A NUMBER of Isle of Man trusts are embroiled in a legal action being brought in the States involving allegations of a multi-million dollar fraud.
Details of proceedings emerged in a Douglas high court judgment involving four claimants – IFG International Trust Company Limited, Trident Trust Company (IOM) Limited, Inter-Continental Management Limited and Kleinwort Benson Trustees (Isle Of Man) Limited.
The four claimants are each trustees of a total of nine trusts, all governed by Isle of Man law, which were set up for the benefit of brothers Samuel E Wyly and the late Charles Wyly and their immediate families.
Proceedings have been brought in the State of New York by the US Securities and Exchange Commission against Sam and Charles Wyly, a Louis J Schaufele III and Michael C French, who was either a protector or a member of the Committee of Trust Protectors of each of the trusts until he retired from that position in December 2000.
According to the high court judgment, the SEC’s case is that the Wylys engaged in a fraudulent scheme to hold and trade tens of millions of dollars of securities in US public companies without disclosing their ownership and their trading of those securities.
The Isle of Man trusts were allegedly used as the apparatus of the suspected fraud and it is claimed they were in practice controlled by the Wylys through the appointment of protectors including Mr French.
In his witness statement, Mr French states: ‘I am accused of aiding and abetting the Wylys’ alleged fraudulent scheme.’
Mr French claims that he is entitled to be indemnified out of the assets of the trusts of which he was formerly the protector in respect of his costs of defending the SEC proceedings.
The trustees sought directions from the island’s high court as to what steps – if any – they should take to comply with Mr French’s demands.
They say that in light of the serious allegations made against Mr French, it would not be appropriate for the trustees to decide now that they will indemnify him, and that any such decision should await the outcome of the SEC proceedings.
The Trustees submit the SEC allegations state that Mr French wilfully acted to defraud investors in connection with the purchase, sale or offer of securities. They say that the SEC do not allege the trustees have committed any violation of US Securities laws and that the majority of the allegations against Mr French have no connection whatsoever with actions undertaken by him in his capacity as protector.
In his judgment, Deemster Andrew Corlett agreed with the trustees’ stance that they a decision as to whether the trustee should be indemnified out of trust funds should properly await the outcome of the SEC complaint.