The Securities and Exchange Commission is trying to slash former billionaire Samuel Wyly’s “lavish” spending after his assets were frozen, telling a bankruptcy judge that the investor is planning a spree.
Wyly, who filed for Chapter 11 protection last month after losing an SEC fraud lawsuit, projected “whopping” personal expenses of almost $1 million a month in November and December, compared with a $15,000 limit proposed by the federal judge who froze his cash, the regulator said in a filing Wednesday in U.S. Bankruptcy Court in Dallas, where Wyly lives.
“Debtors should not assume that they will be allowed to maintain affluent lifestyles during their Chapter 11 proceedings,” the SEC said. “It appears that debtor’s expenses can only go up.”
In May, a federal jury in Manhattan, N.Y., found that Wyly and his late brother Charles Wyly, who helped build arts-and-crafts retailer Michaels Stores and other companies, perpetrated an offshore stock-trading fraud that made them at least $550 million in illegal profits over more than a decade. A disgorgement order of at least $300 million is expected to be issued, according to court papers.
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The Dallas judge overseeing the bankruptcy case will approve a final budget for Wyly after a hearing on the matter as soon as Friday. The SEC said more detail is needed to justify the spending.
Wyly’s bankruptcy lawyer, Josiah Daniel of Vinson & Elkins in Dallas, didn’t respond to a call for comment on the SEC filing.
Wealthy people in other bankruptcy cases have had such expenses denied, the SEC said, including spending on maintenance of luxury cars and vacation homes, as well as tuition for grandchildren, football brunches and resort vacations.
Wyly’s monthly expenses include $2,200 for his pool, home maintenance and landscaping; $7,000 to support family and friends; and more than $100,000 for running his family office, according to papers filed last month. He spends $29,000 a month for the mortgage on his wife Cheryl’s bookstore in Aspen, Colo., and $523,345 in annual salaries for his personal writing assistants and housekeeper.
Wyly should consider giving up the bookstore because it’s a “cash loss” business, the SEC said.
Wyly’s wife, who didn’t file for bankruptcy, may hold “significant assets” and should help pay the family’s expenses, the SEC said.
“Any consideration of the debtor’s assets and expenditures should be considered in light of his wife’s duties to contribute to their income and expenses,” the agency said.
The monthly budget proposed by U.S. District Judge Shira Scheindlin in Manhattan, who oversaw the SEC trial, is reasonable and doesn’t include medical expenses, legal fees, tuition and taxes, the agency said.
“Judge Scheindlin’s $15,000 monthly allowance serves as an excellent benchmark for reviewing the debtor’s budget,” the agency said in the filing.
The SEC also wants to know why Wyly didn’t get his usual annuity income from four trusts, which usually pay him about $24 million a year, according to Wednesday’s filing. The trusts were supposed to pay Wyly last month but didn’t, citing a lack of liquidity, the agency said.
Charles Wyly was killed in an auto accident in 2011, a year after the SEC sued the brothers. His estate is still a defendant in the case, and his widow, Caroline, filed for bankruptcy last month in the same Dallas court.