A U.S. judge said Thursday she would order the assets of Texas entrepreneur Sam Wyly, who once made the Fortune 400 list, temporarily frozen after he filed for bankruptcy.
During a hearing in Manhattan, U.S. District Judge Shira Scheindlin said she was "not very happy" about the bankruptcy filing, which came after she ordered him and the estate of his late brother Charles to pay $187.7 million plus interest for engaging in fraud.
The judge said she would freeze the assets of Wyly and his brother's estate, as well as funds held in offshore trusts at the center of a lawsuit by the U.S. Securities and Exchange Commission.
Scheindlin also said the freeze, which she still needs to sign, would restrict the Wylys' family members from transferring any assets they received or will receive from the defendants or the trusts.
"An injunction must issue that protects assets that might be depleted or dissipated," she said.
Scheindlin acknowledged the freeze was legally a "close call" under the law after Wyly, 80, filed for bankruptcy - an act that typically puts a hold on litigation and efforts to collect on judgments.
Wyly, who last appeared on Forbes' list of the 400 richest Americans in 2010 with a net worth of $1 billion, filed for Chapter 11 protection on Sunday, saying he cannot afford the SEC's claim, as well as a potential tax liability to the Internal Revenue Service.
The hearing came shortly after another member of the Wyly clan, Carolyn Wyly, filed for Chapter 11 bankruptcy protection earlier on Thursday in a U.S. bankruptcy court in Dallas
Caroline Wyly, Charles Wyly's widow, listed $100 million to $500 million in assets and the same amount in liabilities. She listed the SEC as her top creditor with a $101.2 million claim.
The SEC has calculated that, with interest, the Wyly brothers face almost $300 million in damages following Scheindlin's September order, $198.1 million from Sam Wyly alone.
The SEC contends the brothers set up a complex system of offshore trusts that enabled them to reap $550 million in undisclosed profits over 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.
A jury in May found both brothers liable for fraud, leading to Scheindlin's ruling.
The case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court, Southern District of New York, 10-5760.
