Wyly Widow Files for Bankruptcy, Citing $101 Million SEC Debt, Just Days After Brother-in-Law Files

Just on the heels of the bankruptcy case of Samuel Wyly and his late brother, Charles, another member of the Texas billionaire family is also filing personal bankruptcy.

Eighty-one-year-old Caroline Wyly, widow of Charles Wyly, has filed for bankruptcy based on the $101.2 million she owes to the Securities and Exchange Commission.

Caroline Wyly’s late husband, and her brother-in-law, were found by a Manhattan jury to have run a stock fraud scheme that earned them $550 million in illegal trading profits.

Samuel Wyly filed for bankruptcy in the same court just four days ago, citing a need to preserve assets for himself and his late brother’s estate. Both brothers faced a forfeiture order of about $300 million.

U.S. District Judge Shira Scheindlin said she will comply with the SEC’s requests for the asset freeze, along with expedited fact-finding and an accounting of the Wyly family’s assets.

Of the SEC case, Scheindlin told lawyers, “An injunction must be issued that protects assets that might be depleted or dissipated before a final judgment.”

Scheindlin rejected the family’s argument that the $300 million forfeiture ordered by the SEC violates the Constitution’s provision on the imposition of excessive fines.

According to the SEC, the Wyly brothers perpetrated fraud for 13 years. Samuel and Charles Wyly developed several companies, such as Bonanza Steakhouse and Michaels Stores Inc.

The brothers have also been accused of profiting from information gleaned while on the board of their company, Sterling Software Inc., in order to gain shares ahead of the company’s sale to Computer Associates International Inc., according to the SEC.

Charles Wyly, who died in an auto accident in 2011, was accused by the SEC one year prior to his death of using offshore trusts in the Isle of Man for 13 years, along with his brother, and using them to illegally trade shares.

Caroline Wyly’s creditors include the Internal Revenue Service, with an unknown claim amount, and the Snowmass Club, a country club in Snowmass, Col., to which she owes $397.37 in membership dues.

“A chapter 11 bankruptcy is a re-organization bankruptcy for people or business with debt over a million dollars,” says Will Ridings, Attorney at Ridings Law Firm. “It’s comparable to a chapter 13 bankruptcy for consumers, which is mostly for consumers with less than a million dollars. This is different from a chapter 7, where non-exempt assets are liquidated to repay creditors. Chapter 11 allows you to keep assets and business and negotiate some sort of agreed upon settlement with creditors.”

The SEC has challenged the legitimacy of Samuel Wyly’s Chapter 11 filing. They also stated that Wyly’s personal spending budget is “unnecessary and lavish.”

Caroline Wyly has not yet filed a budget in her case. Her lawyer, Eric Soderlund, declined to comment on the filing.

The bankruptcy cases are Caroline D. Wyly, 14-bk-35074 and Samuel E. Wyly, 14-bk-35043, both filed in the U.S. Bankruptcy Court, Northern District of Texas (Dallas). The SEC lawsuit is SEC v. Wyly, 10-cv-05760, filed in U.S. District Court, Southern District of New York (Manhattan).