The Securities and Exchange Commission said in a court filing Friday that Texas billionaire Sam Wyly and the estate of his late brother Charles should pay $1.41 billion in damages for hidding trades in companies they controlled using offshore trusts.
The SEC said the amount was justified by the finding of a federal court jury that the Wylys had engaged in fraud for 13 years, earning them $553 million — profits not disclosed to investors in the companies, Reuters reported Saturday.
“It is time to hold the Wylys accountable,” the SEC said. “It is time to strip away the immense profits that flowed from their misconduct. It is time to impose the maximum penalty allowable under the securities laws.”
Lawyers for the Wylys said “there would be nothing equitable about imposing such a massive judgment.”
The SEC’s demand for the huge sum comes ahead of an August 4 trial before U.S. District Judge Shira Scheindlin in New York that will assess damages to accompany a verdict rendered in May — the SEC’s largest case to reach trial in recent years.
In May, a jury presided over by Judge Scheindlin found the defendants guilty of nine counts of fraud by using offshore trusts in the Isle of Man to conceal stock sales from 1992 to 2004 in four companies on whose boards they sat.
The companies are Sterling Software Inc., Michaels Stores Inc., Sterling Commerce Inc., and Scottish Annuity & Life Holdings Ltd, which is now called Scottish Re Group Ltd.
Judge Scheindlin tossed charges of insider trading. She said the SEC failed to demonstrate that the Wylys’ desire to sell Sterling Software equated to material knowledge that could form the basis for insider trading.
The SEC said Sam Wyly, 79, should disgorge $371.1 million in trading profits, plus $528 million in interest, and pay a $72.3 million penalty.
The agency wants disgorgement from the estate of Charles Wyly of $182 million in profits and $260.6 million in interest. He died in a car crash in 2011.
Lawyers for the Wylys said, “The facts and circumstances demonstrate that the amounts of any monetary profits resulting from or causally connected to the defendants’ violations are far, far smaller than what the SEC claims.”
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.