US regulators have charged Texas billionaire investors and brothers Samuel and Charles Wyly with violating federal insider dealing rules, accusing them of amassing more than $500 million in undisclosed gains over 13 years by trading in public companies via offshore entities.

The charges have been brought against the men, of Dallas, by the Securities and Exchange Commission, the SEC said in a statement yesterday.

The Wylys' defense attorney, William Brewer, called the charges "without merit", according to media reports. He said the brothers will vigorously contest the charges.

The regulator alleges that the Wylys created an elaborate sham system of trusts and subsidiary companies in the Isle of Man and the Cayman Islands to sell more than $750 million worth of stock in four public companies for which they were corporate directors. They also committed an insider trading violation in one of the companies for an unlawful gain of more than $31.7 million, the SEC said on its website.

Along with the Wylys, the SEC charged their attorney Michael French of Dallas and their stockbroker Louis Schaufele of Dallas for their roles in the scheme. 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 Reisner, deputy director of the SEC's Division of Enforcement. "They used these structures to conceal hundreds of millions of dollars of gains in violation of the disclosure requirements for corporate insiders."

According to the SEC's complaint, filed in US District Court for the Southern District of New York, the public companies the Wylys used in the scheme were Michaels Stores, Sterling Software, Sterling Commerce and Scottish Annuity & Life Holdings (now known as Scottish Re Group).

The SEC's complaint alleges that the Wylys and French knew or were reckless in not knowing their legal obligations as public company directors and greater-than-five-per cent beneficial owners.

Laws require such persons to report holdings and trading in their companies' securities to the SEC.

“The SEC alleges that the Wylys and French systematically and falsely created the impression that the Wylys' entire holdings and trading were limited to the fraction that they held and traded domestically,” the SEC said.

“By depriving existing shareholders and potential investors of information deemed material by the federal securities laws, the Wylys were able to sell - in large-block trades alone - more than 14 million shares of issuer securities over a period of 13 years for undisclosed gains in excess of $550 million,” the regulator said.