The children of craft store kingpins Charles and Sam Wyly say they shouldn’t suffer for their fathers’ transgressions.

The U.S. Securities & Exchange Commission says they shouldn’t be allowed to spend the proceeds of the brothers’ fraud.

The offspring and other relatives of the Wyly brothers asked an appeals court in Manhattan last month to free their assets as the SEC tries to collect what a federal judge described as a “staggering” $300 million penalty.

A federal jury last year found that Sam and Charles Wyly, who helped build companies includingMichaels Stores Inc., perpetrated an offshore stock-trading fraud for 13 years that the SEC said yielded more than $550 million in illegal profits.

After the verdict, U.S. District Judge Shira Scheindlin ordered Sam Wyly and the estate of Charles, who was killed in a 2011 auto accident, to return $299.4 million, one of the largest such penalties against individual defendants. Sam Wyly and Caroline Wyly, Charles’s widow, filed for bankruptcy.

Seeking to preserve money, the SEC sought to freeze the assets of Wyly family members, saying they spent an illegally acquired fortune on private aircraft, clothing, cars, artwork, jewelry and a horse farm. With regulators arguing they might deplete resources needed to pay the fine, the judge extended an asset freeze in October to cover 16 people, including both men’s wives and 10 children.

Family’s Stance

The Wyly family is fighting back. The relatives contend they are innocent parties and that there’s no evidence they got proceeds of the fraud. Scheindlin’s order unfairly applies to “any asset that was acquired or commingled with funds received from the Wyly Brothers at any time during the past 10 years,” they say.

“There was no evidence at all that they received anything from the Wyly brothers’ offshore trusts,”David Kornblau, a lawyer for Wyly family members, told the appeals court. “It was a shotgun approach.”

Kornblau argued that if the Wyly brothers gave money to their children decades ago, the recipients shouldn’t have to return it now.