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By Bob Van Voris
Oct. 8 — Samuel Wyly and the estate of his brother Charles told a judge that the “staggering” forfeiture of more than $300 million she imposed on them in a Securities and Exchange Commission lawsuit may violate the U.S. Constitution's ban on excessive fines.
A lawyer for the Wylys asked U.S. District Judge Shira Scheindlin in Manhattan to determine whether the forfeiture is consistent with the Eighth Amendment, which bars the government from requiring excessive bail, imposing excessive fines and inflicting cruel and unusual punishments.
“Defendants submit that the excessive fines clause does apply to the disgorgement to be awarded in this case,” Stephen Susman said in an Oct. 7 letter to Scheindlin. Susman asked the judge to consider whether the amount is “grossly disproportional” to the seriousness of the offense.
If Scheindlin determines the forfeiture she imposed is unconstitutionally excessive, Susman said, she must then reduce or eliminate it.
A jury found the Wylys liable in May for using offshore trusts to hide stock holdings and engage in illegal trading. Lawyers for the brothers said they don't have enough money to pay the $187.7 million plus interest that Scheindlin ordered last month. Depending on how the interest is calculated, the total will fall between $300 million and $400 million.
Jurors found in favor of the SEC on all nine of its claims against the Wylys. Scheindlin in August held a nonjury trial to determine the amount they must pay. The SEC originally sought $1.4 billion. The regulator cut its demand to $728 million after Scheindlin ruled that the SEC didn't offer evidence to show that trades by trusts controlled by the brothers and located on the Isle of Man in the Irish Sea were unlawful.
The Wylys claimed they used the offshore trusts for tax purposes, estate planning and asset protection. They said they never concealed the offshore trusts and relied on the advice of “an army of lawyers” they trusted to ensure they complied with the law.
Charles Wyly was killed in an auto accident in 2011.
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