Billionaire Brothers Samuel and Charles Wyly Charged With $550 Million Fraud

Billionaire brothers Samuel Wyly (pictured) and Charles Wyly were charged Thursday by the Securities & Exchange Commission with orchestrating a 13-year-long securities fraud that reaped them $550 million in undisclosed gains that were hidden in a series of transactions in the Isle of Man and the Cayman Islands tax havens.

The SEC alleges that the brothers created an "elaborate sham system of trusts and subsidiary companies" to sell more than $750 million worth of stock in four public companies for which they were corporate directors. The brothers also allegedly committed an insider-trading violation connected to one of the companies for an unlawful gain of more than $31.7 million.

According to the SEC, the shares that the Wylys sold in the alleged scheme were of Michaels Stores, Sterling Software, Sterling Commerce, and Scottish Annuity & Life Holdings. The SEC also charged the Wyly's attorney, Michael C. French, and their stockbroker, Louis J. Schaufele III. French was on the board of directors at three of the companies.

"The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws," said Lorin L. Reisner, deputy director of the SEC's Division of Enforcement, in a press release. "They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders."

The Wylys have denied the charges and vowed to vigorously defend themselves, according to a statement obtained by Reuters.

The Texas businessmen are hardly the only billionaires caught in the regulatory cross hairs at the moment. As Forbes notes, R. Allen Stanford, a fellow Texan, faces charges that he defrauded investors. Insider-trading charges against another Lone Star state resident, Dallas Mavericks owner and HDNet Chairman Mark Cuban, were dismissed last year.

The conservative Wylys are also active politically. In 2000, a Samuel Wyly-backed group paid for ads praising the environmental record of George W. Bush during his campaign for the Republican presidential nomination. His memoir, 1,000 Dollars and an Idea: Entrepreneur to Billionaire, was praised for offering a candid look at his rise from from the Texas cotton fields during the Depression to becoming a entrepreneur and environmentalist.

The book's website says it "describes how his character was shaped, making him the spiritual, optimistic and determined man and entrepreneur he is today."

Those traits may come in handy as he battles the government.