(Adds details on the Wylys' net worth from afternoon court
By Joseph Ax
NEW YORK Aug 22 A lawyer for Texas tycoon Sam
Wyly and his late brother Charles' estate told a federal judge
on Friday that a U.S. securities regulator's demand for $729
million in damages for a fraudulent offshore scheme would
Harry Susman told U.S. District Judge Shira Scheindlin in
Manhattan the U.S. Securities and Exchange Commission's request
was excessively punitive, at the close of a nonjury trial to
determine how much the Wylys should pay for their role in the
"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 hundreds of millions of dollars.
The trial comes three months after a 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 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: Sterling Software Inc, Michaels Stores Inc
, Sterling Commerce Inc and Scottish Annuity & Life
Holdings Ltd, now Scottish Re Group Ltd.
Fitzpatrick said the Wylys should not 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 said.
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
only the IRS can level tax penalties. But Fitzpatrick said the
agency is not attempting to collect actual taxes but merely
using them as a measure of the Wylys' ill-gotten gains.
In addition to more than $540 million in taxes and interest,
the SEC is seeking nearly $140 million in profits and a $51
million penalty for Sam Wyly, all amounts the Wylys dispute.
Sam Wyly, 79, appeared on Forbes' list of the 400 richest
Americans in 2010 with a net worth of $1 billion. Charles Wyly
died in a 2011 car crash.
Steven Shepard, another lawyer for the Wylys, told
Scheindlin that Sam Wyly's net worth would be $99 million by
2017 after receiving several annuities, while Charles Wyly's
estate has roughly $20 million in net assets.
The brothers' offshore trusts hold $380 million, but Shepard
said they should not be included because the money is not
controlled by the Wylys but by the trusts' beneficiaries.
Scheindlin, however, said ignoring those assets could
effectively reward the Wylys for the offshore scheme.
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 and Diane Craft)