The Influence Industry: A leading Republican’s longtime ties to 2 men accused of financial fraud

May 11, 2011

As the government prepares one of its biggest financial fraud cases, a suit against Texas businessmen Sam and Charles Wyly accusing them of trading stock illegally, one lawmaker is likely taking note.

Rep. Jeb Hensarling (R-Tex.) has had close ties to the Wyly brothers over the past two decades, both in business and politics. Hensarling has worked for the Wyly brothers, invested in their companies and accepted their money for his political campaigns. He was elected as House Republican Conference chairman this year.

The Securities and Exchange Commission filed suit against the Wylys in July, accusing them of using offshore entities based in the Cayman Islands and the Isle of Man to hide investments in companies they directed. They are also accused of using insider information to guide their trading. The brothers, who allegedly netted $550 million in profit, were also the target of a Senate investigation into illegal tax shelters several years ago .

Sam Wyly is on the Forbes list of the 400 richest Americans, with a net worth of $1 billion, according to the magazine.

“The Wylys will continue to vigorously defend themselves – and they remain confident they will be fully vindicated,” said William A. Brewer III, the Wylys’ attorney.

 His clients, he said, have contributed to Hensarling and “have long been supporters of the causes and candidates in which they believe.” They have been “less politically active” in recent years, he said, largely because of an “increasing focus” on other causes, including the environment.

Hensarling, the fourth-ranked Republican in the House, said he had nothing to do with the issues involved in the case.

“All I know about these matters is what I have read in the press,” Hensarling said in a statement. “I’ve never been contacted by any regulatory agency and was never involved in their legal or tax matters.”

Hensarling, 53, first worked for the Wylys in 1993 after he left his job as a staffer for former Sen. Phil Gramm (R-Tex.). He became a vice president at the Wylys’ hedge fund, Maverick Capital, and was in charge of signing up investment clients.

Hensarling later started his own consulting firm, with some of the Wyly companies as clients, according to the Dallas Morning News, which first reported on many of the connections between the Wylys and Hensarling.

From 1999 to 2001, Hensarling worked as a vice president for communications at another Wyly company, Green Mountain Energy.

When Hensarling first ran for the House in 2002, he received financial support from the Wylys, their family members and employees of their companies. And over his career, Hensarling has received nearly $100,000 in donations from the Wylys and people around them.

As the spotlight turned on the Wylys after the 2006 Senate investigation, they cut back on their contributions, but their sons have continued to support Hensarling and other Republicans.

When he arrived in Congress in 2003, Hensarling owned stock worth up to $1 million in companies linked to the Wylys. His personal financial disclosure form also lists a loan of between $100,000 and $250,000 from Green Mountain, used to buy stock in the company.

The SEC’s complaint accuses the Wylys of using their offshore accounts to invest hundreds of millions of dollars in Maverick and Green Mountain.

“I would find it difficult to believe that they knowingly violated SEC law,” Hensarling said, “but if they did, they will have to face the consequences just like anyone else.”

The new Republican majority has been critical of the SEC, citing its failure to address problems at large financial firms leading up to the recent economic crisis. Hensarling, as a leading member of the House Financial Services Committee, has criticized the agency regularly.

“In case after case, regulators had the authority to prevent behavior that contributed significantly to our economic debacle,” Hensarling said at a July committee hearing. “So many of us find it somewhat ironic that now the financial regulatory bill that is awaiting the signature of the president, in many respects, rewards regulators who mostly contributed to the financial crisis with yet even more regulatory authority.”

Hensarling went on to cite a report finding that many SEC employees were making thousands of visits to pornography Web sites as evidence that “senior SEC officers clearly had more time to view pornography than they did to police security fraud.”

Republicans are fighting an increase in funding for the agency.

No trial date has been set in the Wylys’ case, but in March a federal judge in Manhattan denied their request that the case be dismissed.

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