US regulators on Thursday charged Samuel and Charles Wyly, two billionaire brothers whose interests range from software to restaurants, with reaping more than $550m in undisclosed gains by trading shares in companies on whose boards they sat.

The Securities and Exchange Commission alleged that the Wylys created a “elaborate sham of trusts and subsidiary companies” in off-shore jurisdictions to sell $750m in stock in Michaels Stores, Sterling Software, Sterling Commerce and Scottish Annuity & Life Holdings. The brothers held board seats on all four companies.

In one October 1999 transaction, the complaint said, the Wylys bought additional shares in Sterling Software while planning to sell the company. The trade netted gains of $31.7m when Sterling’s sale was announced to the public four months later, the SEC alleged.

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

The SEC also charged Michael French, the Wylys’ attorney, and Louis Schaufele III, their stockbroker.

The Wylys, along with Mr French, “knew or were reckless in not knowing their legal obligations” to disclose stock transactions as directors of public companies, the SEC alleged.

William Brewer III, the Wylys’ lead counsel, said the SEC claims “are without merit.” He said: “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.”

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

The Wyly brothers built their fortunes from investments in the Bonanza steakhouse chain and in a series of computer companies. They bought a controlling share of craft store chain Michaels in 1982 and sold it to Bain Capital and Blackstone for $6bn in 2006.

The brothers are reliable Republican supporters, donating more than $1.1m in “soft money” to party committees in 2000 and 2002 and contributing to individual candidates including President George W. Bush.

The Manhattan district attorney’s office referred the Wyly case to the SEC in 2005.

Get alerts on US & Canadian companies when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Comments have not been enabled for this article.

Follow the topics in this article