2nd Circ. Won’t Stop SEC Freeze of Wyly Assets

     MANHATTAN (CN) – Regulators can freeze the assets of bankrupt Texas tycoons socked with a $550 million judgment for playing the civil tax-fraud equivalent of a “global game of hopscotch,” the Second Circuit ruled on Friday.
     Samuel Wyly and the widow of his deceased brother, Charles, had hoped that filing for bankruptcy would stave off the Securities and Exchange Commission’s attempt to freeze the billionaires’ assets after a jury in 2014 found them liable for hiding their stock trades in offshore trusts.
     U.S. District Judge Shira Scheindlin thwarted that bid, however, in a ruling late last year.
     On Friday, the Second Circuit upheld the crux of Scheindlin’s findings, but it asked her to supplement the record before letting regulators freeze the assets of some of the Wyly brothers’ family members, heirs, agents and trustees identified as relief defendants.
     “We hold that the entry of the asset freeze order did not violate the bankruptcy code’s automatic stay,” Circuit Judge Jose Cabranes wrote for the panel.
     Circuit Judges Rosemary Pooler and Christopher Droney also approved freezing the ill-gotten gains of nine of the 16 so-called “relief defendants.”
     The panel agreed that the SEC did not prove that the other seven received payments from trusts held offshore in the Isle of Man.
     “On this record, we cannot know, much less decide, whether the district court clearly erred in determining that the [Isle of Man] trusts ‘made distributions’ to each of the relief defendants,” the 32-page opinion states. “We thus think it prudent to remand the cause to the district court for further individualized findings regarding trust distributions to these seven relief defendants.”
     Attorney David Kornblau, who represents the Wylys and the relief defendants for the Washington-based firm Covington & Burling LLP, emphasized the partial victory.
     “We are encouraged that the Second Circuit recognized the lack of evidence against many of the relief defendants,” he said in an email statement.
     The commission did not immediately respond to an email request for comment.

%d bloggers like this: