Wyly, 81, testified for 90 minutes during the second day of his Chapter 11 bankruptcy trial. U.S. Bankruptcy Judge Barbara J. Houser imposed the daily time limit on Wyly’s testimony due to his age and declining health.
Accused of running one of the largest tax frauds in American history with his deceased brother, Charles, Wyly said he lost faith in the domestic banking system after the savings and loan crisis in the 1980s.
Wyly testified that he opened his first trust on the Isle of Man in 1992 because the British Crown dependency has existed for “1,000 years” while the United States is only a fraction as old.
Wyly made his fortune co-founding Sterling Software in 1981 and buying an interest in arts-and-crafts retailer Michaels in 1982. Sterling was sold for $4 billion in 2000 and Michaels Stores for $6 billion in 2006.
Wyly testified that a domestic bank had pulled Michaels’ line of credit during the S&L crisis, leaving him to “scramble” to find other sources of financing for his stores.
The IRS is pursuing the Wylys after they lost a lawsuit filed in 2010 by the Securities and Exchange Commission in Manhattan Federal Court. They were accused of playing a “global game of hopscotch” by hiding assets in their four companies – Sterling, Michaels, Sterling Commerce, and Scottish Annuity & Life Holdings Ltd. – from 1992 to 2004.
The jury in that case concluded in 2014 that the Wylys had made $550 million from more than 700 hidden transactions in 40 companies operated by the Isle of Man trusts that shuffled money between the Cayman Islands and Dallas.
Wyly and his brother’s widow, Carolyn Wyly, filed for Chapter 11 bankruptcy protection several months later in an apparent bid to stave off collection on the judgment. The IRS intervened in the bankruptcy in April 2015, telling the court the brothers owe $3.2 billion in back taxes and penalties.
Wyly’s son, Evan, denied under oath Thursday that the family sought to evade taxes through the offshore trusts. His testimony echoed the primary argument of Wyly’s attorneys – that the family relied on their accountants and lawyers to evaluate the offshore accounts and get tax advice.
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