torie steele v sam wyly

8/9/2019 Torie Steele v Sam Wyly

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Ernest W. Leonard, Esq.

Texas State Bar No. 12208750

Friedman & Felger, L.L.P.

5301

Spring Valley Rd. Ste.

200

Dallas, Texas

75240

Telephone:

(972) 788-1400

Telecopier:

(972) 788-2667

ATTORNEYS FOR TORIE STEELE

UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

In Re:

SAMUEL

E.

WYL

Y

et al.

Debtors.

TORIE STEELE,

Plaintiff,

Case No. 14-35043-bjh11

Chapter

11

Jointly

Administered

v

ADVERSARY NO.

SAMUEL

E.

WYLY

Defendant.

COMPLAINT TO DETERMINE DISCHARGEABILITY

OF DEBT PURSUANT TO 11 U.S.C 523(a)(2) and (6)

COMES NOW Torie Steele, complaining of the actions of Samuel

E.

Wyly,

and

would respectfully show this Court as follows:

I.

PARTIES

1.

Plaintiff Torie Steele ( Steele )

is an

individual residing

in

Dallas County,

Texas.


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2 Defendant Samuel E Wyly ( Wyly )

is

an individual Chapter 11 debtor.

Pursuant to

FED R BANKR P

7004(b)(9), Wyly may be served with process by serving

him via first class U.S. mail at 3905 Beverly Drive, Dallas, Texas 75205, the address

listed

in

his bankruptcy petition.

II.

JURISDICTION AND VENUE

3

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C.

1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2).

4

Venue over this adversary proceeding

is

proper

in

this Court pursuant to

28 U.S.C. 1409.

Ill.

SUMM RY OF RELIEF

SOUGHT

5 Steele

is

a former spouse of Wyly. During their marriage, Wyly served as

Chairman of the Board

of

Directors of Sterling Software, Inc. ( Sterling ) and Michael's

Stores,

Inc

( Michael's ).

In

connection with his employment and during their marriage,

Wyly was granted substantial stock

1

in

these companies as compensation.

6 Wyly and Steele were divorced in 1991. The divorce judgment entered on

September, 20

1991

awarded Wyly nearly all of their community interest

in

the stock of

Sterling and Michael's. This judgment further stated that any community property not

listed in the divorce judgment is owned equally between them.

7 In

a lawsuit filed

in

2010, the Securities and Exchange Commission (the

Wyly owned stock, options and warrants in Michael's and Sterling, which are

hereinafter, collectively referred to as stock or shares.


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SEC ) accused Wyly of engaging in a fraudulent scheme to hide his ownership

interests in Sterling and Michael's. In 2014, a jury agreed with the SEC, finding that

Wyly engaged

in

stock fraud.

8

Filings in this lawsuit reveal that in 1992, Wyly transferred to offshore

trusts a substantial majority of the amount of stock

in

Sterling and Michael's that he

received in the 1991 divorce. However, subsequent filings with the SEC by Sterling and

Michael's show that within two years of transferring what should have been the majority

of his stock offshore, Wyly owned substantially more stock than was even awarded to

him

in

the divorce.

9 The numbers do not add

up

Wyly received his stock

in

Michael's and

Sterling as compensation. He was not awarded cash

in

the divorce that would have

enabled him to purchase sizable amounts of shares in these companies. Thus, Wyly

either failed to disclose all of his stock

in

Michael's and Sterling, had others hold for the

stock for him, or had the companies delay issuing stock to him until after his divorce

with Steele was finalized.

10. An August 23, 2010 article in the online newsletter, F/Nalternatives

quoted Wyly as blaming his legal difficulties with the SEC on bad advice from lawyers

and accountants, tracing it back to the end of Samuel Wyly's marriage to ex-wife Torie

Steele in 1991. As

is

now apparent, the fraudulent scheme alleged and proven by the

SEC was not just to defraud the investing public, but also to defraud Steele, his ex-wife.

11. Accordingly, Steele brings this action pursuant to

11

U.S.C

523(a)(2)

and (6) seeking a determination of the amount of indebtedness owed to her

as

the

result of Wyly's fraudulent and tortious actions,

and

a further determination that such


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indebtedness is not dischargeable in his bankruptcy.

IV.

FACTUAL BACKGROUND

A. Property Allocations Under the Divorce Judgment

12. Steele, formerly known

as

Victoria Lee Wyly, was married to Wyly from

1978 through 1991.

13. During his marriage to Steele, Wyly co-founded Sterling Software, Inc.,

and served as the Chairman of its Board of Directors. Also during their marriage, Wyly

was named to the Board of Directors of Michael's Stores, Inc. and subsequently elected

its Chairman.

14. During their marriage, Wyly obtained a significant amount of stock in

Sterling and Michaels as part of his compensation. This stock

in

Michaels and Sterling

was the community property of Wyly and Steele.

15. Steele filed for divorce against Wyly in the Superior Court of California,

County of Los Angeles, Case No. D-226386 (the Divorce Proceeding ). On September

23,

1991, the court

in

the Divorce Proceeding entered a judgment (the Divorce

Judgment ) which, among other things, made determinations as to separate property

and allocations of community property. Section

10

of the Divorce Judgment provides

that:

In

the event that any community property

in

addition to those items listed

in

this

Judgment shall be discovered hereafter, such property or any interests therein shall be

divided equally between the parties.

16. At the time

of

their divorce, the most significant assets owned by them

were the stock

in

Michael's and Sterling. Except for 3,000 shares of Sterling, Wyly


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20. Neither the Complaint nor the Stipulation reveal the source of the stock

transferred offshore. Thus, whether this stock consisted of shares awarded Wyly

as

community property

in

the Divorce Judgment or consisted of shares which Wyly

had

held but not disclosed to Steele

is

not known.

21. The SEC Action was tried to a jury from March 31, 2014 to May

7,

2014.

On May 12, 2014, the jury returned a verdict finding on all counts that Wyly engaged in

securities fraud and violations of securities law. In its September 25, 2014 Order, the

Court in the SEC action held that, as found by the jury, Wyly remained the beneficial

owner of all o f the stock he transferred offshore.

2

C. Inconsistencies in Share

Ownership

Claims

22. According to the Stipulation,

in

April of 1992 Wyly transferred offshore

54% of the amount of shares

in

Michael's which he received through the Divorce

Judgment (585,000 of 1,086,765 shares). However, the Proxy Statement filed by

Michael's with the SEC on May 1, 1992 discloses that as of April 7, 1992, Wyly owned

1,995,962 shares

in

Michaels (84% more than was awarded to him

in

the divorce seven

months earlier) and that The Wyly Group owned 4,001,063 shares. A footnote to the

Proxy Statement states: The Wyly Group consists of Sam Wyly, Charles

J.

Wyly and

certain Wyly family trusts of which they are trustee.

23. According to the Stipulation,

in

April of 1992 Wyly transferred offshore

87% of the amount of shares

in

Sterling which he received through the Divorce

Judgment

1

,311,725 of 1,506,537 shares). However, the Proxy Statement filed by

Sterling with the SEC on January 23, 1992 discloses that as of January 10, 1992, Wyly

2

See, Order dated September 23, 2015 (page 24) in the SEC Action.


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owned 1,695,822 shares

in

Sterling and that "The Wyly Group" owned 3,195,886

shares. A footnote to this Proxy Statement states: "The Wyly Group consists of

Sam

Wyly, Charles

J.

Wyly, Evan Wyly and Wyly family trusts of which they are trustee."

24.

Wyly's actual ownership

in

Michael's and Sterling

is

particularly confusing

when the SEC filings made in the years after the offshore transfers are considered.

According to the 10K filed for Sterling

in

1994, as of December 31 1993, Wyly owned

684,097 shares of stock and 2,416,172 options. According to the Proxy Statement filed

for Michaels

in

1994, as of April 6 1994 Wyly owned 1 627,628 shares of stock and

700,000 options.

No

mention

is

made of "The Wyly Group"

in

these filings.

25. The numbers do not add up. The Court in the SEC Action found that Wyly

received his stock interests

in

Sterling and Michael's as part of his compensation.

3

Wyly

was awarded a specific, defined sum of stock as a community property allocation in the

Divorce Judgment. The Stipulation states that Wyly transferred a substantial majority of

the amount of this stock

in April of 1992, seven months after the Divorce Judgment.

However, the 1994 SEC filings for Michaels and Sterling show that in 1993 and 1994

Wyly still owned stock

in

a significantly greater amount than what was awarded to him

'

the Divorce

Judgment-

notwithstanding the offshore transfers

26. Wyly was not awarded cash in the divorce that would have enabled him to

purchase sizable amounts of shares

in

these companies to account for these

differences. Upon

belief, Wyly either failed to disclose all of his stock in Michael's and

Sterling, had others hold for the stock for him, or delayed compensation that would have

been justly earned before the Divorce Judgment. Regardless of the explanation, Steele

3

See, Order dated September 23, 2015 (page 23)

in

the SEC Action.


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owned 50 of the stock that was not disclosed in the Divorce Judgment.

v

CAUSES OF ACTION

A 11 U.S.C. 523 a) 2) A)

27. Steele re-alleges the factual allegations stated above.

28.

In

connection with the Divorce Proceeding, Wyly represented that all

community property owned by he and Steele were listed

in

the Divorce Judgment. As

set forth above, Wyly did not disclose all of his ownership rights in Michael's and

Sterling. According to the Stipulation, Wyly transferred offshore 54 of the amount of

shares

in

Michael's awarded to him

in

the Divorce Judgment and 87 of the amount of

shares in Sterling awarded to him in the Divorce Judgment. However, according to

SEC filings of Sterling and Michael's within two years

of

transferring his shares offshore,

Wyly owned substantially more stock than he was awarded in the divorce -

notwithstanding the offshore transfers.

29

Steele reasonably relied upon Wyly's representations concerning the

community's interests in the shares

of

Sterling and Michael's in accepting the property

allocations in the Divorce Judgment. As a result, Steele suffered injury in the amount of

the value of 50 of the undisclosed shares.

30 By the actions described above, Wyly obtained property from Steele by

false pretenses, false representations and actual fraud. Accordingly, Steele requests

judgment against Wyly

in

the amount of all damages suffered as a result of Wyly's false

pretenses, false representations and actual fraud and further requests that, pursuant to

FED. R

BANKR

P

4007, this debt be determined nondischargeable pursuant to 11


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and 6)-

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U.S.C 523(a)(2).

B. 11 U.S.C. 523(a)(6)

31. Steele re-al leges the factual allegations stated above.

32

The actions of Wyly described above amount to a conversion of Steele's

interest

in

the undisclosed stock of Michael's and Sterling. Pursuant to the Divorce

Judgment, Steele owned 50 of any undisclosed community property. As set forth

above, Wyly did not disclose all of his ownership rights

in

Michael's and Sterling.

According to the Stipulation, Wyly transferred offshore 54 of the amount of shares in


in

the Divorce Judgment and 87 of the amount of shares

in

Sterling awarded to him

in

the Divorce Judgment. However, according to SEC filings of

Sterling and Michael's within two years

of

transferring his shares offshore, Wyly owned

substantially more stock than he was awarded

in

the divorce - notwithstanding the

offshore transfers.

33. Accordingly, Steele requests judgment against Wyly

in

the amount of all

damages suffered

as

a result of Wyly's conversion and further requests that, pursuant

to FED. R BANKR. P 4007, this debt be determined nondischargeable pursuant to 11

U.S.C 523(a)(6).

C

Request

to

Determine

Extent

of Interest in

Property

34

Steele re-alleges the factual allegations stated above.

35

Pursuant to the Divorce Judgment, Steele owned 50 of any undisclosed

community property. As set forth above, Wyly did not disclose all of his ownership

rights

in

Michael's and Sterling. According to the Stipulation, Wyly transferred offshore

54 of the amount of the shares

in


in

the Divorce Judgment


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and 87 of the amount of the shares in Sterling awarded to him in the Divorce

Judgment. However, according to SEC filings of Sterling and Michael's within two years

of transferring his shares offshore, Wyly owned substantially more stock than he was

awarded

in

the divorce notwithstanding the offshore transfers.

36. Pursuant to FED

R

BANKR P 7001 (2), Steele requests this Court

determine that she has a 50 ownership interest n all stock that

is

currently held by or

on behalf of Wyly that was not disclosed

in

the Divorce Judgment, and to proceeds

thereof to the extent traceable.

WHEREFORE, PREMISES CONSIDERED, Torie Steele respectfully requests

this

Court cite Samuel E Wyly to appear and answer herein, and upon final trial, grant

judgment

in

favor of Torie Steele, as requested herein, and for all such other relief

as

to

which she may be justly entitled.

DATED: January 26, 2015.

Respectfully submitted,

Is Ernest W Leonard

Ernest W. Leonard, Esq.

State Bar No. 12208750

FRIEDMAN

&

FElGER, L.L.P.

5301 Spring Valley Road, Suite 200

Dallas, Texas 75254

(972) 788-1400 (Telephone)

(972) 788-2667 (Telecopier)

ATTORNEYS FOR TORIE

STEELE


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CERTIFICATE

OF

SERVICE

I

hereby certify that a true and correct copy of the omplaint to Determine

Dischargeability of Debt Pursuant to 11

U.S.C 523(a)(2)(4)

and 6)

has been

electronically filed with the Clerk of the Court for the United States Bankruptcy Court,

Northern District of Texas, Dallas Division, using the electronic case filing system of the

court. The electronic case filing system sent a Notice of Electronic Filing to the

attorneys of record who have consented

in

writing to accept this Notice

as

service of

this document by electronic means.

Is Ernest

W.

Leonard

Ernest W. Leonard


OF DEBT PURSUANT TO U.S.C. 523(a)(2) and

6)-

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