Sunday, June 4, 2023 | Back issues
Courthouse News Service Courthouse News Service

Hard Times for Former Billionaire Wyly

DALLAS (CN) - Former Texas billionaire Sam Wyly is inflating a "whopping" bankruptcy budget with inflated expenses, the SEC said in court - and a day later his ex-wife sued him to protect her annual $500,000 alimony.

Wyly, 77, of Dallas, filed for Chapter 11 bankruptcy protection in October.

A philanthropist and contributor to Republican causes, Wyly made his fortune co-founding Sterling Software in 1981 and buying an interest in arts-and-crafts retailer Michaels in 1982.

Sterling was sold for $4 billion in 2000 and Michaels Stores for $6 billion in 2006.

A Manhattan federal jury in May found Wyly and the estate of his deceased brother, Charles, guilty of using offshore trusts to hide stock trades, and ordered the two to pay at least $198 million.

Wyly faces a disgorgement order of up to $400 million.

The SEC sued the brothers in 2010, accusing them of playing a "global game of hopscotch" by hiding assets in their four companies - Sterling, Michaels, Sterling Commerce, and Scottish Annuity & Life Holdings Ltd. - from 1992 to 2004.

U.S. District Judge Shira A. Scheindlin in Manhattan presided over the SEC's civil lawsuit against the Wylys. She placed a freeze on Wyle's assets on Nov. 3, undeterred by the bankruptcy filing.

Scheindlin allowed $15,000 per month in "necessary and reasonable" living expenses, but Wyly has projected $1.95 million in expenses for November and December, according to the SEC's objection to his "Debtor's Budget and Request to pay Ordinary Living Expenses."

"The commission objects to the debtor's request for authority to pay ordinary expenses because his budget does not contain sufficient detail as to receipts or expenditures, and many of the requested expenses are inflated or unnecessary," the SEC's Nov. 5 objection stated.

"The bankruptcy court will not approve lavish spending by individual Chapter 11 debtors. Individual Chapter 11 debtors should not assume that they will be allowed to maintain affluent lifestyles during their Chapter 11 proceedings."

The SEC said Wyly's expense budget "can only go up" as it does not include other expenses, such as $393,000 in quarterly allocations for a family office and property taxes.

It also points out that his wife, Cheryl Wyly, may hold significant assets, that his bankruptcy should include income from her assets and that he should not shoulder the costs of their home alone.

His wife has not filed for bankruptcy.

The SEC also said Wyly should not continue making mortgage payments for his wife's Aspen, Colo., bookstore, which is losing money. It also questioned why Wyly did not receive his $24 million in annuity payments from four trusts. They were supposed to pay him in October, but failed to do so due to a lack of liquidity.

Wyly's ex-wife, Torie Steele, sued to protect her alimony payments one day after the SEC's objection. The couple divorced in September 1991 in Los Angeles Superior Court, with Wyly required to pay more than $4.1 million in a community property division.

An amended judgment in July 1993 required Wyly to pay $500,000 per year in monthly installments. After Wyly fell behind on his payments, he agreed in May 2007 to guarantee the principal owed to Steele, "taking his chances with his acumen as an investor as opposed to risk incurring any further spousal support obligations," according to the Superior Court ruling, as cited in Steele's Nov. 6 Complaint to Determine Nondischargeability of Debt."

Steele's complaint claims that Wyly listed her debt as unsecured based on that "contract."

Steele disagrees, arguing her debt is spousal support.

"The requirements imposed upon Wyly to provide Steele with guaranteed income of $41,666 per month is satisfied by payments from [investment firm] Maverick Stable Partners, L.P. on the last date of each month," the complaint states.

"No payment, however, was received by Steele on October 31, 2014, as required by the Order Amending Judgment. This failure to pay confirms that Wyly considers his obligation to Steele as a dischargeable 'contract' debt and not a debt for a domestic support obligation."

Wyly's attorney, Josiah Daniel with Vinson & Elkins in Dallas, did not respond to a request for comment Friday evening.

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.