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Former billionaire Samuel Wyly, who filed for bankruptcy after losing a U.S. Securities and Exchange Commission fraud lawsuit, sold more than $320,000 worth of art in a Christie’s auction without a judge’s approval and with an asset freeze looming, Bloomberg News reported yesterday. The sale of three paintings on Oct. 27 — eight days after the bankruptcy filing — is evidence that Wyly is trying to liquidate assets as he awaits a final disgorgement order of at least $123.8 million, SEC lawyers said in a letter filed yesterday in federal court in Manhattan. “This evidence further underscores the need for an immediate asset freeze and the ability to serve such a freeze on third parties such as Christie’s, who are in possession of the defendant’s property,” the agency said. Wyly’s lawyer said the sale was inadvertent. A federal jury in Manhattan in May found Wyly and his late brother, Charles Wyly, traded stocks held in offshore accounts for more than 13 years, making at least $550 million in illegal profits. The trades involved companies they controlled and weren’t declared, in violation of U.S. law, jurors found. Charles Wyly was killed in an auto accident in 2011.

While regulators and prosecutors have extracted big-dollar settlements from banks in the aftermath of the financial crisis, these enforcers have been remarkably reluctant when it comes to pursuing high-level miscreants, according to an analysis in Saturday’s New York Times. Hoping to achieve greater accountability, wronged investors have filed many cases against top corporate officials, accusing them of breaching fiduciary duties and of other misdeeds, but even this enforcement mechanism is under attack, thanks to a recent decision by the Delaware Supreme Court. The court ruled that a company can adopt, without shareholder approval, bylaws requiring investors who file lawsuits against it to pay the company’s legal fees if the suit is unsuccessful. The court further stated that a company’s “intent to deter litigation” might be a proper purpose for shifting legal fees to a plaintiff. Levying legal fees on unsuccessful plaintiffs could have one benefit: reducing the number of frivolous lawsuits filed. Since the ruling, more than two dozen companies have added fee-shifting language to their governing documents. Some have adopted new bylaws requiring that shareholders pay legal costs; others have simply disclosed the fee-shifting requirement in initial public offering statements.

Marc Dreier, the New York lawyer convicted of defrauding hedge funds of $400 million, won’t have to testify in person in a trial involving his bankrupt law firm, Bloomberg News reported yesterday. Dreier, who is serving a 20-year term at Sandstone Federal Correctional Institution in Minnesota, had been ordered to testify in a proceeding seeking to recover for creditors $137 million transferred to Westford Asset Management LLC before the fraud became public. A lawyer for Sheila Gowan, a court-appointed administrator overseeing the bankruptcy of Dreier LLP, told U.S. District Judge Alvin Hellerstein in Manhattan in a letter yesterday that the dispute has been settled and Dreier’s testimony isn’t needed. The letter didn’t provide details of the agreement, which must be approved by a bankruptcy judge before it can take effect. Dreier was to have testified about whether his fraud was a Ponzi scheme, when it began and whether the payments to Westford were made as part of the scheme, according to court papers. He had asked to testify by video or telephone rather than appear in person. Dreier pleaded guilty in May 2009 to money laundering, conspiracy, securities fraud and wire fraud after admitting to stealing $400 million by selling fake notes to hedge funds. Dreier used the money to subsidize his firm and buy luxuries for himself, including a 121-foot yacht and $39 million in contemporary art.

A bankruptcy judge has ruled that while Marc Dreier should testify at an upcoming trial, the imprisoned ex-lawyer can’t do so in his courtroom, the Wall Street Journal reported yesterday. The attorney winding down Dreier’s old law firm wants Dreier to appear in a New York courtroom to bolster her position in a $138 million lawsuit against an investment firm that allegedly profited from Dreier’s fraud. A federal judge granted the request last month, even as Dreier penned a legal plea saying he’d rather not leave the confines of the low-security federal prison in Minnesota where he’s serving out a 20-year sentence after pleading guilty to cheating investors out of hundreds of millions of dollars. In a rare showing of solidarity between prisoner and prosecutor, the U.S. attorney’s office agreed that Dreier would be better off giving video testimony. In a letter dated Sept. 26, U.S. Attorney Preet Bharara in the Southern District of New York expressed concern about the safety of the bankruptcy court at One Bowling Green in lower Manhattan. The U.S. Marshals Service was also concerned about the overall safety of Dreier’s appearance, the letter said, because of “the number of investor-victims who suffered losses as a result of Mr. Dreier’s well-publicized fraud.” Bankruptcy Judge Stuart Bernstein decided on Monday that the bankruptcy court did indeed pose too much of a threat and that the testimony should take place in nearby federal district court, Dreier LLP administrator Sheila Gowan said.

A bankruptcy trustee’s quest to recoup money for investors defrauded by a Ponzi scheme has left a major California university in an uncomfortable situation, the Wall Street Journal reported today. For five years, the scoreboard at California Polytechnic State University’s football stadium has prominently displayed the name of Moriarty Enterprisesa onetime financial services firm run by Al Moriarty, a former Cal Poly athlete and longtime supporter of the university. Now, as the San Luis Obispo Tribune reported, Moriarty is serving out a five-year prison sentence after pleading no contest to seven felony fraud charges tied to an illegal scheme that prosecutors say cost investors millions of dollars. In light of Moriarty’s fall from grace, Cal Poly would like the felon’s name removed from its football stadium. However, a bankruptcy judge in Seattle ruled last week that the sign must stay up while a trustee winding down Moriarty’s affairs negotiates with Cal Poly over the return of the $625,000 he paid the school for the naming rights, according to the Tribune.

Virginia Attorney General Mark R. Herring (D) on Monday dropped JPMorgan Chase from a mortgage securities lawsuit against the country’s biggest banks, after learning that his predecessor Ken Cuccinelli (R) had already struck a confidential settlement with the bank, the Washington Post reported yesterday. The decision comes a week after Herring announced a $1.15 billion lawsuit against 13 of the country’s biggest banks for misleading a state retirement fund about the quality of bonds made up of residential mortgages. JPMorgan and its Washington Mutual subsidiary were named in the suit, along with Citigroup and Bank of America, for packaging faulty home loans into securities sold to the Virginia Retirement System (VRS). According to Herring’s office, the pension fund failed to inform the attorney general that the previous administration had reached a $3 million settlement with JPMorgan in 2013. Kelly said the case against the remaining 11 banks will go forward.

A new lawsuit seeks to hold M&I Bank, now owned by BMO Harris Bank, responsible for allegedly enabling Minnesota businessman Tom Petters to orchestrate a Ponzi scheme that cheated investors out of several billion dollars, the Wall Street Journal reported on Saturday. Filed in a Florida bankruptcy court, the lawsuit seeks to recover nearly $24 billion from Chicago-based BMO Harris, which acquired M&I in 2011. The lawsuit says that Petters "did not act alone" in carrying out the massive fraud that was exposed in 2008 and for which he is now serving a 50-year prison sentence. "M&I was complicit in the scheme, serving as a critical lynchpin 'legitimizing' Petters' plot and facilitating it," the lawsuit claims. "M&I had actual knowledge of Petters' fraud and provided substantial assistance, helping it flourish."

Alan David Tikal of Brentwood, Calif., was convicted yesterday on 11 counts of mail fraud and one count of money laundering in a mortgage fraud scheme through which he stole $5.8 million in fees and monthly payments from struggling homeowners, HousingWire.com reported today. According to evidence presented at a one-day bench trial, Tikal operated a business known as KATN and falsely claimed to be a registered private banker between January 2010 and August 2013. Tikal and his associates targeted struggling homeowners, most of whom did not speak English, and promised to reduce their outstanding mortgage debt by 75 percent in return for various fees and payments. The homeowners were told they would then owe new loans to Tikal that would only be 25 percent of the original loan. More than 1,000 homeowners in California and other states were convinced by Tikal and his associates to participate in the program. As a result of relying on the program, many of these homeowners stopped payments on their existing mortgages and lost their homes to foreclosure. There was not a single instance in which a homeowner’s debt was paid, forgiven or otherwise extinguished as a result of the mortgage relief program, according to the office of Special Inspector General for the Troubled Asset Relief Program.

A bankruptcy judge has cleared a crucial settlement between the victims of Scott Rothstein's $1 billion-plus Ponzi scheme and creditors of his law firm, blessing a deal that will put money in both groups' pockets, Dow Jones Daily Bankruptcy Review reported today. Bankruptcy Judge Raymond B. Ray on Tuesday approved the settlement, calling it an "exceedingly fair" way to resolve the two groups' battle over the fruits of Rothstein's fraud. Since Rothstein's arrest and the bankruptcy filing of his Florida law firm in late 2009, prosecutors and bankruptcy lawyers have battled over whether Rothstein's luxury cars, watercraft, jewelry, cash, real estate and other assets were his personal property or property of the law firm.

Trustee Irving Picard, who is winding down Bernard Madoff's investment firm, wants another opportunity to sue defendants that benefited from his Ponzi scheme after two major district court rulings "substantially altered the legal landscape,” Dow Jones Daily Bankruptcy Review reported today. Picard said that two rulings handed down by the U.S. District Court in Manhattan earlier this year changed the burdens he must meet to recover money from certain institutions that profited from Madoff's fraud. "Given the intervening change in law governing his claims, the trustee respectfully submits that 'justice so requires' granting him leave to replead his complaints," Picard said in papers filed in bankruptcy court on Thursday. He also is asking the court to let him take discovery from certain defendants.
http://bankruptcynews.dowjones.com/Article?an=DJFDBR0120140829ea8tmf5uw…

Don’t miss Irving Picard’s keynote, “Tales from the Madoff Bankruptcy,” at ABI’s 34th Annual Midwestern Bankruptcy Institute on Oct. 16-17 in Kansas City, Mo. Click here to register: http://www.abiworld.org/MW14/index.htm