Samuel Wyly in Bankruptcy Facing $400 Million Forfeiture
Samuel Wyly, the U.S. businessman who may have to forfeit as much as $400 million after being found liable for using offshore trusts to hide stock holdings and make illegal trades, filed for bankruptcy.
Wyly, 80, listed assets and debt of $100 million to $500 million each in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Dallas, where he lives. The technology and retail entrepreneur blamed “massive costs” from a U.S. Securities and Exchange Commission probe and litigation.
The SEC, which sued Wyly in 2010, is Wyly’s second-biggest creditor, with a “disputed” claim of $198.1 million, according to the court papers. Wyly listed the Internal Revenue Service as his biggest creditor, saying the size of that debt, also disputed, is unknown.
Other debts include a $20,000 grant commitment to the Third Church of Christ, Scientist, in Dallas and $383.20 in membership dues for the Dallas Country Club, Wyly said in his filing.
“While the debtor has substantial assets, he does not have the ability to pay the full amount of all asserted claims at the present time,” according to the Chapter 11 papers.
A federal jury in Manhattan found Wyly and the estate of his late brother Charles liable in May for misusing the offshore trusts. U.S. District Judge Shira Scheindlin, who oversaw the trial, ordered forfeiture of $187.7 million plus interest. Depending on how the interest is calculated, the total will be from $300 million to $400 million, the judge said.
Excessive Fines
A lawyer for Samuel Wyly on Oct. 8 asked Scheindlin to determine whether the forfeiture is consistent with the U.S. Constitution’s Eighth Amendment, which bars the government from imposing excessive fines.
Josiah Daniel, Wyly’s lawyer, declined to comment on the bankruptcy filing when reached by phone today.
Wyly’s early jobs at International Business Machines Corp. (IBM) and Honeywell Inc. (HON) were followed by a career of developing new companies, including Bonanza Steakhouses, Sterling Software Inc. and Michaels Stores Inc., according to the Chapter 11 petition. Sterling Software was sold for $4 billion in 2000, and Michaels Stores sold for $6 billion six years later, Wyly said in court papers.
His companies created as many as 200,000 jobs and were profitable investments for others, according to the court filings.
Data Company
Wyly said he lost $100 million trying to break up the Bell Telephone monopoly with a start-up company called Datran, which specialized in computer communication.
“Today, it is called the Internet,” Wyly’s lawyers said in the bankruptcy filing.
Wyly said he recovered about half his losses in an antitrust settlement with Bell.
“Sam did a good job for his investors, his employees and the community,” according to the filing.
The SEC, among its claims, alleged the Wylys made $31.7 million by using inside information they gained from sitting on the board of Sterling Software to accumulate shares in 1999, before its sale to Computer Associates International Inc.
The Wylys claimed they used the offshore trusts for tax purposes, estate planning and asset protection. They said they never concealed the trusts and relied on the advice of “an army of lawyers” they trusted to ensure they complied with the law.
The SEC had sought the return of $550 million of allegedly illegal gains. Wyly, who testified in his own defense during the trial, failed to sway the jury.
The bankruptcy case is Samuel E. Wyly, 14-35043, U.S. Bankruptcy Court, Northern District of Texas (Dallas).
