustees never initiate The Wylys excluded the Offshore Trustees from negotiations oflarge IssuerSecuritiestransactionsenteredintobytheOffshoreCompanies. Ineverycase, such transactions were first agreed upon by the Wylys and the terms were then negotiated between the brokerage house (most typically Lehman Brothers acting through Schaufele) and the Wylys (frequently represented by other Wyly family members, the Protectors, or both). As many ofthese transactions involved multiple Offshore Companies administered by different Offshore Trustees, each Offshore Trustee received only the finalized transaction documents concerning its portion ofthe overall transaction, whereas the Wylys, by contrast, knew and approved ofthe entire transaction in advance. EFTA01205784 and Tallulah, the Wylys' football rival high school. The beneficiaries of each of the Offshore Trusts were Sam or Charles Wyly, their respective family members, or both. 24. Initially, the Wylys selected a single Isle of Man-based trust management company to serve as their Offshore Trusts' trustee. Between 1992 and 2004, however, the Wylys selected numerous additional Isle of Man-based trust management companies to serve as their Offshore Trusts' trustees (the "Offshore Trustees"). Employees of the various respective Offshore Trustees served as directors of more than thirty (30) Isle of Man-based shell companies that were wholly-owned by the various respective Offshore Trusts ("Offshore Companies"). Like the Offshore Trusts, many of the Offshore . Companies were given names of personal significance to the Wylys, including East Carroll, the Louisiana Parish where the Wylys grew up, and Tenses, the bayou site of the Wylys' boyhood home. These Offshore Companies, along with the Offshore Trusts, comprised the Wylys' Offshore System. 25. Commencing with the initial establishment of their Offshore System and continuing, at various times, over the next seven years, the Wylys transferred to their Offshore System millions of stock options and warrants in Michaels, Sterling Software and Sterling Commerce that they had first received from those Issuers as director compensation. These transfers, which provided the bulk of the funding for their Offshore System, included the following: a. In April 1992, the Wylys transferred options and warrants for 960,000 Michaels shares and 1,983,588 Sterling Software shares to ten of their Offshore Companies, whose ownership was divided among two of their Offshore Trusts; EFTA01205785 EFTA01205786