950 F. Supp. 2d 547
S.D.N.Y.2013Background
- SEC sues Samuel Wyly, Donald Wyly, French, and Schaufele for thirteen securities violations tied to offshore structures concealing ownership and trading in Issuer stock from 1992–2004.
- Offshore Trusts in Isle of Man and Cayman Islands were used to hold shares and avoid 13D/13G reporting; trustees acted under Wyly-appointed protectors.
- Wylys allegedly controlled offshore holdings and trading, directing filings and transactions to evade federal insider trading and disclosure laws.
- Insider trading alleged against Wylys and Schaufele based on a 1999 Sterling Software sale/merger discussions and a 1999 stock purchase.
- SEC alleges fraudulent concealment tolling arguments to extend limitations, with tolling agreements signed (Wylys 2006, French 2009, Schaufele 2009).
- Court addresses liability posture and decides summary judgment on several tolling and liability theories, reserving disgorgement for separate ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC penalty claims are time-barred | SEC argues tolling via fraudulent concealment extends accrual. | Wylys/French/Schaufele contend penalties accrued before tolling dates. | Penalties time-barred for pre-tolling conduct. |
| Whether injunctive relief claims against Schaufele are time-barred | SEC seeks equitable relief to prevent future harm. | Schaufele argues limitations apply to punitive relief. | Injunction survives; not time-barred. |
| Whether insider trading claims against Wylys and Schaufele fail as a matter of law for materiality | Insider information about a likely sale was material and probative. | Information immaterial or too speculative as of 1999 stock actions. | Insider trading claims survive summary judgment; materiality issue for trial. |
| Whether SEC can pursue aiding and abetting 13(d) filings by trustees and French | Aiding and abetting liability due to knowledge and substantial assistance. | Need for clear proof of knowledge and substantial assistance. | Aiding and abetting 13(d) claims against Wylys/French denied or remained for trial on some theories; substantial issues remain. |
| Whether fraud claims against Wylys and French and aiding abetting claims against Schaufele survive | Wylys/French knew beneficial ownership and failed to disclose; Schaufele aided fraud. | Lack of scienter; reliance on counsel; insufficient proof of aiding. | Fraud and aiding-and-abetting fraud claims denied on some theories; others survive for trial. |
Key Cases Cited
- Gabelli v. SEC, 133 S. Ct. 1216 (U.S. 2013) (discovery rule not available to SEC enforcement actions under §2462; tolling allowed only for fraud-based concealment with clear beyond-fraud acts)
- Basic, Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality and the investor's total mix of information)
- Apuzzo v. SEC, 689 F.3d 204 (2d Cir. 2012) (discusses aiding-and-abetting liability and scienter concepts in securities fraud)