Texas tycoon Sam Wyly, who filed for bankruptcy this week,
is trying to exhaust his fortune through exorbitant spending to impede
the U.S. Securities and Exchange Commission's collection of a $198.1 million fraud claim against him, the regulator told a U.S. judge on Wednesday. During a hearing in Dallas bankruptcy court, a lawyer for the SEC criticized Wyly's proposed budget as "staggering." Items include $32,000 a month for assistants to help him write his books and nearly $7,000 a month to support elderly friends and family members.
"We are concerned that the debtor is attempting to deplete
domestic assets and making it harder for U.S. creditors to collect,"
Angela Dodd, an SEC lawyer, said.
Read More Texas investor Samuel Wyly files for bankruptcy
A lawyer for Wyly, Josiah Daniel, said the
budget "reflects some substantial cuts." But U.S. Bankruptcy Judge Barbara Houser said Wyly should consider whether such expenses are "appropriate" given his bankruptcy filing.
"Not all debtors are created equal, and certainly Mr. Wyly is an unusual debtor in the sense of the magnitude of his assets and conversely the magnitude of his liability," she said.
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Wyly, 80, filed for Chapter 11 protection on Sunday, saying he cannot afford the SEC's claim as well as a potential tax judgment from the Internal Revenue Service.
The filing came after U.S. District Judge Shira Scheindlin in New York last month ordered Wyly and the estate of his late brother Charles to pay $187.7 million plus interest for their role in a fraudulent scheme.
The SEC's calculations put the total figure for both brothers at just under $300 million, one of the largest judgments ever against individual defendants, with Sam Wyly responsible for $198.1 million.
The SEC has accused the brothers of constructing a complex system of trusts in the Isle of Man that netted them about $550 million in undisclosed profits through more than a decade of hidden trades in four companies they controlled.
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Those companies included Sterling Software, Michaels Stores, Sterling Commerce and Scottish Annuity & Life Holdings, now Scottish Re Group.
Scheindlin's order followed a jury verdict in May that found the brothers liable for fraud. Charles Wyly died in a 2011 car crash, and his estate had been substituted as a defendant.
Read More Texas investor Samuel Wyly files for bankruptcy
A lawyer for Wyly, Josiah Daniel, said the
budget "reflects some substantial cuts." But U.S. Bankruptcy Judge Barbara Houser said Wyly should consider whether such expenses are "appropriate" given his bankruptcy filing.
"Not all debtors are created equal, and certainly Mr. Wyly is an unusual debtor in the sense of the magnitude of his assets and conversely the magnitude of his liability," she said.
Read More SEC, stop insisting rich means smart
Wyly, 80, filed for Chapter 11 protection on Sunday, saying he cannot afford the SEC's claim as well as a potential tax judgment from the Internal Revenue Service.
The filing came after U.S. District Judge Shira Scheindlin in New York last month ordered Wyly and the estate of his late brother Charles to pay $187.7 million plus interest for their role in a fraudulent scheme.
The SEC's calculations put the total figure for both brothers at just under $300 million, one of the largest judgments ever against individual defendants, with Sam Wyly responsible for $198.1 million.
The SEC has accused the brothers of constructing a complex system of trusts in the Isle of Man that netted them about $550 million in undisclosed profits through more than a decade of hidden trades in four companies they controlled.
Read More Crafts retailer Michaels raises $473 mln in IPO
Those companies included Sterling Software, Michaels Stores, Sterling Commerce and Scottish Annuity & Life Holdings, now Scottish Re Group.
Scheindlin's order followed a jury verdict in May that found the brothers liable for fraud. Charles Wyly died in a 2011 car crash, and his estate had been substituted as a defendant.
Getty Images
The bankruptcy filing sets up a potential jurisdictional
fight, with Scheindlin scheduled on Thursday to consider the SEC's
request to freeze all of the Wylys' assets, including the offshore trust
funds.
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Daniel, Wyly's lawyer, contended on Wednesday that the SEC's freeze request would violate the bankruptcy court's authority.
The two sides are wrangling over whether the hundreds of millions of dollars that remain in the offshore trusts should be subject to collection.
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The Wylys have argued the assets belong to their children and other beneficiaries, while the SEC asserts the jury found the brothers controlled the money.
If the offshore assets are included, the SEC claims, the Wylys can satisfy the judgment without going bankrupt.
The bankruptcy case is In re Samuel E. Wyly, U.S. Bankruptcy Court, Northern District of Texas, No. 14-35043.
The SEC case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court, Southern District of New York, 10-5760.
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Daniel, Wyly's lawyer, contended on Wednesday that the SEC's freeze request would violate the bankruptcy court's authority.
The two sides are wrangling over whether the hundreds of millions of dollars that remain in the offshore trusts should be subject to collection.
Read MoreUS retailer Michaels warns of possible payment card breach
The Wylys have argued the assets belong to their children and other beneficiaries, while the SEC asserts the jury found the brothers controlled the money.
If the offshore assets are included, the SEC claims, the Wylys can satisfy the judgment without going bankrupt.
The bankruptcy case is In re Samuel E. Wyly, U.S. Bankruptcy Court, Northern District of Texas, No. 14-35043.
The SEC case is U.S. Securities and Exchange Commission v. Wyly et al, U.S. District Court, Southern District of New York, 10-5760.
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