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NEW YORK, Aug 6 (Reuters) - A lawyer for Texas businessman Sam Wyly and his late brother Charles on Wednesday urged a U.S. judge to reject the Securities and Exchange Commission's request for as much as $750 million in damages for their role in a fraudulent offshore scheme.
Stephen Susman told U.S. District Judge Shira Scheindlin that the SEC's calculations were "overblown" and far beyond what the Wylys were able to pay.
The argument came during a nonjury trial to assess how much money the Wylys must pay the U.S. government after a federal jury found them liable for fraud and other charges in May.
The SEC accused the Wylys of setting up a complicated system of trusts in the Isle of Man that netted them $553 million in profits through hidden trades between 1992 and 2004 in companies they controlled.
The companies, on whose boards the Wylys sat, were Sterling Software Inc, Michaels Stores Inc, Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now Scottish Re Group Ltd.
Lawyers for the SEC have argued that the regulator is entitled to collect all unpaid taxes on the scheme's profits, plus interest, because the Wylys' failure to disclose their control of the trusts ensured tax authorities would not catch on.
But Susman said in court that the Wylys' nondisclosure did not necessarily mean they owed taxes on the offshore trades under federal tax law.
Lawyers for the Wylys have argued the appropriate penalty should be $1.38 million, with no disgorgement of any unpaid taxes or profits. If the judge decides to order disgorgement, however, the maximum amount of profits that could be reasonably tied to the lack of disclosure is $22 million, Susman said.
Charles Wyly's estate has $30 million in assets, while Sam Wyly has $70 million as well as a $12 million annuity, according to Susman.
The offshore trusts still hold hundreds of millions of dollars, he said, but the money cannot be counted as the Wylys' assets because there are additional beneficiaries.
The SEC originally sought $1.4 billion in damages, based on every dollar of profit earned offshore, but Scheindlin last week said the agency had not adequately supported 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, and an executor for his estate was substituted as a defendant.
The case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court for the Southern District of New York, 10-5760. (Reporting by Joseph Ax; Editing by Grant McCool)