Texas tycoon Sam Wyly has filed for bankruptcy, saying he does not have the assets to pay the nearly $300 million that U.S. regulators are demanding for his role in a fraudulent offshore scheme.
In documents filed with a U.S. bankruptcy court in Dallas on Sunday, Wyly said he had between $100 million and $500 million of both assets and liabilities and cited the "massive costs" of fighting civil claims from the U.S. Securities and Exchange Commission (SEC) as the reason for seeking Chapter 11 protection.
Last month, U.S. District Judge Shira Scheindlin in New York ordered Wyly and the estate of his late brother Charles to pay damages of $187.7 million plus interest to the SEC, after a jury found them liable for fraud in May.
The SEC has since said the total, including interest, should be $299.4 million, which is one of the largest awards ever sought from individual defendants in a U.S. court.
Wyly, 80, appeared on Forbes' list of the 400 richest Americans in 2010, with a net worth of $1 billion.
In the filing, Wyly said he had spent $100 million in legal fees responding to probes from the SEC and the Internal Revenue Service.
Robert Gemmill, a spokesman for Wyly, said he would not comment beyond the bankruptcy filing. An SEC spokesman declined to comment.
U.S. Bankruptcy Judge Barbara Houser scheduled an initial hearing for Wednesday.
The SEC accused the brothers of constructing a complex system of trusts in the Isle of Man that netted them $553 million in untaxed profits through more than a decade of hidden trades in four companies they controlled.
Those companies included Sterling Software Inc, Michaels Stores Inc [MSII.UL], Sterling Commerce Inc and Scottish Annuity & Life Holdings Ltd, now Scottish Re Group Ltd.
Charles Wyly died in a 2011 car crash, and his estate was substituted as a defendant.
The SEC and the Wylys have been fighting over whether the securities regulator may collect money still held in the offshore trusts.
Lawyers for the Wylys have argued that those assets, worth about $380 million, are controlled by the trusts' beneficiaries, including the Wylys' children.
In a court filing last week, the SEC said the trusts' assets are the property of Sam and Charles Wyly.
"The SEC continues to believe that Sam and the estate of Charles Wyly have sufficient global assets to pay any judgment," the filing said.
A lawyer for Sam Wyly, Steven Shepard, warned Scheindlin in August that a massive judgment would bankrupt his client.
It was not immediately clear whether the bankruptcy filing could allow Wyly to reduce his debt to the SEC.
Debts incurred through fraud are typically not eligible for reduction in bankruptcy proceedings, said Jonathan Lipson, a Temple University law professor with expertise in bankruptcy law. It is theoretically possible, though, for Chapter 11 debtors to reduce such debts with a judge's approval, Lipson said.
The case is In re Samuel E. Wyly, U.S. Bankruptcy Court, Northern District of Texas, No. 14-35043.
