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Brothers Charles (left) and Sam Wyly

New York - Sam and Charles Wyly, Dallas billionaire investors known for their support of conservative candidates and causes, made $550 million in undisclosed profits through 13 years of insider trading, according to a Securities and Exchange Commission lawsuit filed Thursday.

In a 78-page complaint filed in a Manhattan federal court in New York, the SEC said the Wylys held and traded tens of millions of shares in companies on whose boards they served and “defrauded the investing public” by misrepresenting their ownership and trading of those stocks.

“The apparatus of the fraud was an elaborate sham system of trusts and subsidiary companies located in the Isle of Man and the Cayman Islands ... created by and at the direction of the Wylys,” the SEC complaint stated.

Using this offshore system, the Wylys were able to sell stock worth more than $750 million in four public companies where they served as corporate directors. They also committed an insider trading violation at one of the companies that resulted in an unlawful gain of over $31.7 million, according to the complaint.

The complaint lists the four companies as Michaels Stores Inc., Sterling Software Inc., Sterling Commerce Inc. and Scottish Annuity & Life Holdings Ltd., which is now known as Scottish Re Group Ltd.

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

The Wylys’ defense attorney, William A. Brewer III of Dallas, called the charges “without merit” and said the Wylys “intend to vigorously defend themselves - and expect to be fully vindicated.”

“At worst, the claims appear to represent an after-the-fact justification for a misguided six-year investigation,” Brewer said in a statement issued by his law firm.

In March, Forbes magazine estimated Sam Wyly’s net worth at $1 billion. He has given generously to Republican causes and candidates, including the Swift Boat campaign that helped re-elect President George W. Bush in 2004 by tarring his Democratic opponent, Sen. John Kerry.

The Wyly brothers, with their wives, have donated almost $2.5 million to more than 200 Republican candidates and committees at the federal level over the past two decades, according to the nonpartisan Center for Responsive Politics.

Both Presidents Bush received donations from the Wylys. Other recipients included current and former Republican senators: Kay Bailey Hutchison, John Cornyn and Phil Gramm of Texas; Sam Brownback and Bob Dole of Kansas; Elizabeth Dole of North Carolina; Mel Martinez of Florida; Judd Gregg of New Hampshire; John Thune of South Dakota; and Kit Bond of Missouri.

Also named as defendants in the lawsuit are the Wylys’ investment attorney, Michael C. French of Dallas, who was accused of covering the operation “with a false cloak of legality that was essential both to its concealment and its execution. Another defendant was the Wylys’ stockbroker, Louis J. Schaufele III of Dallas, who was accused of using his position to conceal and misrepresent the Wylys’ control over the securities and making insider trades himself.

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