Opinion ID: 3163898
Heading Depth: 2
Heading Rank: 3

Heading: Receipt by Certain Relief Defendants

Text: Finally, we address the Relief Defendants’ second challenge to the scope of the asset freeze order, in which they argue that there is insufficient evidence to show that seven of the Relief Defendants— Andrew Wyly, Christiana Wyly, Charles J. Wyly, III, John Graham, David Matthews, Donnie Miller, and Evan Wyly—received funds from the IOM trusts or the Wyly Brothers directly. These seven defendants request vacatur of the asset freeze order as to them.75 Though we need not reach the issue, we note that the SEC presents 73 countervailing arguments and precedent indicating that unlawful tax savings are transferable. See Pl. Br. at 43‐45. As previously noted, the alternative calculation set forth in the 74 December disgorgement opinion was only to be used if the September disgorgement method failed on appeal. 75 Defs.’ Br. at 21‐22; Defs.’ Reply Br. at 11‐15. 29 Treating the Relief Defendants as being all similarly situated, the District Court stated, without further elaboration or individuation, that the IOM trusts “have made distributions to the Family Members[;] [t]hus, the Family Members are likely in possession of ill‐gotten funds.”76 Seven Relief Defendants challenge this finding as baseless, and the SEC has presented no evidence of the alleged distributions cited by the District Court as to these defendants. Three Relief Defendants—Andrew Wyly, Christiana Wyly, and Evan Wyly—are named beneficiaries of the IOM trusts, but the record on appeal does not reflect distributions to them from these trusts. Four other Relief Defendants—Charles J. Wyly, III, Donald Miller, John Graham, and David Matthews—appear to have possessed trust property, including jewelry, artwork, furnishings and residences, but the District Court did not rely on this evidence in fashioning its asset freeze order. Unable to offer concrete evidence of these alleged distributions, the SEC instead argues that these seven defendants have nothing to complain of if they do not possess assets frozen by the order. This argument must be rejected. We require a showing of receipt of ill‐gotten gains consistent with Cavanagh before an individual can be subject to an asset freeze order. The SEC’s position would render the Cavanagh requirement meaningless and would sever the very connection permitting relief defendants to be 76 Wyly, 73 F. Supp. 3d at 322. 30 joined to an action without an assertion of wrongdoing or other grounds for subject matter jurisdiction over them.77 On this record, we cannot know, much less decide, whether the District Court clearly erred in determining that the IOM trusts “made distributions” to each of the Relief Defendants. We thus think it prudent to remand the cause to the District Court for further individualized findings regarding trust distributions to these seven Relief Defendants. Given its greater familiarity with the record evidence and the evidence adduced at trial, the District Court should rely on specific facts from the record showing receipt of ill‐ gotten gains by these individual defendants or, to the extent it deems necessary, undertake further fact‐finding. If the requisite evidence does not exist with respect to any or all of the seven Relief Defendants, the asset freeze order should be vacated as to those individuals.