| NEW YORK
NEW YORK Aug 4 Texas tycoon Sam Wyly and his
late brother Charles' estate should pay about $750 million in
damages for their role in a fraudulent offshore tax scheme, a
lawyer for the U.S. Securities and Exchange Commission told a
judge in New York on Monday.
"There was a decision to violate the law here, Your Honor,
and that decision was made in part because Sam Wyly knew it
would be profitable, even if he were caught," Bridget
Fitzpatrick said at the outset of a trial to determine the
amount of damages the Wylys must pay after a jury found them
liable for fraud in March.
But lawyers for the Wylys have said in court papers the
appropriate penalty is $1.38 million, arguing the SEC's theory
of disgorgement is unsupported by the law.
U.S. District Judge Shira Scheindlin is overseeing the
nonjury trial, which is expected to last three days.
A federal jury found the Wylys liable for a system of
offshore trusts in the Isle of Man that netted the brothers $553
million in profits through hidden trades between 1992 and 2004
in companies they controlled.
Last month, Scheindlin cleared the Wylys of insider trading
after a one-day nonjury trial. That claim, however, was only a
small part of the case, which the SEC brought in 2010 after
years of investigation.
The four companies involved in the offshore transactions
were Sterling Software Inc, Michaels Stores Inc,
Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd,
now Scottish Re Group Ltd.
On Monday, Fitzpatrick said the SEC should be entitled to
collect all unpaid taxes on the scheme's profits, plus interest,
because the Wylys' failure to disclose their control of the
trusts effectively fooled the government into accepting they
owed no taxes.
But the Wylys' lawyers have argued the SEC cannot step into
the shoes of the Internal Revenue Service.
Fitzpatrick acknowledged the SEC's tax-based theory of
disgorgement is "novel" but nevertheless appropriate, given that
the trusts were constructed explicitly to gain tax benefits.
The SEC originally sought as much as $1.4 billion, based on
every dollar of profit earned through the trusts, but Scheindlin
last week barred the agency from pursuing that theory.
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 Tom Brown)