Monday, September 26, 2022 | Back issues
Courthouse News Service Courthouse News Service

Wyly Bankruptcy Won’t Block SEC Asset Freeze

MANHATTAN (CN) - Regulators eyeing a potential $550 million judgment against the Texas tycoons behind arts-and-crafts franchise Michaels won a federal asset freeze.

Samuel Wyly and the widow of his deceased brother, Charles Wyly, had hoped that filing for bankruptcy would stay the Securities and Exchange Commission's attempt earlier this month to freeze the assets of billionaires for using offshore trusts to hide stock trades.

U.S. District Judge Shira Scheindlin agreed with the SEC on Monday, however, that the bankruptcy had no impact on the agency's requested asset freeze.

"Though the question is close, I conclude that the SEC is acting in its police and regulatory capacity, and thus the automatic stay does not apply," Scheindlin said.

Scheindlin looked to the 2nd Circuit's ruling in SEC v. Brennan ruling, which said that an automatic stay precludes repatriation of offshore trusts as an attempt to enforce a judgment.

"There is, as yet, no judgment to be enforced here," she said. "The exception to the exception is only implicated after final judgment has been entered and the government is acting to 'vindicate its own interest in collecting its judgment.".

Sam Wyly, 77, of Dallas, made a fortune by co-founding Sterling Software in 1981, then buying an interest in Michaels craft stores the next year.

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

The SEC accused Sam Wyly and his brother of playing a "global game of hopscotch" by hiding assets from 1992 to 2004 to realize $550 million through hundreds of secret transactions, then shuffling the money between the Cayman Islands and Dallas.

A jury found them guilty on nine counts for in May. Judge Scheindlin nixed one of those claims - for inside trading -- in July.

Sam Wyly was named one of the richest Americans by Forbes Magazine in 2012, with a net worth of $1 billion. His brother, Charles, died in a car crash in 2011, but his estate was swapped in as a co-defendant.

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.