As I have previously discussed, the Wyly brothers were found liable for fraud in connection with an offshore trust scheme and ordered to pay disgorgement. The brothers were held liable for the actions of the trustees under the theory that they were de facto trustees. This de facto trustee argument has been rejected by courts, including the Supreme Court, in the past when the IRS has attempted to use it, but the SEC was able to successfully hold the brothers liable under the theory. One explanation for this change is that the facts of this case created a very strong argument that the brothers were actually in control of the trust. The brothers, according to the court, dictated the decisions of the trustees and were never turned down. The court reasoned that the substance over form doctrine should control and act to hold the brothers liable.
See Steve R. Akers, Resurrection of “De Facto Trustee” Concept, Bessemer Trust, Nov. 2014.
