Relationship with Wyly brothers helped launch Jeb Hensarling; could it now hinder him?
By DAVE MICHAELS / The Dallas Morning News firstname.lastname@example.org
Published: 12 August 2010 01:19 AM Updated: 30 November 2010 12:06 PM
WASHINGTON – Jeb Hensarling was a career political aide when he decided it was time to leave politics for business.
Fresh from eight years with Sen. Phil Gramm, Hensarling quickly landed a job with a hedge fund managed by Sam and Charles Wyly, the Dallas brothers and loyal GOP donors. The young politico hitched his financial future to the entrepreneurial duo, investing his own wealth in the hedge fund and several other Wyly-owned companies.
Despite a working relationship that spanned nearly a decade, Hensarling has rarely touted his work for the Wylys. The relationship was mostly a profitable one for Hensarling, whose experience with the Wylys helped him launch a consulting business and achieve a level of corporate success that would make him an attractive candidate when he ran for Congress in 2002.
But those ties may become a liability for the Dallas congressman. The U.S. Securities and Exchange Commission accused the Wylys on July 29 of insider trading and using offshore entities to hide $550 million in trading profits that should have been disclosed to investors.
Two of the Wyly companies for which Hensarling worked – Maverick Capital and Green Mountain Energy – were tied to the improper trading scheme described by the SEC.
In an interview, Hensarling withheld judgment about the Wylys and said he knew nothing about their offshore system when he worked for them.
“I have never been involved in the Wylys’ legal matters or tax strategies and only know about them through the press reports I read,” Hensarling said.
“Seventeen years ago when I went to work for Maverick Capital, the Wylys enjoyed both good business and personal reputations. Based on my knowledge and experiences, those reputations were deserved.”
The Wylys have also been important sponsors of Hensarling’s political career. Over eight years, the Wyly family – including Sam and Charles and their grown children – has contributed $107,200 to Hensarling’s campaigns, according to a Dallas Morning News review of campaign finance data.
Political analysts say Hensarling’s relationship with the Wylys could become a handicap because many recession-weary voters are angry at Washington incumbents and big business benefactors. Hensarling, a fiscal conservative who doesn’t seek earmarks, has largely been viewed as a lawmaker above the fray of special interests.
“If a scandal gets too bad about a business he used to be involved in, in this day and age that is fair game,” said Julian E. Zelizer, a professor of history and public affairs at Princeton University.
“Old activities can be brought into current circumstances and used to question the ethics of members of Congress,” he said.
Hensarling, 53, first joined the Wylys in 1993, when Sam Wyly was expanding the family investment fund, Maverick Capital, to outside investors.
Hensarling was hired as a vice president in charge of marketing the fund to institutional investors and wealthy individuals. Michael C. French, a Dallas lawyer who also was sued by the SEC last month, was hired as a fund manager.
Within 15 months, Hensarling took a leave of absence from Maverick to run Gramm’s foundering 1996 presidential campaign. When he returned a year later, his job had been filled, but the Wylys allowed him to stay on and explore a new role.
When that didn’t work out, Hensarling left Maverick to start his own consulting firm, San Jacinto Ventures. The Wylys became his first clients, giving the business an early boost.
“He approached them to work for them as a consultant,” said Jim Francis, a Dallas Republican operative who shared an office with Hensarling during the 1990s.
“He was trying to be a political adviser to business people” he said. “He had a relationship with the Wylys and was an adviser, at least, and maybe more to the Wylys.”
On to Green Mountain
San Jacinto was short-lived, however. He mothballed the company in 1999 to work for Green Mountain, a start-up utility the Wylys had acquired two years earlier.
A Senate investigation into tax haven abuses reported in 2006 that the Wylys’ offshore entities financed most of the initial $30 million the Wylys put into Green Mountain. By 2003, the offshore corporations had invested $200 million in the utility, according to the investigation, which was led by Sen. Carl Levin, D-Mich.
The Wylys planned to take Green Mountain public. Hoping to profit, Hensarling increased his ownership stake in the company.
In 2003, Hensarling valued his Green Mountain stock at between $250,000 and $500,000, according to a personal financial disclosure that lawmakers file under federal law. At least some of that was financed by a Green Mountain loan, worth between $100,000 and $250,000.
Hensarling didn’t lobby for Green Mountain but advised Sam Wyly on political matters. That included a campaign ad that Sam Wyly financed in 2000 attacking George W. Bush’s presidential primary opponent, Sen. John McCain, in New York.
Hensarling was opposed to a negative ad but helped Wyly find people to create it. The ads – attributed to “Republicans for Clean Air” – attacked McCain’s voting record on clean energy, and wound up creating useful publicity for Green Mountain.
Hensarling left Green Mountain in 2000, and he eventually lost money on his investment when Sam Wyly cashed out minority investors in 2006, according to aides. The business never went public.
But over the years, Hensarling had bought into other Wyly-controlled firms. In 2003, nearly 40 percent of Hensarling’s investments were in companies controlled or formerly controlled by the Wylys, according to his personal financial disclosure.
In 2006, Hensarling disclosed a profit on his sale of stock in Michaels Stores Inc. of between $100,000 and $1 million. The Wylys sold the business in July 2006 to private equity firms Bain Capital LLC and Blackstone Group.
Hensarling said he’s had infrequent contact with the Wylys in recent years.
The brothers have reduced their political donations since the Senate investigation’s disclosure of how the Wylys directed the offshore corporations – theoretically independent entities – to trade stocks, initiate investments in Wyly-controlled companies, and buy property and art for the Wylys.
However, the Wylys’ sons and sons-in-law have continued supporting Hensarling. David S. Matthews, a Dallas hedge fund manager and son-in-law of Sam Wyly, has donated $10,100 to Hensarling’s campaigns since 2006. Matthews was a director of insurance firm Scottish Re Group Ltd., another company whose shares were traded by the offshore corporations but not properly disclosed, according to the SEC.
The Wylys’ attorneys have said their use of offshore entities was consistent with U.S. law.
They plan to contest the allegation that Sam and Charles Wyly were required to disclose trades by the offshore entities, arguing that the brothers didn’t control them.
Hensarling said he considers the Wylys “innocent until proven guilty” but considers it unlikely that they “knowingly violated the law.”
“But if they did, they will have to face the consequences like anyone else,” he said.