Bankrupt Wyly Sold Art at Christie’s Without Court ApprovalErik Larson
Former billionaire Samuel Wyly, who filed for bankruptcy after losing a U.S. Securities and Exchange Commission fraud lawsuit, sold more than $320,000 worth of art in a Christie’s auction without a judge’s approval and with an asset freeze looming, the SEC said.
The sale of three paintings on Oct. 27 -- eight days after the bankruptcy filing -- is evidence that Wyly is trying to liquidate assets as he awaits a final disgorgement order of at least $123.8 million, SEC lawyers said in a letter filed today in federal court in Manhattan.
“This evidence further underscores the need for an immediate asset freeze and the ability to serve such a freeze on third parties such as Christie’s, who are in possession of the defendant’s property,” the agency said.
Wyly’s lawyer said the sale was inadvertent.
A federal jury in Manhattan in May found Wyly and his late brother, Charles Wyly, traded stocks held in offshore accounts for more than 13 years, making at least $550 million in illegal profits. The trades involved companies they controlled and weren’t declared, in violation of U.S. law, jurors found.
Charles Wyly was killed in an auto accident in 2011.
After the verdict, U.S. District Judge Shira Scheindlin, who oversaw the trial, said in a preliminary ruling that Samuel Wyly and the estate of Charles Wyly would be ordered to disgorge $187.7 million. With interest, the amount will reach almost $300 million, she said. The SEC will argue next month for the use of a legal theory that might more than double that amount.
Called an Oversight
Wyly’s bankruptcy lawyer, Josiah Daniel, said in a letter to the court that Wyly consigned the artwork with Christie’s two months before he contemplated filing for bankruptcy and that the sale without approval was an oversight.
“Inadvertently, Christie’s had not been informed” of the bankruptcy filing, Daniel said. “The sale was a standard Christie’s auction, and thus believed to be for a fair market value price, but of course the sale should have been presented to this court beforehand for approval.”
The lawyer asked the bankruptcy court to approve the transaction.
SEC lawyer Bridget Fitzpatrick said in an earlier letter to Scheindlin that the agency is still trying to determine whether Wyly’s bankruptcy filing was made “in good faith.” A Chapter 11 filing made in bad faith can be dismissed by a judge.
Wyly is trying to burn through cash with extravagant spending before his assets can be frozen and is using Chapter 11 protection as an “end run” around the SEC, the regulator said in an Oct. 21 court filing. The agency urged the bankruptcy judge to reign in Wyly’s budget, which needs court approval.
The bankruptcy case is Samuel E. Wyly, 14-35043, U.S Bankruptcy Court, Northern District of Texas (Dallas).