© 2015 The Texas Lawbook.
By Mark Curriden
(March 18) – Dallas entrepreneur and philanthropist Sam Wyly has hired former Stanford Law School Dean Kathleen Sullivan to lead his legal efforts to reverse a New York jury decision last May that he and his deceased brother, Charles, violated federal securities laws involving trusts they established in the Isle of Man more than two decades ago.
Wyly’s lawyer, Josiah Daniel, told U.S. Bankruptcy Chief Judge Barbara Houser Wednesday that his client has chosen Sullivan, now a partner at the litigation firm Quinn Emanuel, to handle the appeal to the U.S. Court of Appeals for the Second Circuit.
Daniel, a bankruptcy partner at Vinson & Elkins, said Sullivan is being paid $1,175 an hour.
The U.S. Securities and Exchange Commission charged the Wylys with securities fraud and insider trading. The jury rejected the insider trading allegations, but did find that they used the trusts to hide stock holdings. The federal judge in the case levied a judgment and penalty of $198 million against Wyly and another $101 million against the estate of Charles Wyly. The Internal Revenue Service announced that it may hit Wyly with tens of millions of dollars in additional charges and fines.
Wyly filed for bankruptcy under Chapter 11 in October, claiming that he didn’t have the resources to pay all the debts.
In court Wednesday, Wyly’s lawyers presented Judge Houser with a budget for the next three months for Wyly’s business, Highland Stargate. The budget also includes legal fees totaling nearly $2.5 million through June.
“When you look at those legal fees, they are astronomical,” Judge Houser said in court. “But that’s the way it is in these complex bankruptcies.”
Lawyers for the SEC argued that Sam Wyly should not be shouldering the lion’s share of the office expenses because his children, grandchildren, nephews and nieces are using some of the office staff for their personal matters, including setting up dental visits and airplane travel.
“These are not proper expenses,” Marsha Massey, a lawyer with the SEC, told the judge. “It is inappropriate” for Wyly to pay for “a full-time assistant and country club dues” when creditors may not get all their money back.
The SEC asked that other Wyly family members pay an increased amount for the office expenses and Sam Wyly pay less.
Jim Lee, another bankruptcy lawyer representing Wyly, said the SEC’s request would slow down the document production requested by the IRS and SEC and would have little financial impact on the bottom line.
“There’s more being spent in legal fees here today than in the haircut they seek,” Lee said.
Judge Houser approved Wyly’s budget proposal for his office and staff.
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