wyly hall

Wyly Hall at the Ross School of Business complex on the University of Michigan campus in Ann Arbor.

(Jeremy Allen | jallen42@mlive.com)

A Dallas-based, 1957 University of Michigan alumnus has filed for bankruptcy after he was ordered by the Securities and Exchange Commission to pay anywhere from $200 million to $455 million for his involvement in a massive offshore fraud scheme that netted him and his brother more than $550 million.

U.S. District Judge Shira Scheindlin ruled in September that U-M alumnus and billionaire Sam Wyly and his late brother Charles Wyly Jr. were involved in a 13-year fraud in which the two created 17 trusts and 40 subsidiary companies before hiring a team of lawyers and an offshore accountant to hold records outside the United States.

The SEC ruled that Sam Wyly was responsible for two-thirds of the amount owed, while his brother's estate was responsible for the remainder.

This 2001 photo shows U-M alum Sam Wyly.

The SEC outlines a system of trusts in the Isle of Man that Business Insider reports have earned the brothers, the one-time owners of the arts and crafts retail chain Michael Stores Inc., $553 million in untaxed profits over a decade of hidden trades in four companies they controlled.

Scheindlin said that the judgment against Wyly and his brother's estate is among the largest ever imposed against individuals.

"By any reasonable measure, the disgorgement and prejudgment interest awarded in this proceeding will be staggering and among the largest awards ever imposed against individual defendants," Scheindlin wrote.

"Reasonable and savvy businessmen do not engage in such activity unless it is profitable. Of course it was profitable (and) the Wylys were able to accumulate tremendous tax-free wealth."

As a result of the judgment, mounting legal bills, and the $500,000 in annual support he pays to his ex-wife, Sam Wyly filed for bankruptcy in October.

The two divorced in 1991 and Wyly agreed to pay his ex-wife $4.19 million plus additional monthly payments, according to the filing.

Wyly and his wife later agreed to amend the deal, and he began to manage $5 million of her money, guaranteeing her $500,000 a year in investment income in order to avoid the "cost and risk" of a hearing over his spousal support obligations, Steele said in the filing.

In his bankruptcy filing, Wyly projected personal expenses of almost $1 million per month for November and December, although a federal judge put a freeze on his cash and proposed a $15,000 per month limit on his spending.

He listed the IRS and the SEC as his biggest creditors, saying that he didn't know the size of the IRS debt, but the SEC debt was $198.1 million.

In 1997, Wyly - who is regarded as one of America's most successful entrepreneurs by Forbes - made a $10 million gift to go toward the construction of a new building at what's now known as the Ross School of Business. The multipurpose building was named in his honor and U-M spokesperson Rick Fitzgerald said the university has no plans to remove Wyly's name from the building.

At the time of the donation, it was the largest-ever for the business school's facilities and the second-largest gift ever made to the business school.

Sam Wyly, 80, made Forbes' list of the 400-richest Americans in 2010 with a net worth of $1 billion.

The $455 million figure is the result of $195 million owed plus interest payments.