American Samuel Wyly and his late brother Charles made their fortune as savvy entrepreneurs. They founded or grew a variety of successful businesses including arts and crafts stores Michael’s, University Computing Company, restaurant chain Bonanza Steakhouse, and Sterling Software. They also reputedly donated over $90 million dollars to charitable causes, including large donations to the Republican party.
Along the way some of their business activities attracted the attention of the U.S. Securities and Exchange Commission. In 2006 they were under investigation for their alleged use of potentially illegal offshore tax shelters. Grand juries in New York and Texas were tasked with investigating whether the brothers had used funds in offshore trusts to purchase $30 million dollars of art, jewellery, furniture, and other personal items for themselves.
They denied any wrongdoing and advised investigators they would invoke the fifth amendment if they were subpoenaed to testify. They were never called, a bullet dodged.
However, an insider trading investigation in 2010 did not end as well. The allegations, later proved in court, were that Samuel Wyly used insider information to buy and sell securities for an undisclosed profit of $550 million. He apparently traded public stock in companies where he and his brother served as board members, through hidden entities in other jurisdictions.
A Manhattan federal jury in May 2014 found Mr. Wyly guilty and it is expected that Mr. Wyly will have to “disgorge” or pay back $300 million dollars. His assets were also frozen.
Last month Mr. Wyly filed for Chapter 11 bankruptcy in Texas, an event that caused consternation for his ex-wife Victoria Lee Wyly, now Torie Steele, who after their 1991 divorce negotiated support payments of $500,000 per year. In his bankruptcy filings Mr. Wyly recorded monthly spending of $1 million. That has also been curtailed by bankruptcy officers.
Spousal and child support payments are not cancelled by a bankruptcy, however, a paying party’s change in income will be grounds for a variation of support. According to Ms. Steele’s lawyer, Samuel Wyly has already missed a monthly payment of just over $40,000.
There is, however, a complicating factor in respect of Ms. Steele’s support payments. To avoid the “risk and cost” of a contested spousal support hearing the parties agreed in 1993 that Mr. Wyly would act as an investment advisor for Ms. Steele, manage $5 million dollars of her funds, and guarantee her returns of $500,000 per year for her lifetime.
In 2007 Mr. Wyly went to court seeking to be released from this obligation. A judge upheld the arrangement saying Wyly “was agreeable to taking his chance with his acumen as an investor as opposed to
risk incurring any further spousal support obligations.”
The question for the bankruptcy court is whether Ms. Steele’s investment income arrangement constitutes spousal support and if it does not, where does that leave her?
I’ll be watching this case closely and report the outcome in due course.
Lawdiva aka Georgialee Lang