Wyly widow says she was insolvent after billionaire’s death

U.S. District Judge Shira Scheindlin, who oversaw the civil trial, last week expressed frustration with the bankruptcy filings, saying they won't block the SEC's case against the Wylys from going forward. Scheindlin also said she will temporarily freeze the Wylys' assets.

Such a freeze would threaten Caroline Wyly's late husband's estate in violation of U.S. bankruptcy law, which automatically puts litigation on hold, she said in her Oct. 26 court filing. Both Wylys have been negotiating with the agency on the details of such a freeze, Caroline Wyly said.

Samuel Wyly wrote to Scheindlin yesterday to say the SEC's proposed asset freeze included elements he had objected to in negotiations, including a provision allowing the agency to serve the order on his banks. Sending that to the banks would complicate Wyly's finances in bankruptcy and cause a "serious risk" to his estate, he said.

'Exercise Control'

"The SEC's refusal to include our provision again reflects an attempt to exercise control over bankruptcy estate property to aid collection of its own pecuniary claim," his lawyer, Josiah Daniel, said in the letter.

A lawyer wrote Scheindlin yesterday on behalf of several Wyly family members, arguing against the asset freeze sought by the SEC.

A freeze might harm innocent third parties, said David Kornblau, a lawyer who represents Cheryl Wyly, Samuel Wyly's wife; his son Evan; and Martha Miller, a daughter of Charles Wyly. Wyly family member might find that their assets were affected by the SEC's actions if an automated teller machine rejects their bank withdrawal request or their household utilities are cut off, he said.

"The proposed order would effectively give a government agency unfettered power to freeze all assets of its choosing held by any of over 40 innocent children, spouses of children, grandchildren and great-grandchildren of all ages," Kornblau said in the letter to Scheindlin.

Scheindlin has scheduled a Nov. 17 hearing in the case.

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