Bankruptcy Could Mean Writer’s Block for Sam Wyly

Samuel Wyly, the 80-year-old onetime Texas billionaire who recently filed for bankruptcy, wants to continue writing books that will “leave for the future what he has learned,” his lawyer said.

But for a man hit with $198.1 million judgment for securities fraud, paying two personal writing assistants at $32,000 a month might not be in the budget, a federal bankruptcy judge said on Wednesday.

Chief Judge Barbara Houser said Wednesday that Mr. Wyly’s budget “needs to be carefully scrubbed” and she wants to know if Mr. Wyly will make any money from his endeavor.

“Unless that’s a profit center, that may not be an appropriate use of funds during a Chapter 11 case,” Judge Houser said at a hearing in the U.S. Bankruptcy Court in Dallas, Texas.

Mr. Wyly has dispensed advice before in his 2008 memoir titled “1,000 Dollars & An Idea: Entrepreneur to Billionaire” (Amazon sales ranking: 802,698) and “Texas Got It Right,” written with his son Andrew (Amazon sales ranking: 234,769).

Judge Houser’s concern echoed that of lawyers for the U.S. Securities and Exchange Commission who pointed out that Mr. Wyly had proposed a budget with a $2,000 grocery bill, $29,000 for a mortgage on his wife’s bookstore and $2,200 to maintain his pool, home and landscaping, court papers say.

“Obviously, we feel the numbers in the budget are exorbitantly inflated,” said SEC lawyer Angela Dodd said on Wednesday hearing.

Judge Houser said she’ll let Mr. Wyly make a $26,000 mortgage payment but will revisit the rest of his expenses at a Nov. 7 hearing.

“This is a Chapter 11 case where Mr. Wyly is claiming to be insolvent and unable to pay his creditors in full,” she said. “Charitable contributions [and] support of family and friends—no matter how generous or humanitarian the intent behind that—that’s difficult for creditors to appreciate when they aren’t going to be paid in full.”

Mr. Wyly’s financial rehabilitation plan doesn’t include payment in full of the damages assessed against him for civil fraud involving secret trading through offshore accounts, transactions that netted millions of dollars in profits. The 13-year scheme in May resulted in a jury verdict of guilty on nine different violations of the federal securities laws.

His deceased brother, Charles J. Wyly, Jr., who died in a car accident in 2011, was also found liable for the civil fraud. His widow, Caroline, filed for bankruptcy on Thursday.

Mr. Wyly filed for Chapter 11 protection on Sunday after SEC lawyers sought to freeze Mr. Wyly’s assets, which they worried were being transferred to family members. The SEC claimed Mr. Wyly’s assets “had decreased by approximately $450 million over the past ten years, a burn-rate of approximately $3.75 million per month.”

Evidence in the federal court “elicited testimony that the Wylys were collectively worth $556 million (including their offshore assets),” SEC lawyers told the bankruptcy judge in court papers. In Mr. Wyly’s bankruptcy petition, he said he is worth less than $500 million.

“The SEC thinks Sam can write a check for $200 million,” his lawyer, Josiah Daniel III, said during the hearing. “He cannot.”

-Peg Brickley contributed to this report.

Write to Katy Stech at [email protected]. Follow her on Twitter at @KatyStech.