The Securities and Exchange Commission charged the billionaire Samuel Wyly and his brother Charles with fraud for reaping more than $550 million of illicit gains by trading stock in four companies while they were serving as directors.

The SEC alleged that Samuel Wyly, 75, and Charles Wyly, 76, created a sham web of trusts and subsidiaries in the Isle of Man and the Cayman Islands to conceal sales of more than $750 million of stock.

According to the SEC, the companies were Michaels Stores Inc, now owned by Blackstone Group LP and Bain Capital Partners LLC; Sterling Commerce Inc; Sterling Software Inc, and Scottish Annuity & Life Holdings Ltd, a reinsurer now known as Scottish Re Group Ltd .

The SEC said the Wylys also reaped an illicit $31.7 million insider trading gain by making a massive and bullish bet in Sterling Software in October 1999, which they agreed to sell to Computer Associates International Inc in early 2000.

The cloak of secrecy has been lifted from the complex web of foreign structures used by the Wylys to evade the securities laws, SEC deputy enforcement chief Lorin Reisner said in a statement. They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders.

Also charged in the scheme were the Wylys' lawyer Michael French, 67, and a stockbroker, Louis Schaufele, 55, the SEC said. All the defendants live in Dallas, the agency added.

A lawyer for the Wylys said the charges lack merit.

It will come as little surprise to those who know them that the Wylys intend to vigorously defend themselves, and expect to be fully vindicated, said the lawyer William Brewer, a partner at Bickel & Brewer in Dallas, in a statement.

At best, we believe the claims filed today are a misapplication of the law, he went on. At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation.

Lawyers for French and Schaufele did not immediately return calls seeking comment.

Forbes magazine in March estimated Samuel Wyly's net worth at $1 billion.

The case is SEC v. Wyly et al, U.S. District Court, Southern District of New York, No. 10-05760.

(Reporting by Jonathan Stempel in New York; Additional reporting by Karey Wutkowski in Washington, D.C.; Editing by Tim Dobbyn and Steve Orlofsky)

Insider trading