SEC Loses Bid for Larger Forfeiture From Wyly Brothers

The U.S. Securities and Exchange Commission lost a bid to make Samuel Wyly and the estate of his brother Charles pay more than the $188 million plus interest ordered by a judge in September for their use of offshore trusts to hide stock holdings and engage in illegal trading.

U.S. District Judge Shira Scheindlin in Manhattan today ruled that any additional disgorgement based on trading profits can only be imposed by an appeals court if it disagrees with the previous amount.

The judge ruled in September that the Wylys must forfeit $187.7 million plus interest that she estimated would increase the total to $300 million to $400 million. A federal jury in May found they used a complex web of trusts to hide their holdings of stock in companies on whose boards they sat, making them at least $550 million in illegal trading profits.

The SEC later asked Scheindlin to order the Wylys to pay $329 million plus interest based on the jury’s finding in May that they were liable for a 13-year scheme to use a web of offshore trusts to hide stock holdings and make illegal trades. Their lawyer had estimated the total could be $700 million.

“Disgorgement based on trading profits may only be imposed in the event that a higher court disagrees with the measure of disgorgement imposed by the September 25 order, which I conclude represents the best measure of the Wylys’ ill-gotten gains,” Scheindlin wrote in today’s order.

John Nester, a spokesman for the SEC, didn’t immediately respond after regular business hours to phone and e-mail messages seeking comment on the ruling.

Stephen Susman, who represents the Wylys, and another Wyly lawyer, Steven Shepard, argued that the SEC failed to prove a link between the the brothers’ use of the offshore trusts and the illegal proceeds sought by the SEC.

Sam Wyly and Charles, who was killed in an auto accident in 2011, bought a small chain of craft stores and turned it into the publicly traded Michaels Stores Inc.

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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