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Securities and Exchange Commission v. Wyly

United States District Court, S.D. New York

February 26, 2015

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
SAMUEL WYLY, and DONALD R. MILLER, JR., in his Capacity as the Independent Executor of the Will and Estate of Charles J. Wyly, Jr., Defendants. and CHERYL WYLY, EVAN ACTON WYLY, LAURIE WYLY MATTHEWS, DAVID MATTHEWS, LISA WYLY, JOHN GRAHAM, KELLY WYLY O'DONOVAN, ANDREW WYLY, CHRISTIANA WYLY, CAROLINE D. WYLY, MARTHA WYLY MILLER, DONALD R. MILLER, JR., in his individual capacity, CHARLES J. WYLY III, EMILY WYLY LINDSEY, JENNIFER WYLY LINCOLN, JAMES W. LINCOLN, and PERSONS, TRUSTS, LIMITED PARTNERSHIPS, AND OTHER ENTITIES KNOWN AND UNKNOWN, Relief Defendants.

Bridget Fitzpatrick, Esq., Hope Augustini, Esq., Gregory Nelson Miller, Esq., John David Worland, Jr., Esq., Martin Louis Zerwitz, Esq., Daniel Staroselsky, Esq., Angela D. Dodd, Esq., Marsha C. Massey, Esq., United States Securities and Exchange Commission, Washington, DC, for the SEC.

Stephen D. Susman, Esq., Harry P. Sus man, Esq., Susman Godfrey LLP, Houston, TX, David D. Shank, Esq., Terrell Wallace Oxford, Esq., Susman Godfrey LLP, Dallas, TX, Steven M. Shepard, Esq., Mark Howard Hatch-Miller, Esq., Susman Godfrey LLP, New York, NY, for Defendants.

Josiah M. Daniel III, Esq., Vinson & Elkins LLP, Dallas, TX for Samuel Wyly.

Judith W. Ross, Esq., Law Offices of Judith W. Ross, Dallas, TX, for Caroline D. Wyly.

David L. Komblau, Esq., Eric Hellerman, Esq., Covington & Burling LLP, New York, NY, for Donald R. Miller, Jr., John Graham, Cheryl Wyly, Evan Wyly, Martha Miller, David Matthews, Laurie Matthews, Lisa Wyly, Kelly Wyly O'Donovan, Andrew Wyly, Christiana Wyly, Emily Wyly Lindsey, Charles J. Wyly, III, James W. Lincoln, and Jennifer Wyly Lincoln.

Chaim Zev Kagedan, Esq., Venable LLP, New York, NY, for Jennifer Wyly Lincoln.

MEMORANDUM OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Following a jury verdict on May 12, 2014, this Court's Opinion and Order of September 25, 2014 (the "September Order"), and this Court's Opinion and Order of December 19, 2014 (the "December Order"), the SEC now moves for the entry of Final Judgment against Defendants Samuel E. Wyly and Donald R. Miller, Jr., in his capacity as the Independent Executor of the Will and Estate of Charles J. Wyly, Jr. ("the Wylys"). The Wylys do not oppose this request, but object to certain aspects of the SEC's proposed Final Judgment. For the following reasons, the SEC's motion is GRANTED. A separate Order imposing the Final Judgment is issued simultaneously with this Opinion and Order.

II. DISCUSSION

The parties' dispute centers on (1) the amount of the offset the Wylys may be entitled to in the event of a future adverse IRS determination, (2) how the offset should be structured, and (3) the language regarding payment of the judgment.

A. Amount of Offset

In the September Order, I measured disgorgement based on the amount of taxes the Wylys avoided. In that Order, I provided that "any amounts disgorged in this case should be credited towards any subsequent tax liability determined in an IRS civil proceeding as a matter of equity."[1] Subsequently, I allowed the SEC to present an alternative measure of disgorgement based on the difference between the Wylys' trading profits and those of an ordinary buy-and-hold investor. I imposed this measure of disgorgement in the alternative, and held that "disgorgement based on trading profits may only be imposed in the event that a higher court disagrees with the measure of disgorgement imposed by the September 25 Order...."[2]

The SEC contends that the measure of ill-gotten gains in the December Order "has no connection to the Defendants' tax liability and, as a matter of equity, should not be included in an offset against Defendants' potential additional tax liability for 1992-2004."[3] Therefore, the SEC contends that the amount of the offset should equal any amount paid to the IRS in excess of the measure of disgorgement in the December Order. The Wylys, on the other hand, contend that this violates the doctrine of election of remedies as it ...


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