By DAVID LEE
DALLAS (CN) - A federal bankruptcy judge approved former billionaire Sam Wyly's $198 million settlement with the Securities and Exchange Commission, ending six years of litigation over millions of dollars in profits hidden in offshore trusts.
U.S. Bankruptcy Judge Barbara J. Houser approved the settlement on Nov. 8, one month after Wyly and the Securities and Exchange Commission agreed to the settlement in Manhattan Federal Court.
A federal jury agreed with the SEC that Wyly and his late brother Charles made $550 million from more than 700 hidden transactions in 40 companies operating through trusts in the Isle of Man that moved money between the Cayman Islands and Dallas.
Under terms of the settlement, the SEC agreed to stop trying to claw back more than $500 million Wyly is believed to still have in the offshore trusts.
Wyly and his brother's widow, Carolyn "Dee" Wyly, filed for Chapter 11 bankruptcy in Dallas in 2014 to avoid collection of the SEC judgment. The Internal Revenue Service pursued its own claims against the Wylys in Houser's court, seeking as much as $3.2 billion in back taxes and penalties.
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.
Houser's 4-page order states that $705,000 will be held in trust for unsecured claims held by nongovernment creditors, with the exception of the Joint Official Liquidators of Security Capital and Wrangler Capital.
Houser ruled in May that there was "clear and convincing evidence" of a "badge of fraud" in the offshore trusts the Wylys used. She was not persuaded by Wyly’s testimony that he was simply following the advice of his accountants and lawyers, saying that "Sam knew what was happening."
“Sam cannot rely on the favorable portions of the professionals’ advice he sought, while feigning ignorance of the factual predicates upon which that advice relied for its accuracy,” Houser said at the time.
“Perhaps that happens all the time in Sam’s life, but if it happened in mine, I would be asking questions – lots of them. Sam is a sophisticated and well-educated businessman that accumulated great wealth through his business acumen and hard work.”
During the three-week bankruptcy trial in January, Wyly testified that he filed for bankruptcy to force the IRS to "put up or shut up" about its demands. He complained that he had been audited for a decade and that the IRS failed to tell him whether he owed more taxes during that time.
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