Dallas businessman Charles Wyly had “no significant life insurance” when he died in a 2011 car crash, leaving his widow insolvent and dependent on relatives amid a federal fraud lawsuit against her husband’s estate, bankruptcy records show.
Caroline “Dee” Wyly, 81, exhausted the liquid assets in the estate and can no longer tap the remaining funds to pay for living expenses or litigation, her lawyer said in a filing with the U.S. Bankruptcy Court in Dallas.
The investor’s widow, known for her philanthropy in education and performing arts, filed a Chapter 11 petition last week, citing financial fallout from the Securities and Exchange Commission case against her husband in Manhattan, N.Y. She isn’t accused of wrongdoing.
“Dee’s income following the death of Charles — while substantial — was completely inadequate to pay the costs of maintaining the assets she now was responsible for,” her lawyer said in the filing. “Dee has managed to continue to pay her expenses only through the kindness of family.”
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Caroline Wyly has said she owes at least $101.2 million to the SEC, which in May won a trial against her late husband and billionaire brother-in-law Samuel Wyly. A federal jury in Manhattan found the brothers, who developed companies including the Irving-based arts-and-crafts retailer Michaels Stores, hid stock offshore and made illegal trades for 13 years, clearing $550 million in illegal profit.
Caroline Wyly’s home in Dallas is mortgage-free, and a family residence in Colorado has “significant equity” that can’t be tapped as a result of the SEC litigation, according to the filing. Her relatives have loaned or given assets to help her, according to the filing.
She said she plans to use Chapter 11 to secure a global settlement with the SEC and the Internal Revenue Service, which seeks back taxes from the trades.
Caroline Wyly intends to sell her Colorado home if the bankruptcy judge approves, according to the filing.
Details of her finances were included in court filings requesting expedited consideration of several standard requests in Chapter 11, including permission to administer her estate.
A judge must approve expenditures after a debtor files a bankruptcy petition.
Samuel Wyly filed for bankruptcy in the same court Oct. 19, citing a need to preserve assets as he and his brother’s estate faces a disgorgement order of almost $300 million. SEC lawyers plan to argue at a hearing in New York next month for that amount to be more than doubled.
U.S. District Judge Shira Scheindlin, who oversaw the civil trial, expressed frustration with the bankruptcy filings last week, saying they won’t block the SEC’s case against the Wylys from going forward.
Scheindlin also said she will temporarily freeze the Wylys’ assets.
An asset freeze might harm innocent third parties, said David Kornblau, a lawyer who represents Sam Wyly’s wife Cheryl; his son Evan; and Martha Miller, a daughter of Charles Wyly. Wyly family members might find that their assets were affected by the SEC’s actions if an automated teller machine rejects their bank withdrawal request or their household utilities are cut off, he said.
“The proposed order would effectively give a government agency unfettered power to freeze all assets of its choosing held by any of over 40 innocent children, spouses of children, grandchildren and great-grandchildren of all ages,” Kornblau said in the letter to Scheindlin.
Scheindlin has scheduled a Nov. 17 hearing in the case.