| NEW YORK
NEW YORK Aug 22 A lawyer for Texas tycoon Sam
Wyly and the estate of his late brother Charles told a federal
judge on Friday that a U.S. securities regulator's demand for
more than $729 million in damages would "bankrupt" the one-time
Harry Susman told U.S. District Judge Shira Scheindlin in
Manhattan the U.S. Securities and Exchange Commission's demand
was excessively punitive and unsupported by the law, at the
close of a nonjury trial to determine how much the Wylys should
pay for their role in a fraudulent offshore scheme.
"The total amount will bankrupt the Wylys," Susman said,
adding there was no evidence their conduct harmed a single
But Bridget Fitzpatrick, a lawyer for the SEC, said the
proposed award was appropriate given "egregious" violations that
allowed the Wylys to accumulate "staggering wealth."
The trial comes three months after a federal jury found the
Wylys liable for fraud and other civil charges, in what was the
SEC's largest case to reach trial in years.
The agency accused the Wylys of creating a complex system of
trusts in the Isle of Man that netted them $553 million in
profits through more than a decade of hidden trades in four
companies they controlled.
The companies were Sterling Software Inc, Michaels Stores
Inc, Sterling Commerce Inc and Scottish Annuity & Life
Holdings Ltd, now Scottish Re Group Ltd.
The SEC is seeking damages equivalent to unpaid taxes on the
scheme's profits, arguing that failure to disclose the trades
left the Internal Revenue Service with no clue as to what was
Susman said the SEC should be barred from doing so because
federal law only permits the IRS to assess tax penalties. But
Fitzpatrick said the agency is not attempting to collect unpaid
taxes but merely using them to gauge the Wylys' ill-gotten
In addition to the taxes, which total more than $540 million
including interest, the SEC is seeking nearly $140 million in
profits on sales of unregistered securities and a $51 million
penalty for Sam Wyly, all amounts the Wylys dispute.
Fitzpatrick said the Wylys should not be permitted to profit
from the scheme, which she said grew so sophisticated that it
became a virtual business in itself.
"Since 1992, the Wylys have had what amounts to an
interest-free loan from the government, and they have used it to
accumulate staggering wealth," she told Scheindlin.
Closing arguments will conclude on Friday, though the judge
is not expected to rule immediately.
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 2011 car crash 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
(Reporting by Joseph Ax; Editing by Tom Brown)