A Manhattan federal judge on Thursday ordered Texas entrepreneur Sam Wyly and the estate of his deceased brother, Charles Wyly, to pay $187.7 million in sanctions.
The brothers will also have to pay prejudgment interest, which is expected to bring the total sanctions to about $300 million to $400 million. In May, the Wyly brothers were found liable on civil fraud allegations for using a system of offshore trusts to hide stock sales, leading to $553 million in profits.
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The sanctions will amount to one of the largest awards ever imposed against individual defendants, U.S. District Judge Shira Scheindlin said in a written statement. The total sum will be "staggering," she wrote.
Judge Scheindlin imposed disgorgements of $123.8 million against Sam Wyly and $63.9 million against the estate of Charles Wyly. She also awarded prejudgment interest for the entire period of the fraud. The SEC will have to submit a recalculation of this interest by Oct. 17.
"We are pleased with the judge's decision," SEC Enforcement Division Director Andrew Ceresney said in a statement. "No matter how complex or well-disguised their schemes may be, we will uncover the wrongdoing and aggressively hold individuals accountable for their securities law violations."
The agency had asked for up to $729 million in sanctions, which included a $51 million civil penalty against Sam Wyly. His brother, Charles, died in a car accident in Aspen, Colo., in 2011.
Judge Scheindlin declined to impose an additional civil penalty but noted that "the extensiveness of this scheme, the brazenness of Wyly's conduct, and his position of wealth and importance in the community" warranted the sanction.
Lawyers for the Wylys had argued throughout the trial that the trusts were set up for tax purposes and to facilitate estate planning, but that the Wylys didn't have control of them.
The defense lawyers had no immediate comment on Judge Scheindlin's decision.
A jury found the brothers guilty of maintaining a series of trusts and subsidiaries on the Isle of Man as well as a Cayman Island entity that were used to sell more than 700 transactions in four companies, which they didn't disclose in regulatory filings.
The brothers were high-level insiders in the companies, which meant that the sale of the securities could have impacted the market price. The jury found them liable in violating nine different securities laws between 1992 and 2005.
In July, Judge Scheindlin found the brothers not liable on insider-trading charges involving a company they controlled, Sterling Software, in 1999.
Wyly-related offshore funds were used to make purchases including a 244-acre ranch near Aspen, a $937,500 portrait of Benjamin Franklin, $721,000 in official documents from the presidency of Abraham Lincoln and a $759,000 emerald necklace, according to a 2006 report from the U.S. Senate Permanent Subcommittee on Investigations.
SEC lawyer Bridget Fitzpatrick argued in court that "every action taken by the trustees was initiated or authorized by Sam and Charles Wyly."
The offshore scheme "was implemented with a cynical view of the government's ability to ever hold men as rich and powerful as the Wylys fully accountable for their misconduct," according to court documents filed by the SEC. After being warned that the Wyly position regarding taxation of the trusts was "aggressive and risky for tax purpose," Sam Wyly responded that "if the IRS ever challenged his position, he would litigate for years and settle for pennies on the dollar," according to the documents.
Thomas Gorman, a partner at law firm Dorsey Whitney LLP and former SEC enforcement official, said the decision was "a significant ruling for the SEC." In part, that is because the agency has pushed to improve its record of winning tough cases at trial against defendants who often have deep pockets.
"This case, coupled with others focusing on filing reports that the Wylys didn't file, will bring attention to those who have holdings offshore," Mr. Gorman added.
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