| NEW YORK, July 29
NEW YORK, July 29 A U.S. judge on Tuesday ruled
that a securities regulator cannot seek as much as $1.4 billion
in damages from Texas tycoon Sam Wyly and his late brother
Charles' estate for their role in a fraudulent offshore scheme.
U.S. District Judge Shira Scheindlin in New York barred the
U.S. Securities and Exchange Commission from pursuing the total
profits the Wylys earned from hidden trades executed through a
system of offshore trusts between 1992 and 2004 in companies
A federal jury in May found the Wylys liable for fraud in a
scheme that netted them $553 million in undisclosed profits, in
what was the SEC's largest case to reach trial in years.
With interest and other penalties, the SEC had
requested a total of $1.4 billion in damages.
"There is no evidence here that the defendants' unlawful
conduct - that is, the scheme to hide beneficial ownership by
failing to disclose transactions - resulted in any market
distortion, price impact, or profit tied to the violation,"
Scheindlin wrote in her ruling. "It defies logic to presume that
all of the rise in the value of a company's stock price over 13
years ... is reasonably tied to two directors' failure to
disclose their trading."
Scheindlin said she would permit the SEC to pursue some
smaller amount of profits if it can provide a "credible
Absent that, the ruling appears to limit the SEC's claim to
a maximum of about $750 million.
The order preceded an August 4 non-jury trial before
Scheindlin to determine the amount of damages the Wylys must pay
the government as a result of the verdict.
The SEC did not immediately respond to requests for comment.
An attorney for the Wylys declined to comment on the ruling.
The ruling did not affect approximately $138 million in
profits and interest from the sale of unregistered securities
that the SEC is seeking.
In addition, the agency can still pursue at trial hundreds
of millions of dollars it claims the Wylys owe in unpaid taxes
tied to the offshore trades.
That amount is $341.3 million for Sam Wyly and $200.4
million for the estate of Charles Wyly, including interest,
according to the SEC. The Wylys have disputed those figures.
The SEC is also seeking a $72.3 million penalty for Sam
The various amounts total about $750 million.
The regulator said the Wylys used a system of trusts on the
Isle of Man to conceal trading in four companies on whose boards
they sat: Sterling Software Inc, Michaels Stores Inc,
Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd,
now called Scottish Re Group Ltd.
Sam Wyly, 79, last appeared on Forbes' list of the 400
richest Americans in 2010 with a net worth of $1 billion. His
brother Charles died in a car crash in 2011.
The case is U.S. Securities and Exchange Commission v. Wyly
et al, U.S. District Court for the Southern District of New
(Reporting by Joseph Ax; Editing by Jonathan Oatis)