Lawyers for Samuel Wyly and the estate of Charles Wyly, found liable for using a web of offshore trusts to hide stock holdings and engage in illegal trading, said the $728 million penalty demanded by the Securities and Exchange Commission would bankrupt them.
Lawyers for the Wylys and the SEC today delivered closing arguments in a non-jury trial over the amount they should pay as a result of a jury verdict in May. Samuel Wyly and his brother’s estate have a combined net worth of just $119 million, their lawyers told U.S. District Judge Shira Scheindlin in Manhattan.
They argued the regulator failed to prove a connection between the amount sought and the transactions for which jurors found them liable. The Wylys claimed in court papers they shouldn’t be required to pay more than $1.38 million.
“There hasn’t been evidence that a single investor was harmed by the securities law violations,” Harry Susman, one of the Wyly lawyers, told Scheindlin.
The brothers, founders of Michaels Stores Inc., perpetrated a fraud that earned them at least $550 million in illegal trading profits over 13 years, jurors found. Charles Wyly was killed in an auto accident in 2011.
The SEC cut its demand from $1.41 billion after Scheindlin rejected one of the theories underlying its calculations. The judge also threw out the SEC’s insider-trading claim against the brothers.
“Although some of the figures may be staggering, they are fair and equitable in this circumstance,” Bridget Fitzpatrick, an SEC lawyer, argued.
During the trial, SEC lawyers called witnesses who testified that the Wylys controlled the offshore trusts that held their stock through trustees who always complied with their orders. The SEC also claimed they hid their ownership of shares in companies on whose boards they sat and broke disclosure rules by failing to reveal the full extent of their offshore holdings.
The Wylys also profited from using information gained from sitting on the board of Sterling Software Inc. and accumulating shares ahead of the company’s sale to Computer Associates International Inc., according to the SEC.
Samuel Wyly testified that he didn’t violate federal securities laws. He said trustees on the Isle of Man had acted independently, approving transactions without his direction.
The Wylys said they used the offshore trusts for tax purposes, estate planning and asset protection. They said they never concealed the trusts and relied on the advice of “an army of lawyers” they trusted to ensure they complied with the law.
The case is SEC v. Wyly, 10-cv-05760, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at email@example.com