Sam Wyly, the former Michaels Stores Inc. (MIK) chairman sued by the U.S. Securities and Exchange Commission for alleged insider trading and securities fraud, won a ruling limiting the civil penalties the agency can seek.
U.S. District Judge Shira Scheindlin in Manhattan in an order today agreed with Wyly that a U.S. Supreme Court ruling in February bars the SEC from seeking civil penalties more than five years after the alleged violations.
A tolling agreement between the SEC and Wyly in 2006, which stops the clock on the statute of limitations, will limit any civil penalties to violations that occurred after Feb. 1, 2001, according to the judge’s order. The SEC alleges that Wyly and his late brother Charles made fraudulent and false filings as early as 1992, according to the ruling.
In addition to civil penalties, the SEC seeks about $550 million in disgorgement of ill-gotten gains. The judge’s ruling on civil penalties didn’t address the SEC’s disgorgement request.
John Nester, an SEC spokesman. said in an e-mail that the agency is reviewing the decision.
The SEC sued in 2010, after a six-year investigation, and accused the brothers of using “an elaborate sham system of trusts and subsidiary companies” in the Isle of Man and Cayman Islands in a 13-year scheme to hide their ownership of stock in four public companies on whose boards they sat.
The case is Securities and Exchange Commission v. Wyly, 10-cv-05760, U.S. District Court, Southern District of New York (Manhattan).
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